New Business Formation: Your Guide to Being Legit and Protected

Starting a business can be a stressful and confusing process. This article explores new business formation steps to being legitimate and protected.

Did you know that 25% of new businesses fail within the first two years of operation? While there are many reasons for failures, most result from improper handling of pre-launch activities.

Most entrepreneurs give more attention to easy tasks such as finding a business name, business logo, or getting business applications. As a result, they ignore some more serious issues, like determining the business structure or legal forms, which leads to the collapsing of the business.

Your new business formation is more susceptible to failure if you start it without valid information on how to run it, especially on the legal requirements.

Before you start any entrepreneurial activity and hoping that the business will work out fine, here is a guide that will help take your business past the two-year mark.

new business formation

How To Make Your Business Official

Making your business official during new business creation means ensuring that your business is at par with the legal requirements. One of the first steps of making your business official is determining its legal form.

What are The Various Legal Forms of Businesses?

There are various legal forms of businesses, and each one carries different implications. These forms are:


A sole-proprietor business is a business owned and run by one individual. In this business, there is no distinction between the business and its owner.

According to business formation statistics, the sole-proprietor business form is the oldest, easiest, and most common form of business. Since the business doesn’t demand much to establish, the owner has total control of the company.

Nevertheless, in a sole-proprietorship, the owner is 100% responsible for any debts in the business. Additionally, there is no distinction between business income and personal income.

LLC – Limited Liability Company

The limited liability company (LLC) business form is a hybrid of a corporation and sole-proprietorship or partnership.

In an LLC, the business owners have limited liability and are taxed only once for the business. Additionally, there is a shield between the business and the business owner in the limited liability business type.

An LLC denotes that the company owners have limited liability to any losses or debts in the business. Unfortunately, starting an LLC can be expensive due to the filing and legal fees required.

LLC - Limited Liability Company


A partnership is a business governed by two or more individuals who run the business to profit. Partnership businesses can either be a general partnership or a limited partnership.

In a general partnership, the individuals running the business invest their money, time, labor, and property. Additionally, each one is responsible for any debts regardless of how much you invested.

On the other hand, a limited partnership is where owners have limited liabilities to the business. Their liability to business debts is based on their investment or portion of ownership.


A corporation business is a legal entity that has the same rights as a natural person. These are rights such as buying and selling property, borrowing money, operating a business, entering into contracts, and suing and being sued.

Additionally, profits made by the corporate entity are taxed as the personal income of the company.

A corporation business form works best in a large company where there are many employees involved. However, they require complex paperwork to start, and their operations are costly.

Non-Profit Corporation

A non-profit corporation is a legal entity whose primary reason for operation is not profit for its owners. Instead, the corporation’s purpose is to serve the public by operating as charitable organizations, educational organizations, religious organizations, and offering other services for the public’s good.

These non-profit corporations have a tax exemption as a reward for their service to the public. They use any profit they get to handle tasks like hiring employees, among others.

Choosing The Right Entity Type

With the right business entity type, you can get a mechanism that helps ensure your business operations continue even in your absence. Additionally, selecting the right entity type helps clarify the ownership of all participants.

Choosing some entity types like LLC can help you minimize taxes and reduce liability exposure.

Questions to answer to help you choose the right entity type for your new business formations are:

  • What percentage are your assets at risk of becoming liabilities in the business?
  •  How will you avoid several layers of taxation and pursue tax advantages?
  • What is your ability to attract potential investors to your business?
  • How likely are you to offer ownership interests to your main employee?
  • What is the cost of maintaining and operating this business?

How to Incorporate Your Business Correctly?

Incorporating a business is the process of creating a distinct legal entity. This allows the company to operate independently from its owners, like in the case of a corporation. 

Incorporating a business means that you have limited liability. In this event, you cannot clear any liabilities or debts that arise for reasons such as pandemics using your assets.

The process of incorporating your business depends on your business’s resources and budget. Nevertheless, the primary process followed in incorporation is:

Registering Your Business

If you don’t have a business name, get one that is memorable and catchy. In addition, it is wise to use keywords related to the products and services as business names, which will help in online marketing. 

After you settle on the perfect business name, reach out to government agencies that perform business name searches for a business name search.

This process helps ensure that the business name you want to use is not already in existence. Then, if the name is ready for use, reserve it so that nobody else uses it.

Hire a Registered Agent

A registered agent can be an individual, a company, or a business entity. This agent receives legal documents, official mails, and notices on behalf of the business.

Additionally, in a lawsuit, the registered agent accepts the service of process on behalf of the business. When looking for a registered agent, ensure they are located in the exact location where the company runs.

Setting Up Your Records

This process involves preparing and filing all necessary paperwork with the secretary of state. In this stage, you may also need to file the Articles of Incorporation. These are documents containing the legal structure in this new business formation.

Some of the details contained include:

  • Name of the business
  • The corporation’s primary business location
  • The legal purpose of the corporation
  • Address and name of the registered agent
  • Authorized signatures of founders and directors
  • Constituents of the employer business

Insuring The Business

Starting a business means exposing yourself to risks. Therefore, before other steps, look for a reliable insurance plan. Thankfully, there are many insurance types ready to protect you. 

Carefully consider each of them and choose that which best suits the business even in the long-term.

Choosing An Accountant

An accountant is a necessary investment in the business since they help handle growth transactions. 

These are transactions such as hiring employees and expanding the office. Additionally, they look into details like employee tax management, utility payments, and property tax.

How Do You Choose an Accountant?

You should answer the following questions to help you choose an accountant.

  • Is the accountant qualified and has expertise in this field?
  • What is the cost of the accountant? Are the services worth their wages?
  • Do you like the accountant you want to hire? Spend time with them and find out whether this is someone you see yourself working with within the long run.

Be selective when choosing an accountant. The short-term discomfort of interviewing and turning down many applicants is worth the long-term benefit you get in the new business formation.

Apply For An Employer Identification Number

An employer identification number is a number assigned to a business entity. This number is used by the Internal Revenue Services (IRS) to identify the business, especially to pay taxes.

No filing fees are charged when applying for an Employer Identification Number. Additionally, you can also handle this process online by visiting the IRS website.

Get a Certificate of Good Standing

This is a certificate that shows that your business is legally registered and authorized to operate.

Additionally, a good standing certificate shows that your business is up-to-date with all fees and necessary documentation. You can acquire a certificate of good standing online, though its payment varies from state to state.

Are You Ready to Start Your New Business Formation?

Your goal when starting the business is to join the number of firms that venture from small businesses to large corporations.

If you incorporate your business, you increase your chances of making it this far since you are not responsible for the business losses and debts, which are significant causes of business failure.

Additionally, you feel more comfortable running a legitimate business that is protected by the law.


  • Chris Darling

    Chris is a busy mom of two, who loves to tinker with computers and read in her free time. Her knowledge of what it takes to start up a business especially businesses that operate on the internet has helped many people from around the world. Chris often shares her experience as an online entrepreneur and business coach, speaking at events all over about how she created multiple successful businesses and profitable websites. She also offers advice on how people can build their own business website or blog for very little money, while still maintaining quality content. [email protected] Darling Chris


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