Starting a Small Business · Level 2 of 5 · Foundations

Legal setup

Business structures, registration, licenses, and taxes.

Study notes

A sole proprietorship is the simplest structure, but the owner is personally liable for business debts.
An LLC can separate business liabilities from personal assets when formed and run properly. Corporations add more formality.
Register the business name with your state or county as required, and get the licenses and permits your city, county, and state require.
An EIN from the IRS is free. It is needed for hiring employees and for most LLCs and corporations.
Keep business and personal money in separate accounts. Mixing them makes taxes harder and can weaken liability protection.

Quiz: 6 questions

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1. In a sole proprietorship, who is liable for business debts?

The owner personally Nobody The state The bank

2. A main reason people form an LLC is to:

Help separate business liabilities from personal assets Avoid all taxes Skip licenses Never file paperwork

3. Who issues an EIN?

The IRS, for free Your bank, for a fee The post office Your landlord

4. Why keep a separate business bank account?

It keeps records clean and supports liability protection Banks require two accounts for everyone It doubles income It avoids sales tax

5. Which may require a local permit?

Running a food truck Reading a book Opening an email account Buying groceries

6. A 'doing business as' (DBA) name is:

A registered trade name different from the legal name A tax refund A loan type A logo

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