The Top 5 Legal To-Dos for Female Entrepreneurs
You are ready to delve into entrepreneurship. Here are the first three essential legal steps to take before you make your business official.
Editor’s Note: Bethany Corbin produced this thought leadership piece free of charge to SheVentures readers and SheVentures. Corbin values educating female entrepreneurs like us. If you would like to reach Bethany for a free 15-minute consultation you can find her contact information at the end of this article.
As a female entrepreneur, the foundation for your new business is built on excitement, hard work, optimism, and your ability to overcome unforeseen challenges.
Given that many startups often lack access to steady capital, a key priority for founders is to maximize their initial business potential and sales, with the intention of tackling more resource-intensive processes, procedures, and legal compliance with later funding.
What most entrepreneurs don’t realize, however, is that prioritizing certain legal decisions early in your business’ formation can help you secure funding and close industry partnerships faster.
I am an attorney who works primarily with femtech and digital health innovation startups at Nixon Gwilt Law, so I understand the tightrope early-stage startup founder’s walk between balancing necessities with nice-to-haves.
This is why I have created a two-part series for entrepreneurs who want help prioritizing those initial crucial steps when structuring any new business in the United States. That way, you can plan your money and time accordingly.
FYI: Most of these steps have filing fees plus attorney fees that vary depending on where you live and how complex your business is. Most law firms will be able to give you an idea of what each step will cost you for budgeting purposes and will require you to pay a retainer — that is, an amount to be paid upfront to cover the attorney’s initial costs.
Though you may not think you have the capital to hire an attorney at this stage in your venture, these to-dos should be tackled early, as they will cost you more time and money if done incorrectly or postponed. I’ll start with the first three legal to-dos for female entrepreneurs (stay tuned for Part Two for the rest of the list).
Legal To-Do #1: Select the Name of Your Venture or Product
Following the initial conception of a business idea or product, most entrepreneurs enjoy creating an identifiable name for their new venture. The name of your business venture is crucial, as it represents your first step in branding your product — and sometimes yourself.
The development of a business’ brand plays a pivotal role in marketing and advertising success, public recognition, and reputation. Careful thought should be given to the ultimate name selected, as the business’ brand will carry you forward. Further, though selecting a name may appear relatively straightforward, there are essential legal considerations that impact name selection. These are the steps to take, and most can be started before you ever hire a lawyer.
Conduct a Preliminary Internet Search 👀 🔍
Upon selecting a proposed name, it is highly recommended that you conduct a preliminary internet search for that name. Oftentimes, entrepreneurs discover that someone else is already using the proposed name. Though use of the name by other parties is not necessarily a showstopper, you should pause and carefully consider how consumers will be able to differentiate your product if it uses the same name as another business or product on the market today.
Obtain the Domain Name 📜
Similarly, when a proposed name is already in use by third parties, it can be extremely difficult to obtain the domain name (i.e., the “.com” name), as it may already be taken. Failure to align the website domain name with the product or business name can create customer confusion and hamper successful marketing. An entrepreneur’s goal should be to make it as easy as possible for customers to find the product and website. To that end, once you decide on a name, you should check the domain name’s availability and, if available, purchase it. Searching a domain name can be completed quickly and freely online through numerous websites.
Conduct a Trademark Search 🔬
You should also conduct a trademark search to ensure that any name you seek to use is not trademarked by another person or company. When a company registers a trademark, it obtains the sole authority to use that name or mark (e.g., slogan, logo) in connection with its goods or services.
It is unlawful for another person or company to use that same name or mark (or a confusingly similar name or mark) to sell other goods or services without authorization from the trademark owner. At a minimum, you should conduct a trademark search through the U.S. Patent and Trademark Office. If you type in a name, say “SheVentures,” this is what you will see when you search:
Anyone with an internet connection can conduct this search. The trademark office lists “dead” trademarks to a name as well as live ones. If you were to click into the live listing here, you would see more details about the trademark owner.
If the proposed name is registered, you should select a different name to avoid claims of trademark infringement. If the name is not registered, you should consider whether to file a trademark application to protect the name going forward. An attorney can be helpful in conducting a more thorough trademark search and in filing trademark applications.
