Starting a small business involves more than just a solid business plan, strong market demand, and financial readiness. It also requires a full understanding of the complex legal requirements that come with business ownership. Each form you fill out, registration you complete, and contract you prepare shields your organisation from potential legal liabilities and missteps. Ignoring these obligations, tedious as they might be, isn't an option.

But legal compliance isn't an insurmountable challenge. With a thorough grasp of the relevant regulations and procedures, you can establish your business on solid legal footing.

Below, we'll outline the key legal requirements for starting a small business to help you build a strong foundation for your venture.

What's in this article?

• Identify your business structure
  
• Register your business name
  
• Apply for a federal tax ID number or EIN
  
• Register with the state revenue office
  
• Obtain business licences and permits
  
• Register for state employer taxes
  
• Obtain insurance
  
• File organisational documents with the state
  
• Create an operating agreement
  
• Register any applicable trademarks or patents
  
• Beyond the basics: Why your requirements might vary
  
• How Stripe Atlas can help
  

Identify your business structure

When you're establishing your startup, one of the important early decisions is determining the legal structure of your business. This isn't merely a bureaucratic step; it has profound implications for your startup's future growth, scalability, potential for attracting investment, liability, and tax implications.

Here are some of the common entity structures you can choose from:

• Sole proprietorship: If you're a solopreneur who's launching a low-risk business, a sole proprietorship can be a cost-effective, straightforward option. However, you'll be personally liable for business debts and legal issues. This could be risky if your startup operates in a litigious industry or one where debt is common.

• Partnership: If you're cofounding the startup, a partnership might seem like a natural choice. It allows shared responsibility, profit, and loss. However, conflicts can arise in partnerships so it's important to draft a partnership agreement that outlines roles, responsibilities, and processes for dispute resolution. An often overlooked drawback is that you might be personally liable for your partner's actions.

• Corporation: Corporations – most commonly S corporations (S corps) and C corporations (C corps) – are more difficult to set up and manage due to regulatory requirements. However, they offer a major advantage for startups that seek venture capital as they make it easier to divide ownership through the issuance of shares. This makes it much more straightforward to bring in investors. But they can be more expensive to establish and maintain, and they lead to double taxation – first on corporate income, then on dividends to shareholders.

• Limited liability company (LLC): LLCs are often a good choice for startups. They combine the liability protection of corporations with the tax advantages and operational flexibility of partnerships. Unlike with corporations, profits and losses can be passed through to owners without taxation at the corporate level. However, investors might prefer corporations, particularly C corps, because they enable preferred stock.

Choosing a business entity requires a deep understanding of these structures and how each might impact your startup's long-term strategy. Before you commit to one structure, consider your plans for scaling, funding, and your personal risk tolerance. While the advice of professionals such as attorneys and certified public accountants (CPAs) can be invaluable, founders should also have a solid grasp of these implications as they'll impact many aspects of your startup's journey.

Register your business name

Establishing an original, recognisable name for your startup is important for branding, marketing, and legal purposes. The exact process depends on the business structure you've chosen.

• "Doing business as" (DBA) name: If you're a sole proprietor or in a partnership and you want to do business under a name that's different from your personal name or your partners' names, you'll need to register a DBA name. This is also known as a "fictitious name" or "trade name." The process varies by state but typically involves searching databases to ensure the name isn't already in use and registering it with a specific state agency.

• Corporate or LLC name: If you've formed a corporation or an LLC, the name you chose when you filed your articles of incorporation or organisation is already registered and protected in your state. However, if you want to conduct business under a different name, you'll also need to file a DBA name.

• Trademarks: If you want to prevent other businesses from using your business name in ways that could confuse your customers, you should consider registering it as a trademark. This is a more complicated process that often requires the assistance of a trademark attorney. You can register a trademark at the state level, but for the broadest protection – especially if you plan to do business nationwide or have an online presence outside your own state – you should register it with the United States Patent and Trademark Office (USPTO).

Choosing and registering your business name requires careful thought. Your business name is a key part of your brand and marketing strategy. It should reflect what your startup does and stand out in the markets you're targeting. You'll also want to ensure your chosen name doesn't infringe on existing trademarks or business names as this could lead to costly legal disputes later. Each state has its own laws and regulations regarding business name registration and trademarks so it's worth researching the applicable rules in your specific state.

Apply for a federal tax ID number or EIN

An Employer Identification Number (EIN) is like a Social Security number for your business. It's a unique nine-digit number assigned by the Internal Revenue Service (IRS) to businesses for tax filing and reporting purposes. Even if you don't plan to have employees, most businesses are still required to obtain an EIN.

