As we dive into our Work at Home Wednesday series, I thought it would be best to first cover the bases of starting a business. There are so many businesses out there that a mom can start, but no matter what they may be, there are always some crucial first steps that everyone should be aware of.
Today, we’re going to explore the topic of how to legally start a business. I get asked about this all the time. Moms want to know what exactly must be done to have a legally operating business. Now first off, I’m not an attorney, I’m just speaking from research and experience. Please verify anything you’re unsure about with your own attorney. Second, this information is geared towards Mompreneurs in the United States. Unfortunately, I know nothing about starting a business in other parts of the world, but, if you do and would like to chime in, please feel free to leave a comment below. Now that that’s out of the way, let’s get started!
What’s in a name…
Once you decide that you want to start a business, the first step in legally creating it is going to be selecting a name. Even if you’re running an independent business as a direct sales consultant for a large company, you can still (and should) branch your business off as a separate entity. For instance, if you’re a jewelry rep, you could be “Julie’s Jewels.” If you’re a kitchen supplies rep, you could be “Cooking’ with Carry.” You get the idea! Obviously, you’re going to want to select a name that isn’t already taken. There isn’t one easy way to go about doing this as there’s no central database somewhere that lists every business name in the country. You’ll have to do a little legwork on your own, but I promise, it’ll just take a little bit of time and will be quite painless.
- Search for trademarks. Not every business will have their name protected, but many do. Start out by searching the United States Patent & Trademark Office to see if there’s one for your name. Also, check with your local state trademark agency to see if there are any state specific records as well.
- Check for unregistered trademarks. A business can have an unregistered trademark simply by operating under that businesses name. So, filing for trademark protection isn’t the only way someone can stake claim to a particular name. Here’s where you’ll need to consult with your friend, Mr. Google. Start out by searching for your selected name, then also try variations. A few minutes of searching can easily yield the results you’re looking for.
- Search for domains. Chances are, you’re going to want to establish a website for your business. You may want to use your business name as the website address. Search domain records to see if someone has already beaten you to it. If the domain you’d like to use is your business name and you find that it’s already taken, this can also fall under trademark protection, so it would be best to find another one.
- Check corporation records. If you plan to organize your business as a corporation, partnership or LLC (we’ll get into that in a bit), you’ll need to check with your state’s filing office to make sure that there is no other corporation using the same name.
- Finally, you’ll also need to check the assumed names (a.k.a. DBA) database for your state to see if there are any businesses who aren’t legally named “XYZ” but who operate under it. Confused? We’ll explain DBA’s in a bit as well.
Once you have your name, you’ll now want to legally form your business. This is where many moms just aren’t sure where to go. There are 3 types of business structures, a sole proprietorship or partnership, a Limited Liability Company, otherwise known as an LLC, and a corporation. Unsure which one you need to be? Read on…
- Sole Proprietorship/Partnership: More than likely, you’ll create your business as a sole proprietorship, or, if it’s a joint venture, a partnership. This is the simplest way to go because you are able to claim your income on your personal taxes, making tax season easy breezy for you. The biggest downfall of a sole proprietorship, however, is that you will be held responsible for all claims (debts, legal and otherwise) related to the business. But, if you have a simple, uncomplicated business and don’t anticipate entering into a ton of debt, it’s likely the best way to go. To start your business as a sole proprietor, there is nothing you are required to do up front.
- LLC: Another common structure for a small business is an LLC. An LLC is a Limited Liability Company and it’s primary benefit is just what the name implies…the owner(s) of the business have limited liability when it comes to claims related to the business. Under most circumstances, no one can come after the owner of the business personally for debts, lawsuits or otherwise. For tax purposes, you’ll file as a sole proprietor and will claim your income on your personal taxes. An LLC is a great option if you intend to create any debt or if you deal with the public and have the potential for lawsuits. There is an up front cost involved with filing an LLC and that will vary based on the state that you live in. There is some paperwork as well that will need to get filed and some people elect to use a filing service to do this, so it could cost you upwards of $400-$500 to get started. Here’s a great resource to see what is needed to start an LLC in your state.
- Corporations: Odds are, a typical mom running a business won’t be setting up a corporation. The advantage of a corporation is the absence of personal liability, however, there are numerous disadvantages, including complicated tax liabilities.
Shout out to the IRS…