Why You Need to Understand Business Startup Formalities


OK let’s get some of the tedious but necessary stuff out of the way…

Before you start your business, it’s a good idea to consider what the status of your business will be and how you will deal with some of the essentials such as insurance, income tax and insurance. Will you form a sole proprietorship, a general partnership, a limited liability corporation (LLC) or a regular corporation?  It’s likely to be a sole proprietorship, general partnership or LLC but let’s just briefly run through the options.

Business status

Sole Proprietor: This is the easiest way of starting a business and probably the best for an Internet based business. There are no formal registration procedures to follow, but do inform the Inland Revenue that you have set up a business as a sole trader. You are liable for any debts you run up with the business and you could risk your personal assets if things go wrong.

General Partnership: This is when you set up in business with other people. Again it is an easy way to set up a business but do get a partnership agreement written up and signed by all the partners as a safeguard. Even friends can fall out over business matters and a written agreement will help solve any problems or misunderstandings, which may arise.

Debts incurred by the business are the responsibility of all the partners who are ‘jointly and severally liable’; so choose your business partners carefully…

It is a good idea to draw up an agreement on the areas of responsibility for each partner in the business. Decide who will be responsible for keeping the accounts in order, for dealing with advertisements and marketing and for other aspects of the business. This sort of agreement ensures a fair division of work and reduces bad feelings when it comes to sharing the profits.

Limited Liability Corporation (LLC): A LLC is a more complicated way to set up a business but it does protect your financial liabilities as the company is treated separately from you as an individual and your personal assets are protected.

The company effectively employs you and so you have to pay to the IRS as if you were an employee.

You will be sent a Certificate of Incorporation before you are able to trade as a LLC. You will be required to submit annual returns. There are also stricter deadlines for submitting your self-assessment forms to the IRS.

Franchise or Business Opportunity: You may have seen advertisements for Internet based franchises or business opportunities. People wishing to start a business may choose this option when they don’t have the confidence to start a business from scratch.

A franchise is basically a licence to run your own branch of an established business. You benefit from the corporate name and the image of the business, which has been built up over a period of time. You pay an initial fee to the franchisor and ongoing franchise royalties in return for training and ongoing support. A business opportunity is a ready-to-go business with everything you need to set up and run the business including (usually) full training and ongoing support. You will have to pay an initial fee that covers the know-how and the start-up package to enable you to run the business.

However, we will take you step by step through the process of setting up your OWN INTERNET BASED BUSINESS and by the end of it… you certainly won’t need to spend money on a business opportunity! You may even end up selling one to someone else!


There are various book keeping systems available and there are courses you can attend through your local IRS office show you book keeping methods.  However, the easiest way to keep accounts is simply to keep a record of sales and expenses in an invoice book (an old exercise book will do!) and make sure you keep all receipts and a record of purchases.

Each month, fill in your income and expenditure on an excel spreadsheet or use the cash flow sheet provided in the CD that comes with this module. You are effectively putting actual figures on your cash flow forecast. This way, you have a running total of your businesses’ financial affairs and it is easy to calculate from this your annual profits and fill in your tax return. You can also keep an eye on the progress of your business in comparison to the forecast you made.

Tax and Insurance

When you set up your own business you become self-employed. This means you are responsible for declaring your earnings to the IRS.

If you also work for an employer, things can be a little more complicated, but simply declare all your income and expenses on the form and you can’t go far wrong. The IRS will be able to tell you the sort of things you can claim deductions for on your business so it is worth having a discussion with them early on.


Just as you’d make sure your best assets such as your car were properly insured, you should also think about business insurance.

All businesses need some insurance cover and it is worth talking to an insurance broker about your particular business and the risks you will need to insure against. You may have equipment or stock to insure or you may need product or public liability insurance, which protects against injury to the public due to your negligence or a fault with your product.

If you employ people to work for you, you will also need employer’s liability insurance. You may also wish to consider income protection insurance and pensions for yourself once you become self-employed.

Health and safety

You will need to consider health and safety issues when you start your business. If you deal with food, you will also need to consider the requirements of your local government’s Health Office to ascertain your responsibilities in this area.

Business names and trademarks

It is a good idea to register the name of your business to protect it from being used or misused by other people. A catchy name for your business is a valuable asset and it is as well to make it official by registering it as a trademark with the Patent Office. It can be expensive though. You may be able to manage with a copyright sign © on your letterheads, logos etc. To do this type ( then c then ) and then hit the space bar. You should find this types the © sign for you.

Copyrights and patents

If you have original work, art, writing, music etc; it is protected by copyright automatically. You do not have to register it with anyone and it is protected for fifty years from the date it was created. Always check copyright and get permission from the copyright owner if you wish to use material for publication.

Patents apply to inventions, new systems, products or designs and you should always protect your ideas with a patent, which prevents others from claiming it was their idea. Contact the Patent Office for details (at the end of the module) but remember that you must keep your invention a secret until you put in your application for a patent. This is one of the requirements of what can turn out to be a complicated process.

Below are a list of useful websites:

The US Small Business Administration’s website has a lot of helpful tips and links.
Well worth a look. www.sba.gov

Your local university’s Small Business Center is a great resource for local information.  The example is a site managed by the University of Missouri, but almost all Universities have similar sites. www.missouribusiness.net

The IRS has great tips for small businesses at www.irs.gov/businesses/small.

For registering patents, visit www.uspto.gov.

The US Chamber of Commerce has great tips, and helps you find your local office.  www.uschamber.com.