Who needs an EIN

If your business is a corporation or a partnership, or has employees, it'll need an EIN. Most banks require an EIN to open a business bank account. An EIN is also necessary if you're self-employed and want to create a tax-deferred retirement plan or you're involved with trusts, estates, real estate mortgage investment conduits, nonprofit organisations, or farmers' cooperatives.

How to apply for an EIN

The process to apply for an EIN is straightforward and free of charge. You can apply online through the IRS website. You'll need to complete the application in one session as you cannot save and return to it later, so ensure that you've gathered all necessary information beforehand. You can also apply by mail using Form SS-4.

What information is needed to apply

To apply for an EIN, you'll need to provide information about your business, such as its legal name, the county and state where it operates, and the nature of your business activities. You'll also need to provide information about the "responsible party": the individual or entity who controls, manages, or directs your business and its assets.

Securing an EIN early in the process of setting up your startup is beneficial because it allows you to keep your Social Security number private, reducing the risk of identity theft. In addition, it enables you to complete other business setup activities that might require an EIN, such as opening a business bank account and applying for business licences and permits.

Register with the state revenue office

Once you've established your business name and have your EIN, you'll need to register with your state's department of revenue or equivalent body. Registration allows your startup to pay state taxes, which can include sales tax, unemployment insurance tax, and income tax. The requirements can vary significantly from state to state so it's important to understand your specific obligations.

Here are some of the taxes you might have to handle:

• Sales tax: If you're selling a physical product, you'll likely need to register for a sales tax permit. Some states also impose sales tax for certain services. After registration, you'll have to collect sales tax from customers and remit it back to the state. The frequency of these payments varies by state and can depend on your sales volume.

• Employer taxes: If you're planning to hire employees, you'll need to pay unemployment insurance tax and employee withholding tax. The former goes into a state fund that pays benefits to workers laid off due to no fault of their own. The latter is the income tax that employers withhold from employees' wages and pay directly to the government.

• Income tax: Depending on your business structure, you might also need to pay state income tax. For example, while an LLC itself isn't subject to income tax (the tax "passes through" to individual members), some states levy a franchise or privilege tax on LLCs for the privilege of doing business in them.

Notably, not all states have the same tax structure. Some don't charge sales tax, others don't have an individual income tax, and a few don't have either. Furthermore, some states allow cities and counties to impose their own taxes so you'll need to consider local regulations as well.

Addressing these state and local tax obligations can be complex, and the stakes are high. If you fail to properly register and pay your business taxes, you could face penalties, fines, and interest on any overdue amount. You might want to consider using the services of a tax professional, who can ensure that you're meeting all your obligations and taking advantage of any potential tax benefits.

Obtain business licences and permits

To operate legally, your startup might need specific licences and permits. These requirements vary widely depending on your business's location and industry. Failing to obtain the necessary licences and permits can result in penalties and, in extreme cases, force you to cease operations. Here are some examples of licences and permits you might be required to get:

• State licences and permits: Many states require specific businesses to hold licences. For instance, if your startup is in the food service industry, you'll likely need health permits and a food handler's permit. Professional services such as legal services, real estate, and medical care often require professional licences. The Small Business Administration provides an online tool you can use to look up the required licences in your state and for your industry.

• Local licences and permits: In addition to state licences, your city or county might require you to have certain permits. Common examples include signage permits, home-based business permits, and a general business licence. Consider visiting your local city or county government's website to learn how to obtain them.

• Federal licences and permits: Federal licences are typically required for only specific industries. For instance, if your business involves broadcasting, aviation, or selling alcohol, tobacco, or firearms, you'll need a federal licence or permit from a federal agency such as the Alcohol and Tobacco Tax and Trade Bureau or the Federal Communications Commission.

• Speciality permits: Depending on your operations, you might need additional permits. For example, if your business affects the environment, as with certain manufacturing operations, you could need an environmental permit.

Securing the appropriate licences and permits is an important step in your startup's journey. The process can be time-consuming and confusing so it's wise to start early. Ensure that your business is fully compliant with all regulations to avoid any future penalties or interruptions to your operations. Keep in mind that requirements can vary based on your specific industry, location, and business activities so thorough research or consulting with a business expert is highly recommended.

Register for state employer taxes

When you start hiring employees for your startup, you'll need to fulfil specific tax responsibilities related to employment.

Unemployment insurance tax

In the US, businesses are required to pay state unemployment insurance taxes, also known as State Unemployment Tax Act (SUTA) or State Unemployment Insurance (SUI) taxes, to fund unemployment benefits. The process of registration and payment varies by state. Usually, you're required to register with the state's labour department or unemployment insurance agency. The tax rate you'll pay often depends on factors such as your industry and your company's history of layoffs.