Ensure the Name Is Available in Your State of Incorporation 👍
As you consider in which state to incorporate your business (see Legal To-Do #3, below), it is important to check that your proposed company name is permissible in that state. Almost all states require that the registered entity name be distinguishable on the records of the Secretary of State from the name of any other entity on that state’s business registry. Additionally, almost all states have restrictions on the words and abbreviations that can be used in registered business names. This means you must perform an entity name search in the jurisdiction in which you seek to incorporate your business.
To find name restrictions in your jurisdiction, try searching in Google for “[State] entity name rules” or “[State] entity name requirements” (and replace [State] with your preferred jurisdiction — e.g., Delaware). These searches should lead you to the naming requirements and restrictions in your jurisdiction. To conduct an entity name search in your jurisdiction, try searching in Google for “[State] entity search” or “[State] entity name availability”.
This should lead you to the appropriate state department website, which typically will contain a search engine through which you can check the availability of your proposed name. For example, if you are forming your business in Delaware, you can check entity name availability here. If your search on the appropriate state website yields no results for that name, you may have the option of filing a name reservation application to reserve the name until you are ready to file your incorporation documents.
Legal To-Do #2: Determine the Appropriate Business Structure for Your Venture
After selecting an appropriate business name, the next step is to identify and create your preferred business structure. Businesses can typically assume numerous different structures, including sole proprietorships, partnerships, limited liability companies (LLCs), corporations, professional corporations (PCs), and cooperatives, and each structure has its own pros and cons.
Because the business’ structure will influence almost all key decisions — from how much you pay in taxes to your ability to raise money to your personal liability — it is crucial to select the appropriate business structure at an early stage. In general, most entrepreneurs seeking long-term success structure their new business ventures as corporations (including professional corporations), though some may choose the LLC structure. The U.S. Small Business Administration has helpful guidance on selecting a business structure, registering your business, and obtaining relevant licenses and permits.
Creating a C or S Corporation 🤓
A corporation has the distinct advantage of being a separate legal entity from its owners, meaning that its owners are not personally liable for company actions or debts. This is a key consideration for most entrepreneurs, given the inherent financial instability associated with startups.
Raising capital is also generally easier for corporations, as they can raise money through stock sales and can make a profit. Corporations can also continue to operate if a shareholder leaves or sells her shares and are generally the preferred vehicle for businesses that need to raise more capital or that eventually plan to be acquired or go public.
That said, corporations must pay taxes on their profits, and can sometimes be subject to double taxation — i.e., taxed once when the company turns a profit and taxed again when dividends are paid to shareholders on tax returns. To avoid double taxation, consider an S corporation rather than a C corporation. The Internal Revenue Service provides more detail on S corporations and C-Corporations, or you may want to consult with a tax or legal professional about the pros or cons specific to you.
Creating a Professional Corporation or PC 🚀
Professional corporations are also an option if an entrepreneur or professional intends to perform certain professional services as part of the business — e.g., legal and medical services. Some states will not permit a traditional corporation to provide these services; rather, entrepreneurs in these fields are required to form a professional corporation instead. Like corporations, professional corporations shield shareholders from general business liabilities; however, each shareholder in a PC is generally still liable for her own malpractice insurance. If you are performing professional services, it is important to check with your state’s Secretary of State office to determine whether you must form a professional corporation.
Creating a Limited Liability Company or LLC🎯
A limited liability company is a good option for entrepreneurs seeking lower tax rates than those available for corporations. An LLC allows profits and losses to pass through to the entrepreneur without incurring a corporate tax, though self-employment tax contributions to Medicare and Social Security must usually be paid. As with a corporation, an LLC generally protects an entrepreneur from personal liability for the LLC’s debts, though some states may require an LLC to dissolve and reform if there is any change in membership. This means ownership in an LLC is more difficult to transfer than with a corporation.
With any business structure, you will also want to procure any types of insurance that are required to operate and protect your company.
Legal To-Do #3: Submit Incorporation Paperwork and Obtain a Federal EIN
Once you have selected your business structure, the next step is to determine where to incorporate your new business and to file all related paperwork with the state’s Secretary of State. To determine the best place for incorporation, think carefully about your target audience and jurisdiction. Are you a professional corporation providing telemedicine services in Kansas with no plans to expand to other states? If so, registering your professional corporation in Kansas may make the most sense.
