Starting a business involves more than just creating a product or service—it requires setting up proper legal protections to avoid costly mistakes. Many entrepreneurs skip critical legal steps early on, only to face lawsuits, fines, or even business failure down the road.
This guide covers the 10 most important legal actions every new business owner should take, from formation to intellectual property protection. Whether you’re a freelancer, e-commerce store, or tech startup, these steps will help you:
✔ Protect personal assets
✔ Avoid government penalties
✔ Secure your brand and ideas
✔ Ensure smooth operations
By the end, you’ll have a clear legal checklist to launch your business with confidence.
1. Choose the Right Business Structure
Your legal structure impacts taxes, liability, and growth potential.
Options to Consider:
- Sole Proprietorship (Simplest, no liability protection)
- LLC (Best for most small businesses—limits personal risk)
- S-Corp (Saves self-employment taxes for profitable businesses)
- C-Corp (Needed for venture capital or going public)
Action Step:
- Research state filing fees (LLCs cost 50−50−500 to form)
- Use LegalZoom or Incfile for DIY setup, or hire a business attorney
2. Register Your Business Name
A. Legal Name vs. DBA (“Doing Business As”)
- Your legal name is what’s on formation documents (e.g., “Smith Enterprises LLC”).
- A DBA lets you operate under a different name (e.g., “Sunny Bakery” instead of “Smith Enterprises LLC”).
B. Check Name Availability
- Search your state’s business name database
- Check USPTO.gov for trademarks
Action Step:
- File a DBA with your county if needed (~$50)
3. Get an EIN (Employer Identification Number)
An EIN is like a Social Security Number for your business. You’ll need it to:
- Open a business bank account
- Hire employees
- File taxes
How to Get One:
- Free via the IRS website (takes 5 minutes)
4. Set Up Proper Business Banking
Never mix personal and business finances!
What You Need:
✅ Business checking account
✅ Business credit card (builds credit history)
✅ Accounting software (QuickBooks, FreshBooks)
Action Step:
- Bring your EIN and formation documents to a bank
5. Obtain Necessary Licenses & Permits
Operating without proper licenses can lead to shutdowns or fines.
Common Requirements:
- Local business license (city/county)
- Sales tax permit (if selling products)
- Professional licenses (e.g., contractors, therapists)
- Home occupation permit (if working from home)
Action Step:
- Check SBA.gov’s license tool for your industry
6. Protect Your Intellectual Property
A. Trademarks (Brand Protection)
- Covers business names, logos, slogans
- File with USPTO.gov (~250−250−350 per class)
B. Copyrights (Creative Works)
- Automatic for original content (blogs, photos, software code)
- Register at Copyright.gov for stronger legal protection ($45)
C. Patents (Inventions)
- Utility patents (new processes/machines)
- Design patents (unique product designs)
Action Step:
- Conduct a trademark search before investing in branding
7. Draft Key Contracts
Verbal agreements won’t hold up in court. Essential contracts include:
A. Client/Service Agreements
- Scope of work, payment terms, deadlines
B. Independent Contractor Agreements
- Clarifies worker status (avoid IRS misclassification fines)
C. Operating Agreement (LLCs)
- Outlines ownership % and profit distribution
Action Step:
- Use LawDepot for templates or hire a lawyer
8. Comply with Employment Laws
Even hiring one employee triggers legal requirements:
Must-Do’s:
✔ Verify work eligibility (Form I-9)
✔ Withhold payroll taxes
✔ Get workers’ comp insurance (required in most states)
✔ Post labor law notices (federal/state posters)
Action Step:
- Use Gusto or ADP for automated payroll compliance
9. Understand Tax Obligations
A. Federal Taxes
- Income tax (sole props file Schedule C; corps file Form 1120)
- Self-employment tax (15.3% for sole props/LLCs)
B. State Taxes
- Sales tax (if selling products)
- Franchise tax (some states charge annual fees)
C. Quarterly Estimated Taxes
- Due April, June, September, January
Action Step:
- Hire a CPA if revenue exceeds $100K/year
10. Get Business Insurance
Essential Policies:
- General Liability Insurance (slip-and-fall lawsuits)
- Professional Liability (for service-based businesses)
- Commercial Auto (if using vehicles for work)
Action Step:
- Compare quotes at CoverWallet or Hiscox
Bonus: Ongoing Legal Maintenance
Once launched, stay compliant by:
✅ Filing annual reports (most states require them)
✅ Renewing licenses/permits
✅ Updating contracts as you scale
Key Takeaways
✔ Form an LLC or corporation to protect personal assets
✔ Register your business name and check for trademarks
✔ Get an EIN and separate business finances
✔ Secure licenses, contracts, and insurance
✔ Stay on top of taxes and employment laws
Next Steps:
- Pick 3 actions from this list to complete this week
- Bookmark IRS.gov/SBA.gov for reference
- Consult a business attorney for complex needs
Taking these steps early prevents expensive legal disasters later. Your future self will thank you!
