Plain-language guidance for building your business

Even simple businesses need written agreements. The most important for most small businesses:

• Client/Service Agreement: Defines scope of work, payment terms, ownership of deliverables, and what happens if things go wrong. Essential for any service business.
• Independent Contractor Agreement: If you hire freelancers or contractors (not employees), this clarifies the relationship and protects you from misclassification issues.
• Non-Disclosure Agreement (NDA): Protects confidential information when sharing business ideas or working with vendors and partners.
• Operating Agreement (LLCs): Even single-member LLCs should have one — it clarifies how decisions are made, how profits are distributed, and what happens if you close the business.

Free templates exist at SCORE.org and LegalZoom's free resources section. For significant contracts, have an attorney review before signing.

Your tax obligations depend on your business structure and whether you have employees. Key items:

• Self-employment tax: Sole proprietors and single-member LLC owners pay self-employment tax (15.3%) on net business income, plus income tax. Quarterly estimated payments are required.
• Quarterly estimated taxes: If you expect to owe $1,000+ in federal taxes, you must pay quarterly (due April, June, September, January). Missing these results in penalties.
• State sales tax: If you sell physical goods (and some services), you likely need to collect and remit state sales tax. Rules vary significantly by state.
• Payroll taxes: If you have employees, you must withhold income tax, Social Security, and Medicare — and pay the employer share. Use payroll software or a payroll service.
• Business deductions: Home office, vehicle mileage, equipment, software, professional development, and health insurance premiums may all be deductible. Keep records.

Misclassifying workers is one of the most common — and costly — mistakes small businesses make. The IRS and state agencies use multiple tests to determine whether someone is an employee or contractor.

• Employees: You control how and when they work. You withhold taxes. You may owe benefits, workers' comp, and unemployment insurance.
• Contractors: They set their own hours, use their own tools, and work for multiple clients. You don't withhold taxes — you issue a 1099-NEC if you pay them $600+.
• The risk: If you treat someone like an employee but classify them as a contractor, you may owe back taxes, penalties, and interest.

When in doubt, the IRS Form SS-8 can request a formal determination. A local SBDC advisor can also help you work through the analysis.

An LLC limits your personal liability — but it doesn't protect the business itself from losses. Common coverage types:

• General Liability: Covers third-party injury, property damage, and advertising injury. Most landlords and clients require it.
• Professional Liability (E&O): Covers claims of negligence or mistakes in services you provide. Essential for consultants, designers, accountants, and service professionals.
• Business Owner's Policy (BOP): Bundles general liability and property insurance — often the most cost-effective option for small businesses.
• Workers' Compensation: Required in most states if you have employees. Covers medical costs and lost wages for work-related injuries.

SCORE and your state's insurance commissioner website can point you to affordable options and coverage requirements for your industry.

If your business produces creative work, inventions, or a recognizable brand, IP protection may matter:

• Trademark: Protects your business name, logo, or slogan. Register with the USPTO (about $250–$350 per class). State-level registration is cheaper but offers limited protection.
• Copyright: Automatically protects original creative works (writing, designs, software code, photographs) when created. Registration with the Copyright Office strengthens your ability to enforce it.
• Trade secret: Confidential business information (formulas, processes, customer lists) can be protected through NDAs and reasonable security measures — no registration required.
• Patent: Protects inventions for 20 years. Expensive ($5,000–$15,000+) and requires a patent attorney. Most micro-businesses don't need one.