Legal 101 for New Founders

How to Set Up a Business Without Getting Burned

Starting a business is exciting—until the paperwork starts looking like a puzzle. Many first-time founders focus on logos, websites, and product ideas without realizing that legal missteps early on can derail an otherwise promising venture.

This guide will walk through the foundational legal steps every entrepreneur must take, from choosing a business structure to protecting intellectual property.

Let’s start with the first decision that trips up even the savviest founders.

What business structure is best for a startup?

Choosing a legal structure isn't just a bureaucratic checkbox. It affects how you're taxed, how much personal liability you take on, and how investors will perceive your business.

The most common small business structures include:

• Sole Proprietorship (easy to form, but no legal separation from owner)

• Limited Liability Company (LLC)

• S-Corporation (S-Corp)

• C-Corporation (C-Corp)

Each has its pros and cons. An LLC is often the go-to for new founders thanks to its flexibility and liability protection. However, if you're planning to raise venture capital or issue stock, a C-Corp may be more appropriate, particularly in states like Delaware, which offers favorable laws for corporations.

Here’s a helpful comparison from the U.S. Small Business Administration: business structure comparison

According to IRS data, over 75% of U.S. businesses are pass-through entities, like LLCs and S-Corps, meaning they don’t pay income taxes at the corporate level.

How do I get an EIN and why do I need it?

An Employer Identification Number (EIN) is essentially a Social Security Number for your business. You’ll need it to open a business bank account, file taxes, and hire employees.

The good news? You can get one for free directly from the IRS in minutes. Apply for an EIN online

What permits or licenses do I need to operate legally?

Depending on your business type and location, you may need federal, state, or local permits. These can include:

• A general business license

• A sales tax permit

• Health permits (for food businesses)

• Professional licenses (for regulated services)

You can search by state using the U.S. Small Business Administration’s license and permits tool.

A recent survey from Thumbtack found that 42% of small business owners said government regulation was their biggest startup challenge—often because of unexpected licensing requirements.

How do I protect my intellectual property?

Before you launch your product or service into the world, consider what you need to protect:

• Your business name and logo (trademark)

• Written content, artwork, and software (copyright)

• Unique inventions or processes (patents)

Trademarks can be searched and filed through the United States Patent and Trademark Office (USPTO). Copyright is automatically granted upon creation, but registration with the U.S. Copyright Office strengthens your legal position.

Pro tip: Run a trademark search before you register your business name. A cease-and-desist letter from a company with a similar name could force a costly rebrand.

📊 Here’s a quick visual comparison of the common business structures:

Structure	Liability Protection	Taxation	Best For
Sole Proprietorship	❌ None	Personal Tax	Freelancers & Side Hustles
LLC	✅ Yes	Pass-through	Small Businesses
S-Corp	✅ Yes	Pass-through + Payroll	Companies with W-2 employees
C-Corp	✅ Yes	Double Taxation	Startups Raising Capital

What should I do after setting up the legal basics?

• Open a separate business bank account

• Set up bookkeeping or accounting software

• Draft founder agreements or an operating agreement (especially for LLCs with multiple members)

• Consult with a startup lawyer if needed