Are you an inspiring entrepreneur?

If so, you’re in good company. Experts estimate that Americans start around 627,000 new businesses each year!

The decision to become self-employed might be easy, but knowing how to become self-employed legally isn’t as obvious. What steps do you need to take to set up your business and ensure you won’t face any legal troubles?

Keep reading for our concise self-employment guide.

1. Decide on a Business Structure

Before you can become self-employed, you need to choose the type of company you want to set up. Your options include:

  • Forming a sole proprietorship, a corporation, or a Limited Liability Company (LLC)
  • Working as a freelancer or an independent contractor
  • Opening a franchise

Each business model comes with pros and cons. For example, you may have to do less marketing if you buy into an established franchise, but you’ll need a lot of capital upfront to get started.

2. Obtain Licenses or Permits

Depending on the type of company you’re starting, you may need to get a professional license, business license, or business permit. The requirements could come from a city, county, state, or federal level.

If you’re not sure what’s required in your area or your niche, the SBA keeps a detailed list of requirements for federal licenses and permits.

3. Register Your Business Name

Once you have the legal legwork done, it’s time to choose and register your company name. Cross-reference it on the Department of State Business Registry to ensure no one else is already using the same name. (You can find this under “Corporate Name Availability.”)

After you’ve verified that your business name is available, register it through the Department of State’s website. You’ll also want to log into your state’s Department of Revenue site and register there if you plan to sell goods or collect sales tax.

4. Get Your EIN

You’ll need an Employer Identification Number (EIN) if:

  • Your company includes more than one member or owner
  • You plan to hire one or more employees
  • You prefer to be taxed as a corporation

As this page explains, you’ll need your EIN when you start hiring and paying employees — even if they’re independent contractors. You can get a free EIN through the official IRS website.

5. Pay Your Business Taxes

Speaking of taxes, the law requires that self-employed people pay quarterly estimated taxes during the year. These deadlines fall on:

  • April 15th
  • June 15th
  • September 15th
  • January 15th

Track your income and expenses and then use a 1040 ES form to pay your quarterly taxes. If you’re an independent contractor, you’ll receive your income information on a 1099-MISC from your employer (and you’re still required to pay quarterly taxes).

Now You Know How to Become Self-Employed Legally

Becoming self-employed is a big (and exciting) decision to make.

Before you take the leap, make sure you understand exactly how to become self-employed legally. If you do, you won’t have anything to worry about besides growing your company!

Looking for more great business and startup advice? Our blog has plenty of great posts on the subject, so stick around and keep browsing.