Alternatively, if you are a corporation seeking to do business in all 50 states, you may consider incorporating in Delaware. A significant number of businesses — more than 1.6 million — choose to register their company in Delaware. Indeed, angel investors and venture capitalists typically prefer that their entrepreneurs incorporate in Delaware. Incorporating in Delaware is advantageous for several reasons, including:
Delaware is considered a “tax haven” in that it does not collect income tax if your company is registered in Delaware, but does not do business in the state. Similarly, Delaware does not require shareholders to pay taxes on their shares if they don’t reside in Delaware.
Delaware is perceived as a corporation-friendly jurisdiction and has a Court of Chancery, which is dedicated to resolving cases against corporations. This means Delaware has developed a comprehensive body of corporate law, which leads to more predictable outcomes for litigation.
Delaware does not require shareholders, officers, or directors to be residents of Delaware and typically does not require disclosure of directors’ and officers’ names to the state.
To read more about the advantages of incorporating in Delaware, check out the state government’s article, “Why Businesses Choose Delaware.”
In addition to Delaware, Nevada and Wyoming are also perceived as corporation-friendly states for purposes of incorporation. Nevada, for example, offers business owners benefits that include no corporate income tax, no tax on corporate shares, and no annual franchise tax. Further, Nevada has followed Delaware’s model and has a dedicated business court for corporate litigation to enhance the predictability of legal decisions and to minimize business disruptions during case management and resolution. Additional benefits of incorporating in Nevada can be found on the Secretary of State's website.
Similarly, Wyoming may also be a good option for incorporation, especially for new businesses that want to minimize initial and annual filing costs (as incorporation in Delaware can be expensive). Like Nevada, Wyoming has no corporate tax, no personal income tax, and no franchise tax.
That said, incorporation in any state has its challenges. You must comply with all relevant laws and rules applicable in that state for your company, and you must pay filing fees with the incorporation paperwork (these fees are typically higher in Delaware than other states).
Some states, including Delaware, may require you to pay a franchise tax based on the value of your shares in the company, and you will typically need to file annual reports regarding your business. Most states also require you to appoint a registered agent within the state, who can accept legal filings on your behalf. If you elect to incorporate in a state separate from where your business is physically located (or if you are incorporating multiple businesses in multiple states), you may want to use a registered agent service.
When incorporating in a state, check the Secretary of State’s website to find the applicable forms to complete and instructions for submission. If you are incorporating in Delaware, you can obtain the forms online at the Delaware Division of Corporations by searching by “entity type” or “document type.”
Some states allow electronic filing of the form(s), while others require “wet” signatures, notarized signatures, and mailed applications. Be sure to follow all instructions on the form or it may be denied and returned. You should also check the current processing time for your jurisdiction and determine whether expedited processing is necessary (some states can take one month or longer to process and approve applications).
Finally, after you have submitted your incorporation paperwork and it has been approved by the state’s Secretary of State, you need to obtain an Employer Identification Number (EIN). An EIN is a nine-digit number issued by the Internal Revenue Service (IRS) that identifies businesses. It’s akin to how a Social Security number identifies an individual. An entrepreneur will need an EIN to open bank accounts, obtain financing and capital, and hire employees. An EIN is easily obtainable through the IRS’ Online EIN Application. This process is incredibly simple, fast, and free.
By now, you are likely realizing that — yes — there are steps and legal requirements to starting a business, but they are doable. You can perform some of these steps yourself — like the initial name research — to save time and money.
That said, to establish a strong foundation for success, it is important for female entrepreneurs to think carefully about their nascent product and business names, the structure of their business, and their place of incorporation.
Setting aside a portion of any initial funding to discuss these topics with an attorney can help you understand the nuances of each available option and ensure that your business structure is legally sound.
Startup entrepreneurs have repeatedly said that they wished they had established a strong corporate foundation at the beginning. You have the opportunity to create your corporate structure from the ground up — think carefully, conduct research, and enjoy the ride.
If you would like to reach Bethany for a free 15-minute consultation click on the button below.
This is part one of a two-part series.
This expert produced this original thought leadership piece free of charge to SheVentures. This expert values educating female entrepreneurs and the SheVentures community. SheVentures is not receiving affiliate compensation from the author/expert. Questions? Contact social@sheventurespodcast.com.
