Business Structure and Legal Basics

A sole proprietorship is the simplest business structure — you are the business, and the business is you. There is no legal separation between you and the business. This means that if the business is sued or incurs debt, your personal assets are at risk. Sole proprietorships are appropriate for very low-risk, low-revenue businesses — but for most veteran entrepreneurs, an LLC is a better choice.

A Limited Liability Company (LLC) creates a legal separation between you and the business. If the business is sued, your personal assets (home, savings, car) are generally protected. An LLC is relatively easy and inexpensive to form (typically $50–$500 in state filing fees), requires minimal ongoing paperwork, and provides significant liability protection. For most small businesses, an LLC is the right starting structure.

An S-Corporation is a tax election, not a separate business structure. An LLC or corporation can elect S-Corp status with the IRS. S-Corp status can reduce self-employment taxes for business owners who pay themselves a reasonable salary — but it adds administrative complexity (payroll, separate tax filings). S-Corp status is generally worth considering when your business is generating $50,000 or more in profit annually. Consult a CPA before making this election.

The right structure depends on your specific situation: the type of business, your risk exposure, your revenue, and your tax situation. A VBOC counselor or a small business attorney can help you choose the right structure. The cost of a one-hour consultation with a small business attorney is far less than the cost of fixing a structural mistake later.

An Employer Identification Number (EIN) is a federal tax ID number for your business — the business equivalent of a Social Security number. You need an EIN to open a business bank account, hire employees, file business taxes, and apply for many business licenses and permits. Apply for an EIN for free at IRS.gov — the process takes about 10 minutes online.

Business registration requirements vary by state and locality. At minimum, you will need to register your business name (either as a DBA — "doing business as" — or as an LLC or corporation), obtain any required business licenses, and register for state and local taxes. Your state's Secretary of State website is the starting point for business registration.

Open a separate business bank account immediately. Mixing personal and business finances is one of the most common and costly mistakes new business owners make. It complicates taxes, undermines the liability protection of your LLC, and makes it nearly impossible to track business performance. A separate business account is non-negotiable.

Business insurance is also essential. At minimum, consider general liability insurance (protects against claims of bodily injury or property damage), professional liability insurance (protects against claims of negligence or errors in your professional services), and if you have employees, workers' compensation insurance (required in most states). The SBA and SCORE can help you identify the right coverage for your business type.

A contract is a legally enforceable agreement between two or more parties. In business, contracts protect you by clearly defining the terms of your relationships with clients, vendors, employees, and partners — and by providing recourse if those terms are violated.

Every client engagement should be governed by a written contract. At minimum, your client contracts should specify: the scope of work (exactly what you will deliver), the timeline, the payment terms (amount, due dates, late fees), the process for changes to scope, and the terms for termination. A contract that is clear about these elements prevents most disputes before they start.

You do not need a lawyer to draft every contract — but you should have a lawyer review your standard client contract at least once. Many small business attorneys offer flat-fee contract review services. The cost of a contract review is far less than the cost of a dispute over an ambiguous contract.

Free contract templates are available through SCORE, the SBA, and many state bar associations' small business resources. These templates are a starting point — customize them to your specific business and have them reviewed by an attorney.

Veteran-owned business certification opens doors to federal contracting opportunities, corporate supplier diversity programs, and veteran-specific business resources. There are two primary federal certifications for veteran-owned businesses.

The VA's Veteran-Owned Small Business (VOSB) and Service-Disabled Veteran-Owned Small Business (SDVOSB) certifications provide access to VA set-aside contracts — contracts that are reserved for veteran-owned businesses. To be eligible, you must be a veteran who owns at least 51% of the business and controls its daily operations. Apply through the VA's Vendor Information Pages (VIP) database.

The SBA's Veteran Small Business Certification (VetCert) program certifies veteran-owned small businesses for federal contracting opportunities across all federal agencies. The SBA took over this certification from the VA in 2023. Apply at certify.sba.gov.

State and local governments and many large corporations also have veteran-owned business certification programs. Research the programs available in your state and industry. Certification requires documentation (DD-214, business ownership documentation) and periodic renewal, but the access it provides to set-aside contracts and supplier diversity programs can be significant.