When starting a new business, it is important to remember that the number one priority you should focus most of your attention on is growing your business. Unfortunately, there are a myriad of different things that will always creep up to distract your attention away from your main priority. Of all these things, there is arguably no issue more important or more devastating than legal issues.
These legal issues can range from copyright or intellectual property laws, compliance issues, regulations, business liability, tax laws, litigation, state or federal regulations, and countless other legal issues.
With so much to know and understand in the build-up to, and in the early days of starting the business, it is a good idea to educate and inform yourself, as much as possible, about some of the most important legal situations that your business could potentially face at some point in time. This article attempts to provide you with some such information.
Below are some of the top questions and answers that every small business owner should know before starting their business.
1. Which Business Structure is Right for My Business?
The best answer is that it depends on various things like the type or nature of the business, how many people will own the business, whether there will be external investors, especially at the outset, and more.
Generally speaking, four types of business entities exist under which your business can be structured: sole proprietorship, Limited Liability Company (LLC), Corporation and Partnership.
More often than not, a sole proprietorship is usually not advisable because of the risks and other disadvantages that exist, especially from a legal standpoint. The most common, and often beneficial route that small businesses take is to create an LLC and run their business under this entity. Partnerships, as the name implies, often involve businesses that have more than one owner, however, such businesses can also be structured as a (multi-member) LLC or a corporation.
The features, advantages and disadvantages of each entity are beyond the scope of the article and will not be dealt with here, and the reader is advised to do the needed research online to find out more.
2. What Are My Risks of Getting Sued?
There are different risks of legal action inherent in all business ventures. Therefore, it is not always clear what the specific risks are to a business in a certain industry. Additionally, certain businesses stand a higher risk of litigation than others. For instance, a skydiving business is riskier than a freelance writing business. The first thing to do is to identify where you are most at risk and then take steps to minimize your exposure to these risks. One of the best ways to do this is to consult an experienced business attorney to help identify what these risks might be and come up with mitigation strategies.
3. What happens if I am Sued?
According to research, between 36%-53% of small businesses are usually involved in one lawsuit or another in any given year. Even if you do everything right, there is a chance that at some point and time, your business might be faced with a lawsuit. The more clients you have, the more employees you are likely to have, and consequently, your business stands a higher chance of being involved in litigation.
So what happens if your business is sued? Your first course of action is to always speak to an attorney who specializes in business litigation. They will review the entire situation, including any summons you may have received, and advise you of the best steps to take.
4. What Should I Consider Before Taking on Investors?
One of the biggest “risks” of taking an investor into your business is the risk of loss of a controlling stake in the business. At face value, it may seem that you are simply giving away a minority stake in the business, but things do not always appear as they seem, especially concerning the contract that you sign.
More often than not, such contracts are usually filled with legal mumbo jumbo that the average person or business owner does not understand. Many a business owner has been known to give away a controlling stake in their business as a result of not understanding the contract they signed bringing an investor into the business.
The moral of the story is that you must never sign a contract without first understanding every single detail in it, including the ‘fine print’ and addendum, if any.
5. How can I Protect The Name of my Business?
The most valuable asset of a business is its reputation. For that reason, you will want to safeguard your logo, brand name and other identifying characters that represent your business. You can do that by registering a copyright, intellectual property or trademark for your business.
6. Do I Need a Business License?
Regulation for business licensing depends on the state and/or city you want to start your business and the type of business you will be engaged in. Certain types of businesses require a license to operate and other types do not. So, it is best to do the needed research on the website of your state or local government to determine this. The right type of attorney, like a business attorney, will be able to advise.
7. What do I need to know when hiring my first employee?
Hiring an employee is an aspect of running your business that you need to take quite seriously. There are quite several things that need to be taken into consideration like anti-discrimination laws, labor standards, employee agreements or contracts, and more.
Unfortunately, the realm of hiring employees also brings into the spotlight the questions raised in points two and three above. I.e. the risks of getting sued. That said, an attorney who specializes in employment law will be the best resource that you can turn to for matters related to employment law.
8. Can I Use Personal Assets for My Business? And Vice Versa
If you are operating your business as a sole proprietor, then, in a sense, you are already using your personal assets for your business and vice versa. If you are running your business under a registered business entity like any of the ones mentioned in question one above, then the answer will almost certainly be no.
If, for whatever reason you have to do this, for instance, you wish to take out a personal loan from your business, then the general advice will be to ensure that there is clear documentation that backs up this situation, in the form of a contract between both parties.
9. How do I Ensure Legal Compliance?
As defined by the law, your business is required to meet certain standards. For example, if you are selling home-baked pies from your home kitchen, you will be required to have food safety inspectors come and inspect your kitchen. Otherwise, they can close your business for not complying with the required standards. Speak to an experienced lawyer to ensure that your business is 100% compliant with local and national regulations.
Conclusion
Many legal issues may come up for small businesses both at the start of the venture and very likely throughout its lifespan. It is, therefore, essential to always stay ahead of everything as best as you can. And even when things fall through the cracks, it is in your best interest not to let the issue linger for too long before you address it. Doing so will give you the peace of mind required to devote more of your time to growing your business.