Starting a new company can be a life-changing activity, but first-time owners need to remember that there are plenty of legal aspects to the task. In addition to typical considerations like selecting the best business structure and registering the entity, there are other not-so-obvious chores for new owners.
Explore the following information about licensing, contracts, intellectual property, employment laws, tax, insurance, and other must-do items before you open the doors of a new business. The seven most important legal considerations for forming a new business are listed below.
1. Insurance and Risk Management
No matter what industry a company operates in, there will be risks. Besides standard lawsuits against owners, new organizations are susceptible to cyber threats, liability claims, asset damage, fire, and dozens of other risks. That’s why it’s imperative for principals to develop a risk management strategy early on. The first steps involve buying enough insurance coverage to minimize potential losses and keep the company’s primary assets intact.
2. Taxes
Wise tax management and financial health go hand in hand. Every new owner must get up to speed on local, state, and federal tax rules for businesses. Many regulations are industry-specific. A short list of what to brush up on includes payroll tax, sales tax, income tax, and special levies for your particular industry. Hire a tax pro and get off on the right foot.
3. Protecting Intellectual Property
Apart from tangible assets, IP (intellectual property) consists of things like patents, copyrights, formulas, and trademarks. Be proactive about protecting your IP by hiring a legal expert to register your ownership. It’s essential to do a complete search in order to avoid infringing on existing rights and trademarks.
4. Employment Law Compliance
Develop clear policies, offer training to new hires, and stay current on employment law changes. Learn about your industry’s anti-discrimination guidelines, hiring laws, and wage-and-hour regulations.
5. Agreements and Contracts
For long-term stability, be sure to create comprehensive and understandable agreements and contracts with suppliers, customers, employees, and anyone you interact with. Doing so is the easiest way to protect everyone’s interests and keep disputes to a bare minimum.
6. Structure of the Business
This is usually first on every new owner’s to-do list. Get professional help when deciding to set your company up as a corporation, LLC (limited liability company), partnership, or sole proprietorship. Each one comes with its own rules about liability, taxes, everyday operations, etc.
7. Licensing & Registration
To be legally legitimate, you must register the entity, obtain necessary permits, get a business license for it, get an EIN (employer identification number), and follow state-specific rules based on the type of entity that it is. Missing even one part of the licensing process can be costly. Owners are subject to penalties, suspension of their operations, and fines.
Depending on the industry in which you intend to operate, the location of the business, and other factors, there are other legal considerations. But the ones listed above are the most universal. Always consult a trusted expert to make sure you cover all the bases before launching a new business.
