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Starting a small business goes beyond choosing a name, services, products, sales strategies, and marketing. While they’re the more prominent and exciting aspects, there are other factors to consider as an entrepreneur. 

One significant area of concern is your business’s obligation to follow local and federal laws while providing quality services and products to its target customers. 

Besides providing a decent and safe environment for their customers and employees, businesses must comply with local, state, and federal regulations. Failure to take necessary precautions and implement effective strategies may ruin your chances of success. 

Whether you’re just starting a small business or have been in business for a while, you’ll need to understand the legal aspects of running a small business. Let’s dig in!

Legal Requirements for Starting a Small Business

Before bringing your business idea to life, you’ll need to ensure that you’ve done your due diligence. Some legal requirements your new business will need to include the following:

Consider a Trust for Legal Protection

Most small business owners operate sole proprietorship as their default business structure. While running a sole proprietorship has many advantages, including little or no special paperwork or filings before starting, there’s a significant disadvantage. 

Once an aggrieved party sues your sole proprietorship business, the litigant might go after your business and personal assets like your car, bank accounts, and home. 

Consider setting up a trust for legal protection on your business. That way, the trust will protect you from personal liability if your company gets a lawsuit. 

Protection Of Your Intellectual Property Is Important

Your business’s copyright and trademark issues are serious legal issues you shouldn’t take for granted. As a new business owner, ensure the name you chose isn’t already trademarked. 

Launching your small business and advertising your services and products with an already trademarked name is a recipe for serious legal complications. 

A Binding Contract Requires a Meeting of Minds

A contract’s fundamental premise is that it can’t be binding except there’s a “meeting of the minds.” Simply put, both parties will have to share a basic understanding of the contract terms while agreeing to be bound by the terms. 

Make sure you know what you’re agreeing to and signing. You’ll need the help of a lawyer to ensure both parties understand the duties spelled out in the contract. That way, you both will be on the same page on the contract terms to avoid costly litigations and disagreements down the road. 

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Your Small Business Should Adequately Safeguard Data

Corporate data breaches and cybercrime have been on the rise recently. Regardless of your company’s size and the number of customers, your startup has a legal obligation to safeguard your staff and customers’ personal cyber information. 

Current security software and antivirus measures help to protect valuable information from theft. Backing up your paper files is also crucial in case there’s a fire or theft disaster. Don’t forget to store backups offsite for safekeeping.

It’s Usually Better to Negotiate Versus Litigate

Regardless of the legal issues you may have with a business partner, client, or staff, find a way to settle it without rushing into a lawsuit. A lawsuit entails paying legal fees, and let’s not forget the time factor. 

Hence, you need to consult a lawyer concerning any legal issue. That way, you won’t have to spend the amount a legal battle will cost.

Keep the Law on Your Side

Ensure you understand business law basics when starting your company. Don’t forget that ignorance isn’t an excuse for a regulatory infraction or illegal act. 

Hence, it’s vital to consult an expert like DR Legal Process Service for business legal services and counsel.

Validity of Written Contracts Versus Oral Contracts

While many undermine the power of oral agreements, it might surprise you to know that verbal contracts are technically legally enforceable. Although it’s difficult to determine who is lying and who isn’t, just because an agreement isn’t written down doesn’t mean it’s invalid. 

However, some contracts should be written to ensure their validity. They include:

  • Contract for sales of goods exceeding $500
  • Real estate sales
  • Agreements that you can’t perform under a year

Written contracts are best as it creates little to no room for confusion when the other party errs.

Your Small Business Should Maintain Comprehensive Insurance

In most business zones, entrepreneurs with many staff will have to go for employer’s liability insurance. Besides being a legal requirement, sufficient insurance coverage helps prevent incurring fines when you aren’t insured. 

More so, you get to become less vulnerable to visitors and employee’s compensation claims when they get sick or injured on your premises. Besides the employer’s liability insurance, consider getting professional indemnity or public liability. 

These coverages will protect your company from compensation claims when anything wrong happens.

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Privacy Policies Are Crucial to Protect Customers

If you’ll enter into any contract with your suppliers or work with a partner or bank for business financing, ensure to have the right non-disclosure and confidentiality agreements. 

These parties will want to access your private business information; thus, you might want to prepare these contracts yourself. Ensure your suppliers and partners sign them too. 

Your Choice of Legal Business Structure Is Important

One first thing you must do when starting your company is business structure. Do you want your business to be a sole-proprietorship, corporation, partnership, limited liability company, S-corporation, or limited partnership?. The nature of your company will determine the best business structure to adopt. 

The business structure you choose will in turn determine the tax structure you’ll pick and your business’ liability issues, so choose wisely. 

Keep Personal, and Business Funds Separate

If you’re unable to set up a trust for your business, you’ll still need to separate your personal information and yourself from your company. Thus, your startup should have different credit cards, bank accounts, etcetera. 

You might want to consider keeping your personal and business funds separate to avoid commingling, resulting in legal issues. It wouldn’t also be wise to use business funds to settle personal expenses. 

Hire Solid Legal Counsel

Your business will need legal counsel if you intend not to spend all your time and resources on lawsuits. While startups are often concerned about the cost of hiring an attorney, it’d be best to seek legal counsel and save yourself millions down the line. 

Ensure you hire a seasoned business attorney on contract, intellectual property, securities, and employment law.

