From establishing a type of legal business entity, to following small business laws related to employment and taxation, a good business lawyer and some legal knowledge can help you open up successfully and avoid legal issues.
This small business guide explains legal requirements for business plan creators but doesn’t serve as official legal advice. For how to legally start a business, partner with a lawyer to ensure you meet all small business legal requirements to open up shop. Keep these legal requirements for starting a business in mind to help protect your employees, your operations, and your business livelihood.
Before you start your business, you need to select the appropriate legal structure. For example, will you have an LLC or corporation? The structure you choose will affect everything from your tax payments and benefits to business liability.
There are several types of business entities to choose from. These include:
The business structure you choose will depend on different factors, including how much risk you want to take on as a business owner, what taxation you prefer, how much personal liability you’re willing to take on, and more. You can work with a legal advisor for small business to get guidance on what structure to choose.
Small businesses may encounter legal disputes both as the plaintiff and as the defendant. For example, if another business steals your intellectual property, you may choose to sue them for damages. If a worker alleges you fired them wrongfully, they could sue your business.
One way to help avoid court is to first attempt to negotiate a dispute resolution outside of the courtroom. If your business retains an attorney, talk with them about your options.
Legal action could take place in small claims court or go to trial in litigation. Small claims court can generally be used for smaller amounts of money in dispute – check your state to find the limit. For bigger cases, those could require litigation.
Business owners should consult professional legal advice in areas including compliance with federal, state, and local laws; risk management, liability reduction, contracts and agreements, and taxes. You should also seek legal representation in cases where:
Not having proper legal representation and counsel could seriously impact your business. When critical issues arise, seek the advice of an attorney.
Paperwork plays an important role in running a business. Written contracts can help protect you as a small business owner, in case a business partner fails to live up to the expectations set forth or takes advantage of you financially.
It’s helpful to work with a business attorney to determine the types of written business contracts you’ll want to create and the appropriate language that should be included in each one. Some of the most common types of business contracts include:
Key elements of most types of contracts include the service or offer, terms of acceptance, legal ramifications of violating a contract, and timelines of the contract. It’s best to have a business attorney draft any new contracts you need and read through any contracts you’re presented with before you sign.
Intellectual property includes the ideas and innovation you create with your mind. It can range from inventions and product designs to names and brand creative elements.
Business owners who create intellectual property, such as designs, artworks, and brands, have the rights to own this property. In other words, another business can’t use your intellectual property without your permission.
For intellectual property protection, you can work with an attorney to obtain a copyright, trademark, or utility patent on the type of intellectual property you want to protect. For intellectual property that falls into the trade secrets category, you can put steps in place to hold and protect the trade secrets. This will help you if you choose to pursue legal action if someone steals your trade secrets.
The U.S. Department of Labor outlines employment laws for small businesses. No matter what type of small business you have, you’re legally obligated to:
Depending on the type of employees you hire (full-time employees versus independent contractors, for example), you’ll be legally required to follow certain wage, hour, and taxation laws. Misclassifying a worker can be costly and result in legal disputes, penalties, fines, and back taxes.
You’ll also want to be aware of potential employment discrimination and termination laws. Employers may be sued for wrongful termination, which includes firing an employee due to discrimination or because an employee reported and refused to participate in harassment, an illegal act, or a safety violation.
As you create your hiring strategy and determine your workforce needs, work with a business attorney to ensure your hiring terms are legal and that you have the right employer contracts in place.
The IRS may conduct audits on small businesses to verify that documents, paperwork, and tax information are all accurate. If your small business is audited, the IRS may request documents that show taxable income, losses, deductions, and expenses.
A POS system that accurately captures transactions and produces financial reports can make it easier for your business to keep track of tax information. Some point of sale (POS) systems enable you to integrate transaction records with all other company financial information, so you can get a clear view of your small business accounting using one simple system.
There are several types of small business insurance that can help protect your business and keep costs lower to operate. Depending on your business type, you may be legally required to purchase a specific type of insurance. According to the SBA, business insurance types include:
You can typically get free business insurance quotes from insurance providers. It may be helpful to talk with several insurers regarding pricing and coverage options, so you can make the best choice for your business.
Once you’ve decided on a business structure, you must register your business with the relevant local, state, and federal agencies. The small business startup requirements for each state and city may vary, making it important to work with a business attorney to ensure you’re following the right steps. You can find the requirements for registering your business in your state here.
Generally, business registration will require completing the following actions after you’ve chosen your organization’s business structure:
You may also want to register your business with the U.S. Small Business Administration (SBA), which offers small business owners guide and resources, including grants, loans, a business legal advice helpline, and business connections.
Depending on the industry you operate in, you’ll need to understand and follow various industry and state-specific regulations and licensing requirements. For example, agriculture, aviation, firearms, tobacco, and alcohol industries all have strict requirements a business must meet in order to legally operate.
To remain legally compliant, you’ll have to:
Failing to meet these requirements could result in fines, penalties, and other consequences. A business attorney who has knowledge about your industry can help.
There may come a day where you decide to move on from your small business and sell it or pass it on to a loved one. In order to do so and ensure the business remains in legal operation, certain contracts and agreements must be executed in exit planning.
Some of the options small business owners have to exit a business include:
You may also choose to liquidate and close the business. In some cases, a business owner files for bankruptcy when they can no longer handle the debts of a business.
In any strategy, it’s important to work with a business attorney to draft the proper paperwork and protect your stake in the business or financial standing after moving on.
Small businesses can be fulfilling to open, but they also require following laws and regulations in order to operate successfully. Understanding the importance of legal requirements in business can help you protect your operation. Small business owners should consult with attorneys to learn more about requirements pertaining to this list of legal requirements for business:
One way to organize your finances and make it easier to meet your small business tax requirements is to use Clover POS systems, including restaurant POS system and retail POS system options. Whether you sell in stores, online, or a combination, Clover POS solutions more accurately capture data and track transactions to help simplify small business accounting. Why wait? Elevate your business, and get started with a Clover POS system today.
This information is provided for informational purposes only and should not be construed as legal, financial, or tax advice. Readers should contact their attorneys, financial advisors, or tax professionals to obtain advice with respect to any particular matter.
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