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How to Legally Start Your Own Business

Ready to start your own business? Here's everything you need to know and all the documents you'll need to legally launch your own company and hit the ground running.

Essential documents for starting a business

Find all of the documents you need when starting a business.

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Step 1

LLC Operating Agreement

An LLC Operating Agreement is used to outline the rights and responsibilities of each LLC member and to establish other operational details for a limi...

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Step 2

Business Plan

A Business Plan is a comprehensive proposal that outlines a business's challenges and opportunites as well as its marketing, financial, and management...

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Step 3

Partnership Agreement

A Partnership Agreement establishes the rights and responsibilities of general partners, and the rules in a for-profit partnership.

Last updated May 10, 2022

Starting is a business is no easy task as there is no one-size-fits-all approach. However, to get started on the right foot, you must start with thorough research and planning.

When researching, you will need to understand the various types of legal business structures. The structure you choose will determine how your business functions, the way it pays taxes, and the legal liability you may carry as the owner. Every business structure has its pros and cons, so it's important to consider your options before launching your business.

In this guide, we will cover using a Business Plan, common types of business structures, and the various documents you need to form your business.


Table of contents


Planning your business

Before you legally form a business, it's imperative that you conduct thorough market research and create a comprehensive plan. Trying to get a business off the ground without any sort of strategy is difficult and impractical.

Prior to developing a plan for your business, research as much as you can about the industry in which your business would operate. For example, you should research:

  • Target demographics
  • Available business names
  • Competitors
  • Marketing opportunities
  • Funding opportunities

Once you have done the necessary research to confirm that your business idea has potential and you want to move forward, the best place to compile your findings and strategies is a written Business Plan.

Business Plan

A Business Plan is a detailed, written document that outlines a business's goals and strategies. Having a Business Plan is not legally required to start a business, but we still consider it fundamental for emerging businesses.

If you are looking for loans or investments when you are just starting out, a Business Plan can make or break you. Typically, potential lenders and investors want to see thorough research and detailed planning before fronting any money.

Business Plans are effective and beneficial to business owners because they:

  1. Provide entrepreneurs with guidance during a business's early stages
  2. Give entrepreneurs a reference document
  3. Show legitimacy to potential partners and employees
  4. Consolidate important business information for potential investors

It is a convenient way in which you can summarize the key elements of your business. A Business Plan should include a description of a business's products and services, an analysis of competition and opportunities, a strategy for marketing the business, and more.

If you are buying an existing business, you can still create a Business Plan to outline your vision for the company.


Types of business structures

Once you have created a Business Plan, you need to complete the necessary documents to form your company. The documents you need will depend on the type of business structure you select.

Understanding the different types of businesses is extremely important because they all impact your personal liability and tax obligations in unique ways. There are four main types of business structures: sole proprietorships, partnerships, corporations, and limited liability companies.

Sole proprietorship

A sole proprietorship is a business that a person runs and owns by themself. This person is known as a sole proprietor. When one person forms a business without registering another type of business entity, they become a sole proprietor by default.

Sole proprietorships do not have to be registered federally or with their state. However, they might be required to register with a local municipality or acquire a business license to practice depending on the type of business.

When operating as a sole proprietor, you can be held personally liable for the mistakes of your business. This means that your personal assets can be seized if your business is sued or has unpaid debt.

Sole proprietors are entitled to pass-through taxation, which means they include their business income with personal income instead of filing separate business taxes.

Unlike more formal businesses, sole proprietors can simply operate under their own personal name, or they can also register a business name with their local and state governments. Depending on the type of work they provide clients, some independent contractors may function as sole proprietorships.

Partnership

A partnership, also known as a general partnership, is an informal business entity owned by two or more partners who share all the financial and legal responsibilities, profits, and assets by jointly owning the company. They also share unlimited responsibility for any liabilities the business incurs, meaning their personal assets can be seized as compensation.

A partner can be an individual, corporation, LLC, trust, or another partnership. Like sole proprietorships, when two or more people form a business without forming another type of business entity, they become a partnership by default.

All types of partnerships are pass-through businesses, so profits pass through to the partners and are taxed at the individual income level. However, partnerships must report their earnings, losses, and deductions in an annual information return.

