In this 2-part article, you will learn about the five most important steps you should take to setup your new company with the proper foundation for success.
1. Form a Company With Limited Liability Protection
Any time you start operating a new business, you should carefully consider what type of legal entity will best protect the operations of that company and your personal assets. It is nearly always a good idea to choose an entity that offers some form of limited liability protection, such as an LLC or Corporation.
No matter what you do, think long and hard before you ever operate as a sole proprietor, because that subjects you to unlimited personal liability. In other words, if you operate as a sole proprietor and your business ever does something wrong or gets sued, a creditor could go after your personal house, savings, car, or other personal assets.
But if you operate your business under a limited liability shield, such as a corporation or LLC, then the only assets the creditor could get are the assets of the company.
To file a new corporation or LLC, you generally file the proper formation documents with the Secretary of State in the state where you want that company formed. Most Secretary of State web sites have online forms that you can download and then submit interactively.
We have compiled an index of Secretary of State web sites at: http://www.businessthrival.com/sos/
You can use this index to quickly locate the Secretary of State web site for your state.
2. Choose The Proper Name For Your Business and Products
Before you actually incorporate your business, it is a good idea to do some basic research to pick a name that someone else is not already using to sell similar goods and services as you. In other words, you do not want to start your new business off with a name that could cause you to be sued for trademark infringement because you chose a name that someone else already owns. You can think of this as “having all your ducks in a row”.
Trademark law is designed to protect consumers from confusion between different companies. Trademarks identify the source of that product or name.
This means that any time you choose a company name, product name, or slogan, it is important that you do some initial research to make sure that someone else is not already using that name or a very similar variation of it in a way that would cause consumers to be confused between your two companies.
It is usually fine for companies in two totally different industries to have the same name, because no one would get them confused (unless it is a famous trademark, where that company retains rights across all industries). But if you use a product or company name that is confusingly similar to another company who has a superior interest in that name, they could sue you for trademark infringement and possibly obtain significant money damages.
One place to start your research is the United States Patent and Trademark Office trademark database. You can also search Internet search engines to see if you find anyone else who is already using your preferred name or a similar name in a similar industry.
Then, as you move forward with your business, you will want to make sure that you mark your trademarks with ™ (the TM sign) to designate that you are claiming an interest in the brand/name. If you obtain an actual federal trademark registration, then you can start using ® (the circle R designation).
3. Obtain the Necessary Licenses
Another step that you need to consider in setting up your new business is whether you need any special licenses in order to operate.
Some types of businesses require a special license to operate, such as a daycare, insurance agency, law firm, or doctor’s office. If you are in the type of business that requires a special license, you are probably already aware of that through the licensing process that you had to go through in order to obtain that specialty. It is still worth spending a few minutes to do extra research to make sure that your type of business doesn’t require any additional licenses.
The most commonly overlooked license is a sales tax license. If your business is going to sell products, then you are likely required to collect sales tax for any of those products that you sell to customers in your state. In most states, you do not have to collect sales tax on services.
You should check with your state’s Department of Revenue in order to determine what exactly you have to collect sales taxes on, if anything.
We have put together a sales tax index to help you locate your state’s Department of Revenue more quickly. You can find it here:
More to come in Part 2, check it out HERE!
Denise Gosnell is an attorney, entrepreneur, and 8-time author with Wiley Publishing. She is the CEO of Business Thrival, Inc., a company dedicated to helping business owners obtain a thriving business and live, by providing a free Business Thrival Blueprint, weekly newsletters, and quality products.