Employee withholding tax

As an employer, you're also required to withhold certain taxes from your employees' wages and pay them to the government. These typically include federal income tax and Federal Insurance Contributions Act (FICA) taxes, which fund Social Security and Medicare. In most states, you'll also need to withhold state income tax. The specifics of this process depend on your state's rules and the details of your payroll.

Managing these tax obligations can be complex, especially as your startup grows and your workforce expands. You'll want to stay organised, keep accurate records, and make timely tax payments. Many businesses find it beneficial to use payroll services or employ an accountant to handle these tasks and stay up-to-date with federal, state, and local tax laws as they can change from year to year.

Obtain insurance

The right insurance can protect your business from financial losses caused by a variety of risks, including property damage, theft, legal claims, and even business interruption. Here's an overview of some types of insurance you might need to manage:

• General liability insurance: This coverage protects your business if it's sued for causing bodily injury or property damage. For example, if a customer slips and falls in your office or you accidentally damage a client's property during a service call, general liability insurance can help cover legal costs and damages.

• Property insurance: If you own or lease a physical space for your business, property insurance can protect your buildings and their contents in case of fires, theft, or other disasters. Even home-based businesses should consider this coverage as homeowner's insurance might not adequately cover business property.

• Workers' compensation insurance: If you have employees, most states require you to carry workers' compensation insurance. This coverage can help pay for medical expenses and lost wages if an employee is injured on the job.

• Professional liability insurance: If your business provides professional services such as consulting and financial advice, consider professional liability insurance (also known as errors and omissions insurance). It can protect you if you're sued for negligence, misrepresentation, or inaccurate advice.

• Cyberliability insurance: If your startup stores sensitive customer data (e.g., credit card information, personal details), cyberliability insurance can protect you in case of data breaches or cyberattacks.

Choosing the right types and levels of insurance can be complicated and it depends on several factors including the nature of your business, its location, and its size. You can look up licensed insurance providers for your specific needs via the National Association of Insurance Commissioners.

It's a good idea to consult an experienced insurance broker who understands your industry and can guide you to the appropriate options. Remember that as your business changes over time, your insurance needs might change, too, so review your coverage periodically.

File organisational documents with the state

To formally establish your startup's legal structure, you must file certain organisational documents with your state's secretary of state, department of revenue, or a similar government agency – some states use different names, such as the Division of Corporations in Florida and the Department of State in New York The exact documents and filing process can vary by state and your chosen legal structure.

Here's a brief overview of the requirements for different business structures:

• Corporation: You'll need to file articles of incorporation. This document will include key details about your business, such as its name, principal office address, purpose, the number of shares the corporation is authorised to issue, and information about the registered agent.

• LLC: You'll file articles of organization. Much like the articles of incorporation, this document will include your LLC's name, purpose, principal office address, and information about the registered agent.

• Partnership: The requirements can vary. Some states require partnerships to file a similar document called a "statement of partnership authority."

After you file these documents, your business is officially registered with the state. But the paperwork doesn't stop there. If you're operating as a corporation or an LLC, you'll also need to create bylaws or an operating agreement. While these documents don't need to be filed with the state, they're important as they outline the governance and operating procedures for your business.

Your business will also likely need to file a report and pay a fee annually to stay in good standing with the state. The due date, filing fees, and processes for these reports can differ greatly by state and business structure so consider noting these requirements.

Under the Corporate Transparency Act (CTA), newly registered businesses historically had to file a Beneficial Ownership Information (BOI) report with the Financial Crimes Enforcement Network (FinCEN). FinCEN has exempted domestic companies and US persons from federal BOI reporting requirements. However, because CTA regulations and legal challenges have shifted multiple times, it's a good idea to consult the official FinCEN BOI page to verify the most up-to-date filing status and requirements for your business structure.

Create an operating agreement

An operating agreement is a foundational legal document that outlines the operational procedures and ownership structure of your startup, particularly if you're forming an LLC. Here's what to know about this document:

• What an operating agreement includes: Your operating agreement should cover key aspects of your business, such as the percentage of ownership for each member, distribution of profits and losses, member roles and responsibilities, procedures for adding or removing members, what happens when the company is dissolved, and how to handle disputes among members. It can also specify details such as meeting frequency and voting rights.

• Why it's important: An operating agreement provides clarity and structure, prevents misunderstandings, and safeguards your limited liability status by separating your personal assets from those of the company. It provides a road map for decision-making processes and the resolution of potential disagreements among members.

• Legal requirements: While not all states require an LLC to have an operating agreement, it's highly recommended to have one – even for single-member LLCs. Some states have default rules that govern LLCs without operating agreements, but these rules might not be suitable for your business needs.

