It’s important that your business be on the “up-and-up” right from the start. Taking care of the legal issues associated with starting a new business will keep you out of hot water in the future. Here are the first steps you need to take:

1. Decide on a Form of Business

The easiest business entity to set up is a sole proprietorship. The Federal government recognizes you as a sole proprietorship when you file your individual income taxes in April.

As a sole proprietor you control the business entirely. You are, in effect, lawfully viewed as one and the same with your business. All assets and profits belong solely to you. You are also personally liable for all debts and legal actions brought against your company.

If you’re concerned about potential liability from legal actions against your company, you have the option of forming a corporation or a limited liability company. There are certain requirements, which you can learn more about at,, and

You can find out more about other ownership structures, such as partnerships, at or the Small Business Administration.

2. Register Your Business Name

Your business name must be registered if it is something other than your full legal name. This is a way of informing the public that you will be doing business as (DBA) an assumed, or “fictitious” name.

Generally, a search is done to ensure your name is not already in use, and an application is submitted to make it official. You can investigate current use of your chosen business name by looking in your local phone book and browsing listings at

Some states require a notice be published in the local newspaper. The details of registering varies from state to state, so check with your state office or county clerk for specifics. Either give them a call or check for online information from your state using the governmental directory at

It’s also a good idea to find out if your chosen name is taken in the form of a state or federal trademark. You can utilize the services of, or The U.S. Patent and Trademark Office provides an online trademark search service, and, if desired, allows you to also apply for a trademark or patent online.

For complete assurance that your business name is not already taken, you may want to consider employing a competent lawyer specializing in trademark and patent law.

3. License Your Business

Licensing of your business depends on the type of business you plan to start. Licensing occurs on the state and/or local level. Federal licensing is only necessary for businesses who engage in specific, controlled activities (things such as making firearms, alcohol, tobacco, etc.).

Many cities, but not all, require a general business license, plus there may be a license required for your particular business type. You should contact your city clerk office to find out what licenses you need.

Some types of businesses are required by states to obtain an occupational license. These two sites, and, let you search occupational licensing requirements in your state.

4. Report Income Tax

You are responsible for filing and paying income taxes on your business. Assuming your business is a sole proprietorship, you will pay income tax on your net profits. You report your income tax using Form 1040 at tax time, with the additional requirement of filing Schedule C or C-EZ: Profit or Loss From Business. You can get IRS Publication 334 (Tax Guide for Small Business) for more information. Visit the IRS online for publications and detailed filing requirements.

5. Pay Estimated Taxes

If you expect to owe more than $1,000 in federal taxes, you need to make estimated payments quarterly. This may seem like a burden at first, but ignoring this requirement will result in IRS underpayment penalties. On the plus side, it does protect you from having a big payment due at tax time. You can learn more about this from IRS Publication 505: Estimated Tax Payments.

6. Pay Self-Employment Tax

You must pay self-employment tax on income over $400 using Schedule SE. You file this form along with Form 1040. Why must you pay self-employment taxes? Because you are required to pay your fair share into Social Security and Medicare.

7. Get a State Sales Certificate

Contact your state treasury office for information on obtaining a sales tax certificate. Quickly locate your state agency using the directory at A sales tax certificate obligates you to pay applicable sales tax on goods you sell. If your product is to be sold wholesale, or if you are buying materials wholesale, inquire about a resale certificate to avoid paying taxes twice.

8. Obey Zoning Regulations

Be sure to check with your city and county offices about zoning regulations for your business location. Local governments have laws that enforce the appropriate use of property used to produce income. You don’t want to be in the position of having to shut down later because of zoning violations.

9. Get Free Advice

The SBA (Small Business Administration) is a good place to learn more about the nuts and bolts of legally operating a small business in your area. This office can answer many, if not all of your questions about doing business locally. Use their online locator to find your regional office. Another important resource is the Service Corps of Retired Executives (SCORE). This organization provides personalized and free counseling to assist you in making the right decisions for your business.

Attending to the above steps will put your business on a firm footing. For the average home business, doing these things is enough to let you charge full speed ahead. However, no two businesses are alike, and it’s not a bad idea to consult with a lawyer and accountant for additional information pertaining to your type of business. Doing so may prove valuable for you, both before startup and later on as your business becomes more complex.