Find Out Your Federal Taxes

As a new business owner, you have to take note of business taxes, a vital part of small business sustainability. You’ll need to pay a specific amount as tax to the government for your business. 

It’d be best to apply online for the Employer Identification Number (EIN). That way, the government will easily distinguish your small business from other companies during tax collection. 

Hire Wisely

Hiring new employees might be a boon or bane if your business isn’t in order. After you’ve defined the available roles and conducted the interview process, it’d be best to run a background check on any candidate you pick. 

That way, you’ll easily screen their credit, employment, and criminal history to determine that the new employee is truthful about their past. This precaution helps shield your customers and employees while protecting your business from liability. 

Also, verify that new employees can work in the country legally once their record is clean. Ask the new employee to provide their work visa, passport, Driver’s license, ID, and fill out the I-9 Form’s first section to verify employment eligibility. 

Check Which Licenses, Permits, and Registrations Your Business Needs

Depending on your business structure, you might need to get a license before starting. Whether a small business or startup, venture licensing is a vital part of the business. Thus, it’d be best to check whether your company will need authorization to avoid any legal trouble.

Specialized domains such as transport, legal, medical, etcetera need specified licenses to run their business smoothly. It’d be best to research online for a list of professions requiring permits and authorizations in the US and take special precautions about getting the license. 

Protect Your Intellectual Property (IP)

Every real business has its intellectual property (IP) to protect. Intellectual property includes trademarks, copyrights, trade secrets, and patents. Ensure to file your patent immediately (it might take five years and more to get). 

Consider consulting an experienced IP attorney to provide legal counsel throughout the process. 

Make Sure Your Investors Are Accredited

The Securities and Exchange Commission (SEC) has defined what an accredited investor is, including eight classifications of investors. However, general investor accreditation entails the following:

  • An investor with a minimum of $200,000 annual income
  • Has at least $1 million
  • Willingness to take investment risks

While you might want to raise money through other non-accredited investors, it’d be best to go for mainly accredited ones.

Hire a Competent Lawyer

The legal aspects of running a small business mentioned above are necessary to ensure it’s legally compliant when starting your new company. 

Typically, your specific business, state of operation, and the business entity will determine your steps. Hence, you might want to consider hiring an experienced business attorney to help you handle complicated legal issues that may come up. 

Register the Business Name

After deciding on a company name, ensure you register it to enable state and local governments to track your actions. Unless your business structure is a  sole proprietorship operating under your own name, you might want to register a Doing Business As (DBA) or Fictitious Business Name (FBN). 

After registering your business name with the county, you’re free to pay taxes and operate under that name.

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Make Sure You Pay Proper Business Taxes

There are four basic taxes for businesses under the Internal Revenue Service (IRS), including employment tax, income tax, excise tax, and self-employment tax. 

Besides these taxes, there are also state-specified tasks for businesses operating in that state. However, the business structure determines the tax it’ll pay. 

Get Your Employer Identification Number (EIN)

Businesses that run as partnerships or corporations with employees will have to get the IRS’s Employer Identification Number (EIN). The EIN serves as your business’s social security number, helping to identify it for tax purposes. 

It’s great for opening business bank accounts, applying for business licenses, and filing tax returns. Apply for EIN online through the IRS EIN Assistant. 

While single-member LLC or sole proprietorships don’t need to get EIN, it’d be in their best interest seeing as I’ll create extra separation between personal liability and business, removing your personal social security number from business documents. 

Create a Company Handbook

After sorting out the legal headaches that come with starting a small business, ensure all your staff understands your business’ legal liabilities because you might become liable if they go against the law while representing your company.  

Employee or company handbooks are the perfect way to instill your business’s legal boundaries and values. Ask your legal counsel to write it or at least preview it before presenting it to the staff.

After Hiring

After hiring your employees, you’re expected to follow certain obligations, like registering with the Department of Labor. Once you report your employee to the state labor agency, you must pay state unemployment compensation taxes.

Don’t forget to hang Labor Law posters covering all the employment laws and rights according to state laws, OSHA, and federal laws. Staying updated with these labor laws protects you from fines or violations and assures employees of their rights.

  • Set a Vesting Schedule for All Founders and Early Employees

One practical measure many small businesses overlook when starting is setting a vesting schedule for early employees and founders. This measure will protect your company down the line, ensuring a particular commitment level from each early employer or founder.  

With a vesting schedule, your investors won’t sell their stock anytime they want because the stock ownership will vest for a while. It might interest you to know that many investors demand this measure before making any initial investments.

  • Get a Founders Agreement in Writing

Suppose your business works with many business owners; ensure that everyone understands their responsibilities and rights regarding the business. If your business is an LLC, get an LLC operating agreement and articles of organization. 

On the other hand, owners of corporations will need articles of incorporation and formal shareholder agreement. It’d be best to seek expert legal counsel to ensure good statements and contracts. 

Final Words

And that’s a wrap! Now you’re up to date with the legal aspects of running a small business. Thus, you might want to start spreading the word about your new startup. Most independent and small business contractors prefer to advertise themselves by reinforcing their presence on social media and creating a website. 

It’d be best to identify your target market and how to reach them. Besides your website which displays your expertise, utilize social media platforms like Facebook, Instagram, and LinkedIn to build your personal brand. 

Create a marketing budget and look for other cost-effective options. Most importantly, ensure your small business fulfills all the legal requirements mentioned above to avoid getting into legal troubles and enjoy steady growth.