Dreaming of starting your own business?
Every entrepreneur gets excited about starting the next big thing.
The rush of building something from nothing. Being your own boss. Creating real value in the world.
But here’s the truth…
99% of new entrepreneurs forget the most important step – solid legal foundation from day one. And that will cost them dearly.
- 5x Legal Business Structure Mistakes You MUST Avoid
- 5x Steps To Legally Form Your Business in 2024
- A Bulletproof Checklist of Essential Legal Steps
- 3x Common Legal Mistakes to Protect Yourself From
Why Legal Structure Matters For Your Business
Operating your business without a legal structure is a recipe for disaster.
You might think it’s fine for now…but trust me, the day something goes wrong, it all comes crashing down on you.
Did you know that in August 2025 there were 473,679 business applications made alone? That’s a lot of entrepreneurs trying to make it big. The question is…how many are doing it the right way?
Getting your business formation right from the get-go can save you:
- Time – no headaches later on when things go south
- Money – no nasty legal bills and tax headaches
- Stress – sleep better knowing you are covered
When business owners in Chicago are forming their companies, many opt to work with the experienced team at Business Law Group. These professionals with degrees in business law understand both the strategy behind the business and the legal requirements to get it off the ground. By having their guidance during business formation, legal experts can structure the entity in such a way that both the owner’s personal assets and the company are protected.
Now… **why is this important? **
The entity that you form as a business owner affects everything. It’s going to impact how much tax you pay to the IRS. It determines how much you’re personally liable for if someone sues your business. Heck…it even determines how you get paid!
Choosing The Right Business Entity
Here’s where many entrepreneurs get stuck…
What do you name your business? What are you called? Sole Proprietor? Partnership? Corporation? LLC?
There are actually 5x main types of business entities you can form:
- Sole Proprietorship
- Partnership
- Limited Liability Company (LLC)
- S Corporation
- C Corporation
And each one has different pros and cons, legal requirements, and tax implications. Let me quickly break them down for you…
Sole Proprietorship
Easiest option of all. Your business and you are not distinguished legally in any way. You’re the boss and the employee. No real hassle to set up and file paperwork for.
The problem? Personal liability.
You are fully responsible for anything that happens with your business. If it’s sued, your personal assets are on the line.
Partnership
Super similar to a sole proprietorship, but with two or more owners. You share the profit/losses and, unfortunately, the liability.
Limited Liability Company (LLC)
A lot of entrepreneurs form this type of business entity. This is one of my personal favorites.
An LLC protects your personal assets from business liabilities. You get the liability protection of a corporation with the tax advantages of a partnership. It’s the best of both worlds.
S Corporation & C Corporation
These are more complicated structures that are often used by larger businesses. They have great liability protection and various tax benefits.
The downside? A lot more forms, regulations, and requirements.
5x Essential Legal Steps Every Entrepreneur Must Take
Now let’s look at 5x practical steps that you need to take in order to form your business.
Step #1: Choose Your Business Name
Pick a business name and check to make sure no one else is already using it.
Search your state business registry and double check if the domain name is available. If you plan on having a website, you will need this!
Step #2: Register Your Business Entity
Register your business name with your state by filing the necessary paperwork. You want to make sure that the state recognizes your business entity, especially if you form an LLC or corporation.
For an LLC, this is called Articles of Organization. For a corporation, it’s Articles of Incorporation. It’s different in every state, so make sure to check what’s required where you live.
Step #3: Get Your EIN
An EIN is like a social security number for your business.
Employer Identification Number (EIN) is what you need to:
- Open a business bank account
- Hire employees
- File your business taxes
The good news is that you can get one for free from the IRS website in about 10 minutes.
Step #4: Register For State & Local Taxes
Depending on where you live and the type of business you have, you may need to register for various taxes with your state.
This can include:
- Sales tax permits
- Employer taxes
- Industry specific taxes
Each state is different, so you will need to do your research on what applies to your business.
Step #5: Obtain Necessary Licenses & Permits
This step is going to vary widely based on your industry and location.
Some businesses need federal licenses to operate. Others just need to register with the local government. Many need both.
Make sure to check with your city, county, and state to see what is needed for your industry.
Operating without the right licenses can result in hefty fines and business shutdowns.
Protecting Yourself From Legal Pitfalls
Did you know…
Between 36% to 53% of small businesses are sued every year? That’s a huge percentage of entrepreneurs being dragged into legal nightmares.
The only way to win that fight? Be Proactive.
Here’s how to bulletproof yourself from legal attacks…
Separate Your Personal & Business Finances
This cannot be stressed enough.
Open a separate business bank account. Get a business credit card. Don’t commingle personal and business expenses.
If a court ever needs to “pierce the corporate veil” of your business structure, it will look at how separate your personal and business finances are. If you mix the two, they can go after your personal assets. Keep the two completely separate.
Get The Right Insurance
Business insurance is not an option, it’s a necessity.
You will need at minimum the following coverages for most businesses:
- General liability insurance
- Professional liability insurance (this depends on your industry)
- Workers’ compensation (if you have employees)
Create Solid Contracts & Agreements
This one is huge…
Every relationship you have with another party needs to be in writing.
This includes:
- Client contracts
- Vendor agreements
- Partnership agreements
- Employee contracts
Get into the habit of everything being documented. This will protect you when people break their promises.
Stay Compliant With Regulations
Let me ask you this…
Do you keep up with all the new laws and regulations in your state and industry? Heck, do you even know what those are?
You better start…
Laws are constantly changing. Regulations are updated. New requirements are added all the time.
You have to stay on top of your compliance requirements or you will get hit with penalties. This includes:
- Annual report filings
- Tax filings
- License renewals
- Industry specific regulatory requirements
Set calendar alerts so you never miss a deadline.
Final Thoughts
Starting a business is exciting. The potential to build something from nothing is exhilarating. But don’t let your enthusiasm lead you into legal land mines.
The legal formation of your business is not just paperwork. It’s the armor that protects everything that you have built. If you take the time to do it right from day one, you will set yourself up for long-term success.
Remember these action items:
- Choose the right business entity
- Register your business name
- File the required paperwork with your state
- Separate your personal and business finances
- Purchase the necessary insurance policies
- Get everything in writing
The entrepreneurs who win are the ones who plan ahead and protect their businesses with a solid legal foundation.
Take action today and get it right from the start.
Your future self will thank you for it.