Creating an operating agreement requires thoughtfully considering how you want to run your business and how decisions will be made. It's a good idea to consult an attorney or a professional adviser during this process to ensure your operating agreement covers all necessary details and aligns with state laws and regulations. As your business grows, the agreement should be revisited and updated to reflect changes in your business structure or strategy.

Register any applicable trademarks or patents

Intellectual property (IP) refers to creations of the mind (e.g., inventions, literary and artistic works, designs, symbols, names, images used in commerce) that are legally protected by patents, copyrights, trademarks, or trade secrets. IP protection is an important step for many startups. Your IP – including your business name, logo, products, and services – can be some of your most valuable assets and protecting them can be necessary for your success.

Trademarks

A trademark can protect a word, phrase, symbol, design, or a combination of these that identifies and distinguishes your goods or services. It makes your brand recognisable. Registering a trademark with the USPTO gives you exclusive rights to use the mark nationwide in connection with your goods or services. The process involves a complete search to ensure your mark doesn't infringe on existing ones, followed by an application that includes details about your mark and the goods or services it represents.

Patents

If your startup has invented a new and useful process, machine, manufacture, or composition of matter, you might want to consider applying for a patent. A patent grants the inventor exclusive rights to the invention, preventing others from making, using, selling, or importing it without permission. Patents are granted by the USPTO and can take several years and substantial resources to obtain. There are different types of patents (utility, design, and plant patents), each of which protects a different aspect of an invention.

Copyrights

Copyright protects original works of authorship fixed in a tangible medium, such as written content, proprietary software code, visual art, website designs, and marketing assets. While copyright protection exists automatically the moment a work is created, registering your work with the US Copyright Office creates a formal public record of ownership. Timely registration is also a legal prerequisite for filing an infringement lawsuit in federal court and claiming statutory damages and attorney's fees.

Securing IP rights can be a complex process that requires detailed technical and legal knowledge, and mistakes during the application process can result in lost rights or unnecessary expenses. For this reason, it's often beneficial to engage an IP attorney or a professional service to handle these applications. Protecting your IP secures your rights and can add value to your startup, attract investors, and provide a competitive advantage in the marketplace.

Beyond the basics: Why your requirements might vary

This isn't an exhaustive list of legal requirements and the journey to starting a business might require additional steps or involve different considerations based on a variety of factors. The nature of your startup, the industry you're operating in, and the specific regulations of the state or states where you plan to operate can all influence which steps you'll need to take to start your business.

For example, a tech startup with a unique software solution might need to focus heavily on patent applications, while a restaurant would have different concerns such as health permits and food handling certifications. A company that operates in multiple states will have to comply with different state regulations, requiring a full understanding of the varying legal environments.

The preceding steps serve as a general road map, but every business's journey is different. Conduct in-depth research, consult professionals such as lawyers and accountants, and seek advice from business advisers familiar with your specific industry and region to ensure you're meeting all legal requirements. This will create a foundation for launch and growth that's most suitable for your specific business.

How Stripe Atlas can help

Stripe Atlas handles everything you need to legally launch your company – incorporation, EIN, equity setup, and tax filings – so you can fundraise, open a bank account, and start accepting payments in as little as two working days, from anywhere in the world.

Join 100,000+ startups incorporated using Atlas, including startups backed by top investors like Y Combinator, a16z, and General Catalyst.

Get started in minutes with Atlas

The application takes under ten minutes. You'll choose your company structure, confirm your name is available, add up to four co-founders, set your equity split, and e-sign. Then, Atlas takes it from there, including notifying co-founders to sign their documents electronically.

Banking and payments before your EIN arrives

Atlas files your EIN application automatically after incorporation. You don't have to wait. Atlas enables pre-EIN payments and banking so you can start accepting payments and making transactions right away. US founders with a Social Security number are typically eligible for expedited IRS processing.

Automatic 83(b) tax election filing

Atlas files your 83(b) election for you – US and non-US founders alike – with USPS Certified Mail and tracking to reduce personal income taxes. You'll get a signed 83(b) election and proof of filing directly in the Stripe Dashboard, with certified mail confirmation.

World-class company legal documents

Atlas provides all the legal documents you need to start running your company – drafted by Cooley, one of the world's leading venture capital law firms – and stores them directly in the Stripe Dashboard. These documents are designed to help you fundraise immediately and ensure your company is legally protected, covering aspects like ownership structure, equity distribution, and tax compliance.

US$2,500 in Stripe credits, plus US$50K+ in partner discounts

Atlas startups get US$2,500 in Stripe product credits for their first year, plus US\$50,000+ in discounts on essential tools – Mercury, AWS, Carta, Xero, Perplexity, and more. Delaware registered agent service is also included free for your first year.

Learn more about how Atlas can help you set up your new business quickly and easily or get started today.