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Legal Sector: Current Requirements for Startup Formation

LEGAL SECTOR: CURRENT REQUIREMENTS FOR STARTUP FORMATIOBy nature, startups are created with rapid growth to disrupt their specific industry and shake their respective markets. Starting a new potential business or company is not for the faint of heart, what complicates the process most of all is the legal implications that come with the pursuit.

A new business owner on the horizon of an exciting possible venture, would take into consideration all the necessary legal bases. Startups most definitely would stray away from the likelihood of fines or possible lawsuits. A systematic and correct structure for formation of any business is critical to the success of the company, which is why it is crucial that potential business owners have the necessary knowledge on how to go about starting a profitable and compliant business. 


In order for a startup business to hold the relevant possible legal requirements, the first mandatory requirement would be for owners to establish their business structure which would act as the literal legal form of the potential startup. By choosing the legal structure, the business owner can structure their company as one of four legal entities, including sole proprietorships, partnerships, LLCs, or a corporation. While sole proprietorships and partnerships are how most startups begin, they are considered an informal type of structure. In contrast, LLCs and corporations are deemed to be potentially more formal and established of a business.

Sole proprietorships and partnerships are often the stepping stones into the potential development of a formal organization such as an LLC or a corporation since these likely types of structures require legal registration within the state as an independent entity. Since the potential venture would be a separate entity from possible owners or directors, these proposed legal structures provide a certain extent of protection for the owners along with unique tax benefits for the enterprise in question.

Official Startup Formation

Naming a startup is a critical consideration that business owners should take into account since choosing a name that will stick with the potential company would require everything that the company stands for and embodies in a few words. For Sole Proprietorships, registering a possible business name would need a DBA ("Doing Business As"). This process allows the state or local government to know the potential business's name. These formations do not provide trademark protection; however sole proprietorships do not provide legal protection to the sole proprietor. 

For business owners considering filing a legal entity such as a corporation or LLC, an application should have to be filed per the respective state for Articles of Incorporation or Articles of Organization. Any type of legal business entity would have to be considered and filed with the state. After a name and business structure have been chosen, the potential business owner would henceforth consider registration with the IRS and necessary registration for sales tax policies. Some startups often consider the opportunity of trademarking their business that has the potential to provide a sense of legitimacy around their brand; although it is not a fundamental requirement for a startup formation, it does retain the essence of solid protection around the branding of the business. 

Getting an EIN for Startup Formation

An established startup formation would be advised that it is essential to obtain an Employer Identification Number (EIN) post-registration with the IRS. An EIN is essentially the IRS’ identification tool for businesses. Having an EIN for a potential startup could be vastly beneficial since this unique number is required for possible formal business structures, hiring employees, and opening a business banking account. An EIN can be obtained for any startup for free on the IRS website or by mail, fax, or phone. 

Startup Governance

Suppose the business owner potentially considers starting a business in a state outside of his own. In that case, there will be complicated paperwork and complex tax requirements involved, which is why the best location to establish a potential startup is the state that the business owner already resides in. Severance agreements do not typically bind startup founders, so it is essential to consider developing founder employment agreements to represent any legal agreements between the founder and the potential company. Like any legal entity, formal startups should be corporately governed by rules, regulations, and guiding principles that provide an essential sense of structure to help the company obtain the likelihood of succession. 

Startup Tax, Permits and Insurance

Should the startup business reside in a state that applies sales tax to the possible services or products that a business owner intends to trade, a Sales Tax Permit or Sales Tax Certificate of Authority would be required for the state to track sales tax revenue. Most startups or business ventures in the US are required to file for a sort of permit or license for the business to trade legally and within their state potentially; however, it is essential to note that different permits vary widely by state and the type of business. A startup business necessitates obtaining insurance such as worker’s compensation or unemployment insurance, should anything possibly go downhill for the business. Other forms of insurance may be optional, but it is critical to protect the company from any point of possible disaster. 


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