A general partnership is not required to file paperwork to legally form or register itself as a business. However, a general partnership may have to register their business name and apply for certain licenses, depending on the state and type of industry.

In addition, partners should always use a Partnership Agreement to define the responsibilities of each partner and outline the distribution of income and losses.All types of partnerships can use Partnership Agreements, including limited partnerships and limited liability partnerships (LLPs).

Limited partnership

A limited partnership consists of at least one party with general liability and one party with limited liability.

In this type of partnership, general partners are responsible for overseeing the company's day-to-day activities. The limited partners are considered passive partners because they're less likely to have any involvement in managing the business.

When operating as a limited partnership, general partners have unlimited liability and limited partners have limited liability based on the amount of money and assets they've invested in the company. For example, if a limited partner invests $100,000 in the business, they're only liable for paying off $100,000 in partnership debts.

To create a limited partnership, partners must register with the applicable state government. All limited partnerships in the U.S. are governed by the Uniform Limited Partnership Act.

Limited liability partnership (LLP)

Limited liability partnerships provide all partners with limited liability. This means all the partners' liability is based on the amount they've invested in the company. Take note that not every state allows the formation of an LLP.

In the states where you can form an LLP, the laws regarding liability protection differ. Some states provide protection similar to an LLC. In other states, partners can remain personally liable for some of the company's debts or obligations. Additionally, some states only allow certain professionals to form an LLP.

Corporation

A corporation, also known as a “C corporation,” is a business entity with its own rights and liabilities that are distinct from its owners. Corporations can own assets, enter legal agreements, lend and borrow money, and more. A distinguishing feature of corporations is that shareholders are protected from personal liability, meaning they cannot be held personally liable for the mistakes of the business.

Corporations are subject to corporate taxation. Under corporate taxation, the corporation pays taxes based on its profits, and shareholders also pay taxes on any income they earn from the business.

For your business to be a corporation, you must file Articles of Incorporation with your state government. Please note that there are other types of corporations, such as S corporations.

S corporation

S corporations are the same as C corporations except that they are entitled to pass-through taxation, so business profits are not subject to corporate tax rates. S corporations must meet certain requirements and be registered with the IRS to receive S corp status.

Limited liability company (LLC)

A limited liability company (LLC) is a legal structure that offers limited liability protection to its members (owners), as well as the option to be taxed as a corporation or a partnership.

Like a corporation, an LLC operates as a separate legal entity and can own assets, enter legal agreements, and be involved in lending arrangements. LLC members are generally not liable for the debts, obligations, or wrongdoings of the company, and can only be liable up to the amount of their investment in the company.

To form an LLC, you must file Articles of Organization with your state government. This document includes your business name and the names of each member.


Business formation documents

Once you know which type of business you want to form, you can create the documents necessary for your success.

Keep in mind, depending on the industry of your business and which state and local area you're operating in, you may also have to obtain a business license or permit to legally operate your business. For example, certain permits are required when preparing and serving food.

Also, if you want to hire employees, you need to obtain an Employer Identification Number (EIN).

Partnership Agreement

A Partnership Agreement outlines the responsibilities of each partner and the distribution of income and losses. The agreement also lists capital contributions and outlines the general partnership rules, such as rules for withdrawals. Partnership Agreements are suitable for general, limited, and limited liability partnerships.

States do not require partners to create a Partnership Agreement, but they are still vital documents. Without an agreement in place, a business is governed by its state's standard statutes on partnerships.

In the United States, most states use the Revised Uniform Partnership Act to govern general partnerships and limited liability partnerships (LLPs). Limited partnerships are subject to the Uniform Limited Partnership Act. If you live in one of these states and do not create a valid agreement while operating as a partnership, your business may be subject to laws that aren't suitable for your business. Instead, create your own agreement so you can control how your partnership operates.

Agreements can prevent legal disputes between partners. By having a written record of the terms of the business arrangement, partners can reference the agreement for guidance when they are having a business disagreement.

Articles of Incorporation

Articles of Incorporation are the state-required legal papers that you file with your state government to register your business as a corporation.

