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How to Get Your Business Set up Legally
Back when I asked our members “What do you want us to write about?” a few of them wanted to know how to get their business setup legally. Here’s our guide for how to get it started.
Note: I am not a lawyer or an accountant. Also, some points mentioned here may not apply to your country and state. This is intended as a guide and shouldn’t be taken as legal advice.
If you are only doing a few on the side for family and friends while you study, you may not need a business license. You can just file it as extra personal income (in some countries anyway). However, if you are serious about making money though the computer business, you definitely need to set yourself up legally.
Every country and state has different procedures to setting up a business and the simplest way is to find yourself an accountant. When I first started out, all I had to do was give my accountant some personal information such as my name, age and address and told him what type of business I want to be.
I let my accountant know I want to be setup as a sole proprietorship/individual (which most of you will want as well) which means that I own and operate the business. My earnings though the business are to be considered part of my income and I have to pay the appropriate taxes for such as income tax.
You will need to determine what type of business structure suits you best before you visit an accountant. Some of the business structures available are:
- Individual/Sole Proprietorship – You simply own a business in your own name and have total control over it. The business is considered an asset like your house or your car.
- Limited Liability Company (LLC) – LLC’s are often a good choice because it combines the limited liability features of having a company, but has the tax benefits of being a individual or partnership.
- Partnerships – More than one person owns the business. Partners are “jointly and severally” liable for partnership debts. That means if your partner owes me money, I can call upon you to repay me and you have to seek recovery of the funds from your partner.
- Company – A company is a separate structure who’s owners own shares in it. The company is treated like a “virtual person” for commercial purposes. Some of the advantages of this is the owners generally are not liable for the companies debts so their personal assets are protected (eg. if your business flops, they cant take you house). The disadvantages are that there is relative inflexibility with the distribution of income and you don’t have access to some tax benefits.
There are some more options such as trusts and cooperatives, but they don’t really apply to a small computer business
My accountant also setup my tax ID and setup any government licenses and permits needed. The whole process was under $200 USD.
I could have done much of the setting up myself but it would have taken a long time to research what I needed (remember, your time isn’t free anymore) and I could have still set it up wrong. Paying an accountant is well worth the money. After your accountant sets you up, be sure to ask your accountant what the next step is, what else do you need to do to set your business up legally. Hopefully the accountant had done it all for you, but there may be a few things you will need to do.
Business Names
If you will not be using your own name as your business name such as “Bryce Whitty – Computer Repair Services” and instead using a fictitious name like “GeekSquad” you will need to register a business name (also known as a fictitious name statement, DBA or Assumed Name Statement in America). This will ensure that no one else can legally use your business name.
Your Business Bank Account
I highly recommend that you get a bank account that you will only use for business purchases. Most banks will require that you at have registered business name before they allow you to open an account under a fictitious name.
The advantages of having a separate bank account for your business is that you know exactly how much you are making, you can easily pay yourself wages to your personal account and when tax time comes around, you can hand your accountant your bank statement which makes things alot easier.
Deposit all your income (especially cash) into your business bank account so it serves as documentation of your income. Also pay all your bills and expenses though this account. It makes things easier at tax time.
More Information (Highly recommended you read this):
I have only given a brief on setting yourself up legally as a business as the laws in each country and even state to state differ.
There are many government sites that can give you more specific advice for your country and area.
For more information in getting setup in the USA, check out: https://www.sba.gov/starting-managing-business
For more information in getting setup in Australia, check out: https://www.business.gov.au/info/plan-and-start/start-your-business
For more information in getting setup in the UK, check out: http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1073858805
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Great article Bryce, I’ve just gone through many of these processes and Canadian business seems to bear alot of resemblence to Australia.
For the Canadians, a couple notes:
You must register your business name if it is anything other than your actual name (you can start a business as John Doe, not John Doe’s Chicken). 60 dollars at a local business center.
If you are selling taxable services or taxable goods (99% of the IT industry is taxable) you will need a vendor’s permit. Basically, it gives you permission to charge Retail Sales Tax (RST) and requires you to remit any taxes you collect back to government. Contact Ministry of Revenue – Tax Office for more info.
Finally, if you make 30,000 CAD or more, you must register for a Goods And Services Tax number (GST). You may optionally do this if you make less then 30k. This means you must charge GST on your services, but you may also claim back a refund of all GST you have been charged for you business. (Ex. you charge 10 dollars GST, and paid 2000 on a business vehicle… the government owes you 1990.)
Good luck all, just don’t start a business in my area. :P I’m too new for competition!
In Canada, at least, you should always register for simpified GST reporting. With that, you collect 6% GST from your clients and you simply remit 4% to the government, with the assumption that the 2% you’re not remitting covers the GST you pay out on GST expenses.
Good article just wish we had some more specifics per reagion but that would be alot of trouble.
Good read…..
But the part about “you will need to register a business name (also known as a fictitious name statement, DBA or Assumed Name Statement in America). This will ensure that no one else can legally use your business name.”
That gets registered in your county/town, not nationwide. Others can use the same name and can file fictitious names themselves in other areas of the nation.
The only way to register and make sure nobody uses your name is to Trademark the name.
Great article. I am in the final planning stages of opening a business, so this article counldn’t come out at a better time. Thanks for all of your hard work.
Sole Proprietorship is fine for most people