It is commonly thought that a digital business requires no legal or tax adjustments. However, tech companies are still subject to many federal or state government requirements, be they tax or legal. Here are four areas that need consideration in order to make sure your business is legit.
Business And Domain Names
There are many things to consider when choosing a business name, such as proper government authority registration. But beyond registration, you have to consider proper branding. If you have a business name, it needs to be the same or recognizable as your website domain name. The same goes for social media platforms. Not only does this build your brand and potential client audience, but each identifier will also need to be recognized under the umbrella name. Website domain names also need to be purchased in advance. If you choose a name and it is not available for your website, you can’t ignore the unavailability and use it anyway, or you may run into legal issues.
Deciding On A Business Structure
Which business structure you choose can determine what kind of tax and legal paperwork you need to follow. Many online businesses decide to list their structure as a sole proprietorship. This is usually convenient because there is no formal paperwork. Unfortunately, this also means that if the business were to have a legal situation, all the legal responsibility would fall on the person who began it.
A limited liability company (LLC) is a more popular route because it protects a business owner’s personal assets from company failure. Although it is common for a single person to begin LLCs, they must first handle startup fees and legal documents to register their company under the LLC structure. C corporations, S corporations, and non-profit business structures are also options that prevent personal assets from becoming entangled in legal disputes. However, these business structures are usually bigger than LLCs, and require more fees and paperwork to initiate.
Licensing And Taxes
Some states require a business license to use and receive sales tax. Business licenses are sometimes necessary, depending on your home state or the purpose of your business itself. They are especially needed if you are selling products online.
Navigating tax requirements is also a necessary feature of digital businesses. Federal and state tax requirements differ between locations and are vital to know before building a company. Applying for tax ID numbers could also prove tricky if you don’t know the regulations regarding business tax.
If your business has employees, federal and state requirements dictate that you must provide social security taxes, unemployment insurance, and disability insurance. These basic requirements give an employee a secure position in your employment and a safety blanket in the event of unforeseen disasters or incidents. The benefits are good for your business too: Cerity Insurance note that having workers compensation coverage can significantly decrease the ramifications of workplace injuries and illnesses. Other benefits that are not required include medical insurance, paid leave, flexible spending accounts, a retirement savings plan, and tuition reimbursement.
Registering your company name and business structure, acquiring permits and licensing, and providing employee benefits are important factors to any digital or tech business. These various requirements legitimize your business to keep you legal and safe.