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How to Start a Business Legally in 14 Steps

By Alison K Plaut

Published on 25 Aug 2023 7 min read

Starting a business can be an exciting opportunity to build an additional income stream or turn your passion into a profitable company. Creating a legal business structure involves setting up a business entity such as an LLC, partnership, or corporation and filing it with the Secretary of State. Read on to understand how to start a business legally in 14 steps!

14 Steps for Starting a Business Legally

How to start a business legally involves choosing a legal structure, registration, and obtaining necessary permits or business licenses. However, before that, you’ll want to hone in on market opportunities and build a business plan. Here’s a comprehensive checklist to start a new business this year. 

1. Conduct Market Research

Market research includes an understanding of consumer interest and current opportunities. For this, you can look to other businesses within your sector. You can also create surveys, interviews, and focus groups or engage potential customers on social media to locate market opportunities.

Additionally, you may consider your interests, skills, resources, availability, and the reasons to form a business, along with the likelihood of success based on the interests and whether your business idea will meet an unmet need. Learn more about identifying opportunities, market research, and selecting a niche here. 

2. Identify Target Audience and Competition

Identifying your target audience and competition is essential to create a solid business plan and assess your potential business’s profitability. For example, if you want to start a food business, you might research the market to identify competitors, market opportunities, untapped consumer demand, and potential risks to your business idea. 

This market research and competitor analysis can help you prepare for unexpected setbacks and build a solid foundation for your business plan.  

You can see examples of how to start a hotshot business or how to start a food business for more details on market research and target audience analysis.  

3. Create a Comprehensive Business Plan

A comprehensive business plan includes an overview of the business and its goals, including a vision and mission statement. The plan should also cover a detailed financial analysis, cost projections, and income expectations. 

A solid business plan can help companies secure funding and provides a road map for the company’s success. See more on creating a comprehensive business plan for a transportation company here. 

4. Look for Funding

Most companies rely on seed funding to get off the ground. Whether it is business loans to purchase trucks or a small business loan to purchase inventory, securing sufficient funding can be essential to your company’s sustainable growth. 

For example, if you’re starting a t-shirt business from home, you’ll need initial capital to purchase t-shirts and any printing materials. Funding options include personal loans, small business loans, private loans, crowdfunding, grants, subsidies, business incubators, angel investors, and venture capital.

5. Choose the Perfect Location

In all aspects of business, location is key. This is especially true for retail businesses, restaurants, or other businesses that rely on a steady flow of clients through the doors. For online businesses, the perfect location may be an easy-to-remember web domain. 

Even a teenager starting a business will want to think about location for services, advertising, and product placement. If you cannot afford a high-traffic area for your business, consider advertising, booths at local markets, or other opportunities to reach a larger market. 

6. Name Your Business

Naming your business with a unique name is essential to set you apart from competitors and shape the brand image. When naming your business, consider essential factors such as length, ease of remembering, and simple spelling. Ideally, the name should reflect your services and personality to stand out from competitors. 

For example, a car detailing business owned by Bob might choose the name Bob’s Custom Detailing. It’s short, easy to remember, and unique to the business. See more on starting a car detailing business. 

7. Decide on Your Business Entity

Deciding on a business entity can have rippling effects on your business in terms of legal liability, compliance, tax filings, and paperwork. When you file the business with the Secretary of State, you must appoint a registered agent. Here are the main structures to consider:

Sole Proprietorship

A sole proprietorship is the simplest business structure. You don’t need to file any paperwork, although you may still need to register your business locally. With a sole proprietorship, you’ll file all income on your individual income tax return. However, you’re also open to legal liability. 

General Partnership

A general partnership is a business formed between two partners. You also don’t need to file any specific formation paperwork, although you may still need to register your business locally. Each partner will file all income on their individual income tax return as a general partner. The partners in a general partnership are open to legal liability. 

Limited Partnership

A limited partnership (LP) offers some legal protection to the limited partner. With an LP, two or more partners go into business together, but the limited partners are only liable up to the amount of their investment. The general partner has unlimited liability.  

Limited Liability Company

A limited liability company (LLC) offers legal liability protection for all LLC members. That means members’ personal assets are protected. The LLC is a separate legal business entity maintained with the Secretary of State. 

With an LLC, you have the option of pass-through taxation to simplify paperwork and tax filing. An LLC is the best structure for most small businesses to balance liability protection with simplified administration.

Corporation

A corporation is another legal business entity that offers liability protection. To form a corporation, you must meet additional state filing requirements regarding board members, meetings, and tax filings. Corporations are the best legal structure if you want to take the business public in the future. 

8. Register Your Business

Registering your business involves first legally forming the business entity with the Secretary of State. You must register the business with the Secretary of State in any location you plan to operate. You may also need to register the business with the local Chamber of Commerce. 

9. Get Federal and State Tax IDs

You’ll need to get an Employer Identification Number (EIN) to hire employees, open a business bank account, and file business taxes. You will also need to file for relevant state tax IDs.

10. Obtain Necessary Licenses, Permits, and Qualifications

Depending on the business offerings and state of operations, you might need to obtain licenses and permits, or demonstrate relevant qualifications. For example, to open a law office in any state, you must demonstrate that you are licensed to practice law in the state. 

11. Open a Business Bank Account

Once you have an EIN, you can usually open a business bank account on the same day. Some business formation services can also open an online business bank account on behalf of the company. You can choose to open a business bank account with a local bank or credit union or with an online bank. 

12. Get Business Insurance

Business insurance will protect your company in case of liability. There are a number of types of business liability insurance to consider, in addition to specialized insurance for high-risk businesses. 

The most common types of business insurance to consider are:

• General liability insurance.
• Workers’ compensation insurance
• Commercial property insurance
• Professional liability insurance
• Commercial auto insurance
• Product liability insurance
• Business owner’s policy (BOP)
• Cyber liability insurance

13. Hire Employees

Once you have the business entity, an EIN, insurance, and a business bank account, it’s time to hire employees. You can find qualified professionals through online listings or postings on local job boards, as well as by asking for referrals from friends and colleagues. You can also consider hiring international employees or inviting an international partner with the correct visa to start a business in the USA. 

14. Market Your Business

Marketing your business is an ongoing process. Consider hosting a local grand opening event, promoting the business on social media, and through a website with sales funnels to connect potential clients’ email addresses and build your mailing list. You can advertise your business online, in local newspapers, and through professional networking events. 

Building Your Legal Business

As a new business owner, you have many steps to manage and areas calling your attention. From market research to target audience analysis, your time is valuable. That’s why you need the best help available for business formation and compliance. 

Doola business formation and compliance services can help with US business formation in all 50 states. Doola will form your company, get your EIN, and help you open a business bank account, checking several steps off your list so you have more time to focus on building your business. Get doola formation services now!

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