by Lauren Stewart
Friends who’ve contacted me in the last few weeks with startup questions have inspired me to point out a glimmering opportunity in being stuck at home if you’re a solo entrepreneur: time and restlessness + internet and phone access = a perfect opportunity to formalize your business formation.
If you’re a freelancer, self-employed, or running a business as a solo (a sole proprietor) and you haven’t taken the time to formally setup your business, here is a list of things you can do from your couch to turn your passion project, side-hustle, or pile of Form 1099s into a fully formed business venture, protected legal risks that are easy to overlook at the early stages.
“Whether your business has slowed or shut down due to the pandemic, if you have time while you’re sheltered in place, consider these tasks as another way to stay safe.”
#1 Clear your business name
You probably already have a name for your business, because that’s the fun part. But if you haven’t checked that the name is available in certain places, you may end up in a dispute with another company and be forced to rebrand.
Take a moment to legally clear your business name by:
- Checking with secretary of state databases (e.g. California Business Search)
- Running a trademark search for the name at the state and federal levels (for federal: USPTO; for California: Trademarks and Service Marks)
- Running internet searches to find uses of the same name or similar names in your industry
- Check domain name availability with domain name registrars (e.g. GoDaddy)
#2 Choose a legal entity structure
You probably have put off doing this because it seems like a daunting task and not as fun as ordering business cards and setting up your website (or is that just me?). But establishing your legal entity is a huge step towards protecting your personal assets from your business. In other words, once you’ve properly sorted your personal and business activity into distinct “buckets,” a risk you take with your business wont hurt you personally when something goes wrong.
You’re probably familiar with the idea that there are different legal entity structures. The most common types are corporations (Inc.) and limited liability companies (LLC). Which entity type you choose impacts how your business is managed, your personal liability exposure, taxes, financing, and other issues depending on your long term business goals. Consult with legal counsel and an accountant (their couch surfing too) to determine which entity structure is best for you. Other issues that legal counsel can help you with are which state to file in and whether you may want to file in multiple states.
Once you’ve selected your entity structure and cleared your name, you are ready to file your articles and formally become a registered business entity (again, you can do this from home: California Business Entities). Be sure that you’re operational or ready to be operational as entity filing will trigger tax obligations. If you’re not 100% ready, you can reserve your business name with the state and buy some time (California, Name Reservation).
#3 Open a bank account
If you’ve been using your personal bank account to manage your business finances, the bad news is that by mingling your finances you may be personally liable for the sins of your business. It may seem convenient now to keep your money in one account, but once you’re filing taxes, applying for business credit, courting partners or investors, or just trying to figure out your profit and loss, you’ll realize that two accounts are better than one.
Contact your bank to find out what you need to start a business account. They may require a Tax ID Number, another easy task you can complete from home (apply at IRS.gov).
#4 Obtain business licenses
This is one a lot of businesses overlook. And the risk is that once you’re cruising along, growing and making money, you will receive an unpleasant letter and a fine from a local authority letting you know that you’re not authorized to do business in your local area or industry or that you need a permit for a specific activity (warehouse shelving, who knew?). Fortunately, local government offices want you to do business in the area and will help you navigate filings and permits. Don’t be scared, this is a simple process and can net you some good government, business, and marketing contacts to boot.
Another filing you might need is for a fictitious business name (this is your “doing business as” or DBA). You’ll need this when you’re legal entity name is different than the brand name you use to do business. Fictitious business name registrations are managed by county (e.g. San Diego Fictitious Business Names).
#5 Domain Name Registrations
While you were checking on your business name availability you should have learned whether the domain name for your business is available. In many cases it isn’t available. So long as the business using the domain isn’t in the same or similar industry, this doesn’t mean you can’t name your business what you wanted. It means though that you’ll need to pick another domain, possibly a variant of your name or a different domain name extension (e.g. .net, .co, .biz). Understand that different registries operate the different extensions. Register the domain under your business name not your personal name, and consider using domain privacy protection services (especially if your business is registered to your home address).
Another thing to consider regarding domain names is whether you might want to buy variants of your name. You might do this to prevent a similar business from using a variant of your domain, or just to have several addresses directing traffic to your website. Don’t buy up competitors’ domain names however, as this can lead to a legal dispute.
#6 Evaluate Insurance Needs
Yet another task that new businesses tend to overlook is insurance coverage. The reality is that all new businesses need insurance. Some good news is that it’s probably not as expensive as you think and, once you have it and you understand your coverage, you’ll probably sleep better at night. When deciding what insurance to buy, consider your exposure to liability regarding suppliers and customers, employees and contractors, and your particular business activities, such as dangerous activities and inherent risks.
A business insurance broker can walk you through the types of coverage you might consider buying. Typical policy coverage includes: commercial general liability, workers’ compensation, errors and omissions, and directors and officers liability insurance.
No time like the present
Whether your business has slowed or shut down due to the pandemic, if you have time while you’re sheltered in place, consider these tasks as another way to stay safe. Plus, who doesn’t love checking things off of a list, especially these days. Also, your business may qualify for a government backed, forgivable Coronavirus Emergency Loan.
If any of this sounds daunting or complicated, don’t hesitate to contact a small business attorney or an accountant for advice.