Setting up an online business involves many factors. Building a website, product acquisition, marketing, etc., are significant aspects of starting an online business.
However, there are also legal steps to starting an online business you must follow. If you fail to follow proper legal procedures, there may be heavy financial and other repercussions.
So let's look at the legal steps to start an online business.
Legal Steps to Starting an Online Business
It comes down to properly registering your company and obtaining the proper licensing. With registration and licensing, you will legally be able to set up your online store. These are the steps to set up a 100% legal online business.
1. Choose the Business Structure
Most of the legal process will involve getting a new business registration
. To register your business, you will need to decide on the business structure. There are four prevalent business structures.
• The first is a sole proprietorship, which is a default business structure. Your personal and business liabilities are combined.
• The second is a partnership, where two or more people own a business. There are then also limited partnerships and limited liability partnerships.
• The next type is a limited liability corporation. This allows an owner to protect their own personal assets from the business's liabilities.
• Then, the C-corp is a type of incorporation that allows a business to be seen as a completely separate entity from any owning parties.
Keep in mind that the laws for registering each type of business differ from one state to another.
2. Determine the Location
You will need to select the location you want to register your business. This also applies to online businesses, not just brick and mortar locations.
Moreover, you are not required to have a brick-and-mortar location to register an online business location. Essentially, you register your business under the address you will use to pay your taxes.
3. Register the Business Name
The initial business registration process will be followed by the name registration process. If you have a separate entity like a corporation or an LLC, you must register your business name.
However, if you are in a partnership or a sole proprietorship, operating under a name that isn't yours, you will probably need a DBA or "doing business as" license.
LLCs and corporations may also use doing business as licenses to register a business under the official business. However, some states do not require these doing business as licenses, so research is recommended.
4. Register Your Business with the IRS (+Paying Taxes)
One of the most critical steps is registering it with the IRS. You get an EIN or employer identification number when you register your business with the IRS.
This is like a Social Security number for your business, and it is required so you can file your taxes. But, of course, filing your taxes is another part of the equation. You cannot legally operate a business without paying the required taxes. These could include but are not limited to personal payroll taxes, employee payroll taxes, sales taxes, etc.
The tax types will depend on your business and where you are located.
5. Register Your Business with Local and State Agencies
Once all of the federal components have been taken care of, you must register your business with local and state government agencies.
This mainly includes revenue offices. If you have a payroll, you will most likely have to register with your state tax agency so you can file payroll taxes.
6. Obtaining Necessary Licenses and Permits
The final step will be to obtain and apply for the necessary licenses and permits to legally operate your business. There are six main types.
a. The first is known as a business license or a general license. This gives you the authority to operate the company in a specific location. Pretty much every business out there needs to have this business license.
b. Most goods you can sell online will require you to have a seller's permit, which is needed when you sell goods that can be taxed. A seller's permit allows you to collect sales taxes.
c. You are required to get a sales tax license. This is mandatory. You need to collect sales taxes and pay them to the government, and a sales tax license is required for this process. How this works will differ from one area to another.
d. You will be required to get an EIN or employer identification number that identifies you as a business. It also allows you to stay compliant with regulations and tax laws. Unless you are a sole proprietorship, you will need an EIN.
e. You may need a DBA or "doing business as" license. Corporations require these, although sole proprietorships and general partnerships usually don't. If you don't want to operate your business under your own name, you will need a DBA, even if you are a sole proprietorship.
f. If you plan to set up an online store and work from home, you will also need a home occupation permit. This gives you the authority to set up a business in your residence.
Setting up an online business is already hard enough without all of the legal factors involved. However, you need to follow the above steps for your business to be legitimate.
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