Going about setting up a business is not as difficult as it may seem. There are a few basic requirements you need falling into the categories of business structure, registration with government authorities, and permits/licenses.

The first issue to decide for setting up a business is structure. Structure means the form of the business, and you can either have a sole proprietorship, partnership, limited liability company (LLC), or corporation. Keep in mind that there is no “correct” answer, and your business structure can change as your business changes. A sole proprietorship is the easiest way to get started; it simply means that the individual is operating the business. The main disadvantage (when setting up a business) of a sole proprietorship is liability. Your businesses liabilities are your personal liabilities, and therefore your personal assets are also susceptible to claim if your business owes money. The main advantage is simplicity in creation, and in taxation.

Partnerships are similar to sole proprietorship and taxation. The key thing to remember about partnerships is to have partnership agreements in place. These are written documentations explaining what will happen if a person decides to leave the partnership, how the profit is split up, and other contingencies about various business scenarios.

A corporation is a pseudo-person who represents the business. The corporation is headed by a board of directors, and responsible to shareholders. Corporations are governed by the state in which they are created, and there are more complex laws regarding reporting and taxation. You will likely need some expert or lawyer to help you get started with a corporation. For small businesses, an S-Corp is a popular choice as it is a simple form of corporation and profit and loss is passed to the owners.

An LLC is a hybrid between a partnership and corporation. Liability is limited, but administration is not as complex as a corporation. Likely, businesses needing liability protection will choose between an S-Corp and LLC. The decision mostly comes down to which is more beneficial for tax purposes, and your taxation situation will vary depending on the state in which you live.

The key point regarding liability is that if you have an LLC or corporation, you want to run your business separate from your personal life. If you mix accounts; if you take personal expenses as corporate expenses, and generally mix your actions so that you are running the corporation not as a director, but as your own personal business, you may be endangering your protection. When you act or sign, consider that your actions are on behalf of the corporation, and as a representative of shareholders. This is why liability board meetings, meeting notes, and so on have value as they formalize the actions of the corporation.

Registration with the Government Employer Identification Number (EIN) and State Registration.

If you have employees, or are an LLC or corporation, if you have a Keogh you may need an EIN. The IRS has a web page that can help you determine this, accessible here: http://www.irs.gov/businesses/small/article/0,,id=97872,00.html

If you determine that you need an EIN, you can apply for one online.

You may also need to register with your secretary of state. For example, in California, a corporation will file an SI-200 statement giving information about the corporation. Look on your state’s website and simply type in business registration to get started.

City and County Registration.

A similar answer applies for county or city registration. Start with your cities website, and the county requirements should be listed there as well. In general, you will need a business license and you will need to show that the business operates in an allowable premise. For the county level, you will need to file a DBA and post an advertisement in a local newspaper for sixty days announcing your business.

If you are selling goods or leasing, you will likely need a sellers permit or resale permit. For example, the state of California requires a permit if you “Intend to sell or lease tangible personal property that would ordinarily be subject to sales tax if sold at retail (this includes wholesalers, manufactures and retailers.)”

Financial Matters

If you have all of the above, legally, you are ready to operate the business. You should, however, get a business checking account, and also a business credit card. Even if you are a sole proprietorship, you should make sure your business expenses and income are coming into a single account for tracking. A business credit card will also give you details about your classifications of expenditures, not to mention the nifty bonus rewards with some credit cards these days.

Finally, you should either consider hiring an accountant, a bookkeeper, or investing in some accounting software and on a weekly basis (no less), tracking all your income and expenses. This will help greatly while filing your taxes.

These steps are a basic outline of what you need for setting up a business: legal structure, permits, and administrative capabilities.

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