Business Law Basics for New Business Owners – Types of Business, Naming, & State Registration

When beginning a business, there’s a lot you need to consider and subsequently plan. Today, we’ll run through a few of the basics such as what type of business entity to establish, which determines the amount of regulatory paperwork you have to file, your personal liability, and your taxes. Below are the most common business types:

• Sole Proprietorship - A business owned and managed by one individual who is personally liable for all business debts and obligations.
• Partnership – Two or more people share ownership of a single business.
• Corporation – A legal entity owned by shareholders.
• S Corporation – A special type of corporation created through a tax election. An eligible domestic corporation can avoid double taxation (once to the shareholders and again to the corporation) by electing to be treated as an S corporation.
• Limited Liability Company (LLC) – A relatively new, hybrid-type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership
• Non-Profit – An organization engaged in activities of public or private interest that are motivated by making a profit. Some non-profits are exempt from paying federal taxes.
• Cooperative – A business or organization owned by and operated for the benefit of those using its services. Cooperatives are not a legal structure.

Don’t fret – your initial choice of a business type is not permanent. You can start out as one type and change to another. If this happens, just follow the IRS’s instructions for Changes in Ownership or Organization. You will also need to file new documents with your state government, may also need to obtain new business licenses (depending on your state).

The government can assist with determining which type is best for you. Check out this great resource page provided by the SBA that can help you decide which of the above business types is right for your needs. The site also has information to help you get started. Believe it or not, the government provides tools to help you name your business, choose a location, register your business by state (many states have specific filing requirements for individual businesses), etc. We’ll discuss these basics in a little more detail below.

What’s in a Name?

There is more to naming your business than just coming up with something that sounds good or something that rhymes with your cat’s nickname. Thought needs to be given to state and local requirements for using “assumed” trade names and making sure you don’t accidentally steal someone else’s business name. The following guides provide information on selecting and registering a business name:

• How to name a business: Your business’ name will shape its identity. Have several options and research your ideas to make sure the name is legally available. Use a name database. The Thomas Register is a free, unregistered trademark database. Federally registered trademarks can be found on the U.S. Patent and Trademark Office’s database.
• Business name registration: The legal name of a business is the name of the person or entity that owns a business. If you are the sole owner, its legal name is your full name. If your business is a partnership, the legal name is the name given in your partnership agreement or the last names of the partners. For limited liability corporations (LLCs) and corporations, the business’ legal name is the one that was registered with the state government. Your business’ legal name is required on all government forms and applications, including your application for employer tax IDs, licenses and permits. However, if you want to open a shop or sell your products under a different name, then you may have to file a “fictitious name” registration form with your government agency. This chart provides the requirements for fictitious name filing in all 50 states and territories.

Location, location, location

Choosing the right location for your business can be a major factor in its success or failure. A good location may allow a struggling business to survive, but a weak location could mean trouble for even a very well-run business. Make sure you know all the legal restrictions of your place of business.