All states require these articles to form a corporation. However, the specific laws and regulations applicable to incorporating a business vary from state to state. The articles must include the following information:

  • The name of the corporation
  • The number of shares the corporation is authorized to issue
  • The address of the initial registered office
  • The address of the registered agent
  • The name and address of each incorporator

Depending on your state, Articles of Incorporation may also contain the names of any initial directors, the primary activities or purpose of the corporation, and any starting provisions that will govern the corporation.

Corporate Bylaws

Corporate Bylaws are the internal policies that govern a corporation. After a business incorporates, its owners create Corporate Bylaws to ensure fair and consistent operating practices. Corporate Bylaws define your business' structure, roles, and operations.

Corporate Bylaws are not a legal requirement in every state. They are not required in Alaska, California, Colorado, Kansas, Louisiana, Michigan, Minnesota, Missouri, Nevada, North Dakota, Ohio, Pennsylvania, Rhode Island, Utah, and Wisconsin. However, most corporations still create bylaws because they protect the interests of the business and its shareholders.

Corporate bylaws are essential because they outline how a company will operate. Bylaws include rules and procedures, such as

  • If the company will have a simple or complex management structure
  • How much notice is required for special meetings
  • Whether remote meetings are allowed
  • What percentage of votes constitute a quorum
  • If shareholders can form voting trusts
  • If cumulative voting is allowed
  • The number of directors
  • Who can appoint officers
  • Whether the corporation can lend money to its officers, directors, or employees

LLC Articles of Organization

LLC Articles of Organization are the state-required paperwork you use to establish your business as a limited liability company (LLC). All states require LLC Articles of Organization, but some may call them the certificate of organization or certificate of formation.

LLC Articles of Organization should include the basic information that your state needs to register your company, including its name, purpose, registered agent, office address, and management strategy. Some states require each member's name, address, and capital contribution.

In order to be legally recognized as an LLC, you must file LLC Articles of Organization with the appropriate state office. States, counties, and cities can have varying rules for filing LLC Articles of Organization, so check the state-specific and municipal filing requirements where you plan to file.

Currently, we only offer LLC Articles of Organization for California, Florida, Georgia, Illinois, Maryland, Michigan, New Jersey, New York, North Carolina, Texas, and Virginia. If we do not offer our articles template in your state, we have provided the following links to government websites where you will find a free LLC Articles of Organization PDF form or way to register online.

In addition to LLC Articles of Organization, some documents are not required by law but can be immensely helpful to LLC owners, such as an LLC Operating Agreement.

LLC Operating Agreement

An LLC Operating Agreement is a legal contract that owners of a limited liability company use to establish their rights and obligations and describe the company's internal structure.

Only five states legally require LLCs to have an operating agreement: Delaware, Maine, California, Missouri, and New York. In some of these states, the agreement can be written or oral. However, all LLC owners should still create an operating agreement when starting their company.

LLC Operating Agreements are beneficial for many reasons. They are an important reference tool that can guide business decisions and help business owners navigate different situations, such as admitting new members. Operating agreements also allow companies to establish their own unique rules and make members bound to them.

Operating agreements vary in length, depending on the number of members and the complexity of management practices. Generally, LLC Operating Agreements should include the following information:

  • The company's name, description of services, and office address
  • Each member's name and address, membership class, capital contribution, ownership percentage, and share of profits and losses
  • How company decisions are made, when and where meetings are held, how new members are admitted, and how the company is managed
  • The company's accounting methods, fiscal year, annual report details, and how it will be classified for tax purposes

After you form your business

Once you have chosen a structure, formed your business with the necessary documents, and obtained all the proper licenses and permits, you can focus on growing and managing your business. Managing your business may involve hiring employees.

Most businesses start very small and may start as a sole proprietorship or partnership. Once you begin growing your business, creating your business' website (which can be professionally done with Wix), starting marketing promotions, obtaining clients and customers, or receiving investment funding, you may find that your needs change over time.

It is important to review what's working for your business and what you could improve.

You may evolve into a larger entity and need to register under a different structure that better suits your business' needs. If you eventually incorporate your business, you will need to adapt how you manage your corporation.

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