Nothing can be more exciting and inspiring than launching your own business. With all the time, money, patience, and hard work you’ve invested, what could be more rewarding than seeing your business get off the ground. Done correctly, this can be a fulfilling and truly satisfying experience. However, when executed incorrectly, this can lead to an embarrassing and totally devastating moment.
As a small business owner, it’s not uncommon that your attention is divided into several things that you tend to forget small details that matter most – legal practices. In order to avoid lawful problems, and to ensure a smooth sailing operation, check out these 6 important legal tips for startups.
#1: Select the right business structure
Often used to describe the legal status of a business, choosing the right business structure for your startup company is the first thing you need to do amongst anything else. There are many types of business structures depending on your needs and wants. You may opt to build a partnership, trader, cooperation, trust, or association.
When selecting the best business structure, keep in mind that the choice you’ll make will have legal implications on your trade. You might want to pick the easiest one, but as a startup company, you need to think about repercussions. The most ideal option is Limited Liability Company. LLC offers flexible taxation while protecting your personal assets as the owner. Other types of business structure are as follows:
- Partnership which is owned by two or more individuals.
- Corporation which is a company run by multiple people that acts as one.
- Sole proprietorship which is the easiest to create, but riskier with obligations.
#2: Write contracts
A contract is a written agreement between two mutually consenting individuals. In every business dealing you make, whether, with complete strangers or friends, you must enter into a formal and legally binding agreement in the form of contracts. Think of contracts as the non-negotiable part of your business, irrespective of situation or person involved, you must exercise it at all times.
Securing legal documents such as contracts is important to safeguard the interest of your growing company. It protects you against liabilities and lawsuits that might come along the way. Contracts should be written for your employees, to independent contractors, possible investors, suppliers, clients, and to everyone whom you’d make business with.
- Co-founders agreement should clearly define roles and responsibilities.
- Contracts should contain vital information such as persons involved, time, money, etc.
- Although there is an oral contract, always go for written ones in black and white.
#3: Get insurance coverage
As a startup business, you don’t have an overflowing bank account to afford unwanted costs and liabilities. Profit is yet to be earned and the reputation of your company needs to be established. Keep in mind that on your road to success, you might incur unforeseen expenditures and face legal issues. And they will surely hurt not just your finances but the business reputation as well.
Getting Business insurance is important to protect your business against everything that might hinder your success. It is mandatory to safeguard your company, yourself, your employees, and your customers. Regardless of your product or service, rest assured that there is insurance best suited for your startup business, check out this handy startup insurance guide.
- There are insurance policies normally required by law like Workers Compensation.
- General Liability is the most common form of insurance applicable to all types of businesses.
- Some policies are industry specific such as Inland Marine and Cyber Liability.
#4: Know your tax obligations
Next on these legal tips for startups is to pay your taxes correctly and on time. Tax obligations differ depending on your state, industry, business type, and declarations. Tax is not something you want to delay or make as the least priority, paying it on time validates the integrity of your business by settling government dues promptly.
Likewise, you must familiarize yourself with state and federal tax obligations. Different taxes are paid depending on need and purpose, if you are not familiar with these tax obligations, visit the U.S. Small Business Administration for more information. Though, always remember that:
- Your tax obligation depends on the structure of your business.
- Majority of states in the US requires sales tax, but some don’t.
- Register for a sales tax permit because you’ll use when filing returns
#5: Ensure your operations are legal
Depending on the industry, there are different terms and conditions to your business. Whatever commerce you’re in, always follow rules and regulations within your trade. Practice in accordance with standards and protocols, and make sure that all principles are legally followed. Get a permit if needed, apply for a license if it's required, and obtain certificates if necessary.
It will also help to understand the basics of state laws including employment laws. Subject to the industry you are connected with, there are various government agencies in charge of every trade. Recognize each agency that covers your business and keeps communication lines open in times of doubt or trouble.
- Hire an attorney and get legal advice to review your operations.
- At the early stage of business, correct mistakes to avoid a runoff with the law.
- Operating illegally will cost a huge amount of money resolving fines and penalties.
#6: Protect your intellectual property
Last on these legal tips is to protect your intellectual property rights. Most startup businesses are filled with fresh ideas and breakthrough innovations. Without proper protection, you are highly at risk to theft as well as security issues. Bear in mind that ideas can be stolen, products can be copied, and concepts can be imitated.
Apply and register to protect your intellectual property as soon as you can. This agreement should be signed by your service providers, partners, and employees. Depending on your business, there are different ways to protect your intellectual property. There is a trade secret to uphold business confidentiality while confidentiality agreement or disclosure agreement is used to maintain the secrecy of all private information. Other forms of protection include:
- Patents when protecting research and inventions.
- Copyright when securing original works.
- Trademark to separate your product from others.
Final thoughts…
These legal tips for startups serve as a guide to keep your business operating within the boundaries of the law. Always remember that a successful business follows what is right, and change what is wrong. If you need help regarding legal matters, it is best to consult with law firms and seek assistance from trusted legal counsel.