Starting your own business is a very exciting time, but it comes with several challenges and many requirements that don’t involve the core focus of your business. It’s important to cover yourself legally when starting a business so issues don’t pop up down the road that will cost you time and money. There are a lot of business and legal issues to address in order to lay a proper foundation when you’re getting started, and help make sure you’re getting off to a solid start. Most business owners aren’t willfully avoiding any laws, they just aren’t sure what the steps are to get properly set up, protect the business and themselves personally.
Here are some tips that every business owner should know (whether you’re just starting out or not):
- Register your business. Ideally, you’re going to want to form some type of business entity. That usually means an LLC or a corporation, which can be determined based on what type of business you’re starting and what the goals for your company are. Registering your business ensures that you are able to legally operate under your business name and protects others from using the name. Setting up a separate business entity is also a major step in removing business owners from potential personal liability for company obligations. If there is no legal separation between you and your business you can be held personally liable for the debts and obligations of your business.
- Set up organizational paperwork. Depending on what type of business entity you choose to form, you’re going to need to set up the appropriate paperwork to govern how the business operates. If it’s an LLC, you need an operating agreement, if it’s a corporation, you need bylaws. These are important because they lay out roles, responsibilities and can help address potential conflicts before they come up. If you’ve got multiple owners make sure to address what happens in the event of a disagreement, difference of opinion on business decisions, if one partner wants out, or a partner dies or becomes disabled.
- EIN and business bank account. You’ll need an Employer Identification Number (EIN) or sometimes referred to as a Tax ID number for your business. You can get one for free from the IRS. This is what the IRS will use to track your business activities. No matter what type of entity you form, you should get one of these (even if you’re a sole proprietor). Once you have your business registered and your EIN, you can get a separate bank account in the name of your company. Co-mingling your personal assets and your business assets in the same bank account is one of the most common ways business owners end up being personally responsible for company obligations and debts.
- Licenses and permits. Depending on what type of business you’re running you may need local, state or federal license and permit in order to operate in compliance with the law. Some common examples are a sales tax permit, zoning permits, home occupation permit and land use permits. Federal licenses or permits may be required if any of your business activities are regulated by a federal agency. Business owners also need to check with their locality to determine whether or not they need a business license. Not all locations require them, but it’s important to get one if your city or county has that requirement.
- Contracts. Business owners want to make sure that their operations are running smoothly, are minimizing potential risks where possible and are in a position to handle any unexpected problems as easily as possible. Because your business deals with other companies, people and their actions, it is important that you have a contract with every business relationship you have. That means internal and external relationships; employees, independent contractors, clients and vendors, among many others. You can use the contracts to protect yourself, your business ideas and to cut down on disputes that can disrupt the flow of your business.
- Know what your intellectual property is. Every business has some sort of intellectual property, whether it be in the form of trademarks, copyrights, patents or trade secrets. Most businesses are developing intellectual property or proprietary information on a regular basis, so you're going to need to know how to spot it in order to be able to protect it. Intellectual Property can become an extremely valuable asset for a business in the right circumstances; develop a process of identifying and protecting yours in order to both protect business assets and use them to your advantage to grow your business.
- Laws and regulations. Depending on your business and the plans you have for it there may be quite a few legal obligations you’re going to have to comply with on a regular basis. If you’re hiring workers, you need to make sure you’re meeting all the obligations under state and federal laws. If you’re hiring independent contractors, you need to have a management system in place that avoids misclassification. You may have OSHA regulations or insurance requirements, reporting requirements or just general questions about avoiding potential risk and liability. These are all things that need to be managed regularly; they are constantly changing and you don’t want to find your business in legal trouble that could have easily been avoided.
Have questions about what the legal issues in your business might be? Contact us for a free consultation.