Opening a business is no small feat. If you are a small business owner, or you are considering becoming one, there are a myriad of economic factors to consider. Have you done your market research? Do you know about your competitors? Do you have a marketing strategy? What are your financial targets and constraints? Carefully considering all of these questions is a key to small business success.
Too often, however, these considerations dominate the discussion when you are opening a business, and the equally important legal issues are ignored. This is perhaps the biggest mistake that a small business owner can make: disregarding the legal risks that goes along with opening a business, until it is too late.
We’re here to help you avoid this mistake. Here is a list of the most important legal issues to keep in mind as a small business owner.
Creating a Separate Legal Entity
You have to create a separate legal entity before you start doing business. This protects your personal assets, ensures legal compliance, and establishes a legal record of your company from day one. Determine whether you need to incorporate as an LLC, C or S corporation (or as another type of entity), and register your business before opening your doors.
Protecting your Intellectual Property
In many ways, your small business success relies exclusively on your ability to commercialize your intellectual property: your brand, innovations, designs, and creative work. If you do not own these aspects of your business, you do not have the exclusive right to profit off it. This means you will likely be outdone by competitors, and you won’t be able to attract investors. There is no doubt about it: you have to protect your intellectual property, in all forms, as soon possible.
Setting Up Sufficient Contractual Protection
Many small business owners start out without proper contractual arrangements with suppliers, customers, and employers. After all, the first stages of a business is often quite informal and organic. This can be a very, very expensive mistake, however. Without standardized and written contractual protections to fall back on, you are vulnerable to exploitation and legal liability.
Implementing Reasonable Restrictive Covenants
Any small business attorney will tell you that you need to incorporate restrictive covenants into your employment contracts. These clauses protect your business interests: they include non-compete, non-disclosure, and non-solicitation agreements. Not all types of restrictive covenants are legally enforceable, however. It is very important to ensure that your employment contracts contain provisions that can reasonably be enforced down the line if needed.
Complying with Tax Law Requirements
As an employer, your small business is obliged to report and withhold tax from your employees’ paychecks. You are also required to pay sales taxes. In light of recent developments, you are required to pay sales taxes even if you are an internet retailer. Failure to comply with all tax requirements can lead to expensive fines and lawsuits. It is therefore advisable to always ensure that you are in good standing with the IRS.
Register with the Applicable State Authorities and File all Reports
Depending on the state you are registered in, and the type of business you operate, there might be reporting requirements for your business. For example, all employers in Texas have to pay Texas unemployment insurance if they pay more than $1,500 in gross wages per quarter or employ at least one employee during 20 weeks of a calendar year. Another example is that most states require that businesses have retail licenses as well as health and safety compliance records. Yet another example of such an (often overlooked) state-specific requirement is that Delaware requires all businesses to pay franchise taxes, even if they are not liable for income tax.
These pernicious state- and industry specific requirements are sometimes overlooked by small businesses when they start out. The risks of non-compliance are substantial, however. This includes not only potential liability for fines or suspension of licenses. It also includes the risk of losing potential investors. In short; always be in good standing with state and federal regulatory authorities. Be proactive about getting to know all your legal obligations. This is where the services of a small business lawyer becomes indispensable.
For All Your Legal Needs: LawTrades
We get small businesses. You need to focus on growing your business, and you don’t have the resources or time to get bogged down with legal issues. That’s why our small business attorneys offer the ideal compromise between your legal risk and cash flow concerns. Whether you need to establish protection for your intellectual property, refine your employment agreements, rethink your fundraising strategy, revisit your contractual arrangements, or anything else, we’re here for you. Our legal experts are modernizing legal services so that it serves your business interests.