How to Start a Business from Scratch: Your First 7 Legal Steps

  •    Law graduate and journalist who specializes in helping entrepreneurs market and grow their businesses.

Have you ever thought about starting a business? It might appear easy — just find a customer and sell your product. But as new business owners quickly find out, it's not that simple. There's paperwork to file and “legalese" to read. The government doesn't just let you start a business. You've got to do it the right way or you can be shut down, face fines or worse.

On the other hand, starting a business shouldn't be a daunting task either. This guide will help you quickly get past the legal steps and on to building your business empire.

Step 1: Pick a name for your business

Your branding is important, so don't rush this step. Start with a domain search tool to look up name ideas and see which ones have a domain available. If there's nobody at that .com, then odds are good that the company name is available. Once you've found a name, you'll want to check with your state's Secretary of State to make sure it's available. Many states have an online service that makes this quick and easy (this is California's business search).

Remember, choosing a name is by no means permanent. States let you reserve several names for a small fee. If you can't decide between options, sometimes the best course of action is to register one as your business name and the others as DBAs (“Doing Business As.")

Step 2: Decide on your business structure

There are many types of business structures. While some people will opt for the default Sole Proprietorship, this is often a mistake. Newer structures like the LLC and LLP require relatively little effort to set up, but provide a whole host of benefits to the budding entrepreneur, including liability protection if you ever get sued.

Another option is the Corporation structure, but this can be a lot more complicated. The structure you choose will have massive implications, including taxes and liability. It's important to put some thought and research into this step and only move forward once you have a clear grasp of your options and how they differ.

If you have partners, this is the time to hash out the details on how your partnership will work — how decisions will be made, profits split, etc.

Step 3: Decide on your business address

Even if you're running your business from home, there may be times you don't want your home address public. For those times, it might be best to secure a PO Box. But note: when you're filling out paperwork, some government forms don't allow PO Boxes.

Step 4: Get your business structure paperwork ready

While it might be best for some people to lawyer up before making this decision, it is by no means necessary. Many entrepreneurs have been able to self-teach at this step. You can also use do-it-yourself services that walk you through step-by-step, like LegalZoom, Rocket Lawyer, BizFilings and IncFile.

Step 5: File your business paperwork with the state

Your state's Secretary of State will have a process for reserving your business name and filing your paperwork. This often involves fees, copies and notaries. Sometimes you can do this process online. Be careful and make sure you do this step right. Check your Secretary of State's website for detailed instructions and check to see if your state requires filing paperwork with your local county government as well. You may also need additional certificates or insurance depending on the type of business you have.

Step 6: Get your EIN from the IRS

Getting your Employer Identification Number (EIN) is easy. Just use the IRS's online tool and you'll be done before you know it.

Step 7: Get right with your state's comptroller

You're not done with taxes yet! Not only is there a federal income tax, but states want their slice of the pie too. Make sure you get with your state's comptroller to see what kind of taxes you might need to file. These generally involve a small, yearly “Franchise Tax" and a sales tax on goods and services sold.

With these seven steps out of the way, your business is now ready for a grand opening. Good luck!

The steps in this article should not be construed as legal advice. The laws change frequently, and it's important to get input on big decisions from a licensed attorney.

Author Bio: Stephanie Dwilson is a law graduate and journalist who specializes in helping entrepreneurs market and grow their businesses.

You'll often find her writing about TV shows and dreaming up fiction stories in her spare time.