Are You Ready to Start a Small Business?

Building a successful business takes more than just a great idea or business plan. Making informed decisions during the startup process can put your business on the right track for success. The following information will help you recognize some of the important legal issues you will need to consider before starting your business.

LegalShield small business members have access to experienced lawyers who can help them make informed decisions when building their new business. Learn more about LegalShield small business protection.

What type of business entity should you form?

There are a lot of options, including sole proprietorships, general partnerships, limited liability companies (known as Limited Partnerships in Canada) and corporations. Important factors to consider when selecting an entity include tax treatment and benefits, sale of interests in the business and limiting your personal liability. Consider that:

• Sole proprietorships put your personal assets at risk in the event of a lawsuit against your business. This means you could potentially lose your home, your personal savings and other assets.
• General partnerships expose you to even greater risks than sole proprietorships. In a general partnership you are also responsible and liable for certain actions of your partner(s).
• LLCs and corporations may protect personal assets and limit personal liability.

Should you form an LLC or a corporation?

Taxation, record-keeping, sources of funding, ownership and the physical location of your business are all important factors to consider when selecting between an LLC and a corporation. The best way to determine which type of entity best suits your needs is to consult an experienced business lawyer.

In what state or province should you register your business?

Some businesses choose to register outside of the state or province where they are physically located for tax or regulatory reasons. Before you decide to register your business in another state, consult with an attorney. Registering out of state could end up costing you more in the long run. You are still required to register your business in the state or province where it is headquartered and you may be subject to additional taxes, fees and administrative costs.

Do you need a business permit or license?

Registering your LLC or corporation with the state or provincial authorities is not the same as obtaining a business permit or license. The city or county where your business is located generally issues business permits. Certain types of professional businesses also require a license to operate. Talk to a lawyer to make sure you have all of the appropriate permits and licenses before you start doing business.

Should you hire employees or utilize independent contractors?

Whether your labor pool counts as independent contractors or employees depends on your level of control over them. If you control where, how and when they work, the IRS (CRA in Canada) will consider them employees. Your number of employees will be a factor in determining your company’s taxes, as well as how healthcare laws and human resource regulations affect your business. Talk to a lawyer to ensure you understand the regulations that affect you and your business.