We get many questions related to “legitimate business”. In this page we discuss it in basic terms and expand on other questions in other pages in this site.
We take a question and answer approach. If you find them not clear or need other information, please contact us so we can either clarify what is here or add to it.
What is a “legitimate business”?
The term is often thrown around by people saying that they want to deal only with legitimate businesses. And then then add their own conditions as to what makes a company legitimate.
Legitimate, in the dictionary sense, generally means lawfully begotten. Something created according to rules and regulations. Something legitimate is something that is what it says it is.
In the law there is no definition of a legitimate business.
Business rules are set by governments. And businesses are required to follow those rules.
Those governments and the law do not define what is a “legitimate business”.
So probably one can probably say, in layman’s terms, a “legitimate business” is one formed in accordance with the laws of the jurisdiction in which it was formed.
Legally speaking it is probably better to ask if a business is authorized to do business in the jurisdiction in which it is doing business. That is what should concern you.
What do I have to do to “be legal” or “have a legal company”?
Again these are loosely used terms.
There are some specific requirements for any entity to do business in a jurisdiction. And even after the business is formed, there are laws that cover employee contracts, taxes, advertising and almost anything else you can think of.
So to be legal you have to be following all the laws and regulations set by any organization that has jurisdiction over you.
What are the legal requirements to do business?
Very generally speaking, you have to file those papers with your local, regional and main (Federal) government offices as they require.
That means getting tax numbers and documents that say that you are authorized to do business in the place that you want to do business. Depending on what governments rule over you, you might need sales tax numbers, local, regional, and main (Federal) government VAT and tax numbers and a myriad of other permissions and documents.
One might say that it is so complex that it is almost a requirement to have a local lawyer – one that understands business regulations – advise you as to what you need.
And that is what we advise.
What should I do when someone asks whether my business is “legitimate”?
Be very wary. Proceed with caution.
Seller fraud, of course, exists. But buyer fraud is rampant. And when someone starts pursuing legitimacy, buyer fraud or other problems may lurk in the background. Read about Protecting Against Fraud.
Here are some general words to the wise.
There are those who use this question to but you on the defensive and get you off balance while they play their con game on you. Such a question generally does not come from a person experienced in business. You are dealing either with an amateur or a con artist.
If you are dealing with an amateur, it is one thing. Treat them politely. To a degree. Some of them may prove to be more trouble than they are worth. And they can be very serious trouble makers. There is nothing more dangerous than ignorance. And, unfortunately, you will find your share on the internet.
And if you are dealing over the internet with a bulk buyer, or a purported wholesale buyer, look at the email address. If it is not over a company name but rather some free email service address, be extra cautious. That can be the first indication of a fraudulent buyer.
To protect yourself, remember that fake cashiers checks and fake money orders are common. Take direct wire transfers to your bank account, payments by paypal VERIFIED accounts, and cash.
Demand a sales tax (or VAT) number and sales tax (or VAT) exemption form before you sell without charging sales tax. Remember that in Europe you may need not only a country VAT number but also an EU VAT number.
Do I have to be a member of a Chamber of Commerce or Business Bureau?
Generally speaking, ABSOLUTELY NOT!
That is qualified by saying that some socialist regimes require membership in government chambers or business bureaus. That you will know about when you form the business.
But for the most part, only a very small percentage of businesses belong to chambers and business bureaus. And that has no affect on their legal status.
Should I join a Chamber of Commerce or Business Bureau?
That is as much a political decision as it is a business decision.
Here are some comments intended to help you make the decision.
You do not have to join to maintain your legal status.
As a first step, run your business with the long term in mind and be concerned with serving your customers so that you get repeat business. That is what business is all about.
And in spite of all your good efforts, expect that no matter what you do you will get complaints. And of those complaining, there are some that you will never be able to satisfy. They will file complaints about you with everyone from business bureaus to the FBI.
Some competitors will file false complaints against you.
Some scammers will threaten to file complaints against you unless you play their game.
Chambers of Commerce are in really image building social networks. Being part of such a network has its political and business benefits. And they are a cash drain.
Business Bureaus and online trade safe organizations are image builders. They are a cash drain without the political benefits.
Look around you. Look at the web at your competitors. How many advertise that they are members of a Chamber of Commerce or Business Bureau? Do the political and image benefits justify the cost of membership in any organization? Or is it better to use your cash to provide better customer service and benefits? Or is it better to use your cash for a good accountant and periodic legal review?
Are there alternatives to Chambers of Commerce and Business Bureaus to build my image?
Long term business is all about image and relationships.
Start by treating people the way you would want them to treat you. And continue doing it as your company grows.
And take a few basic steps. Get more than the basic phone book listing. Put up a website or blog. Get a business phone number. Get a domain name and use your domain name in your email. This is covered in our free starting a business course.
Lay out your marketing plan and follow it. (Marketing plan as distinguished from sales plan or sales funnel.) This is covered in our free starting a business course.
Consult with competent counsel to be sure that you properly understand the laws that apply to your situation.
A good accountant will help you stay in compliance with tax laws.
Build a solid marketing plan and follow it.
And treat people the way that you would want them to treat you!