What are the important legal considerations for new business owners?
These answers are provided by Young Entrepreneur Council (YEC), an invite-only organization comprised of the world’s most successful young entrepreneurs. YEC members represent nearly every industry, generate billions of dollars in revenue each year, and have created tens of thousands of jobs. Learn more at yec.co.
1. Comply With Zoning Laws
When starting a business, one vital legal consideration is compliance with zoning laws. Zoning regulations dictate how property in specific regions can be used, which is essential for businesses that require particular setups or locations. For instance, if you plan to open a retail shop, ensuring that the property is zoned for commercial use is imperative; operating in a residential zone can lead to significant fines or operational shutdowns.
In my practice, I’ve encountered several clients who faced delays and expenditures because they overlooked these requirements. A restaurant owner once lost months in potential revenue while working to secure the proper zoning after initially leasing a space not suited for food service. It’s also crucial to regularly check for any local amendments to zoning laws, as these can change and impact your business model. Understanding these laws can ultimately shape not only where you can operate but also how your business evolves in the future, helping you avoid costly setbacks.
2. Create Clear Written Contracts
One important legal consideration for new business owners is making sure everything is included in the contracts. When I first started my business, I learned quickly that verbal agreements often lead to misunderstandings and disputes.
Whether you’re working with suppliers, clients, or employees, having clear, written contracts is crucial. These documents outline each party’s responsibilities, payment terms, deadlines, and what happens if things go wrong. Contracts protect your business by providing legal recourse if someone doesn’t hold up their end of the deal, which is very important for companies regardless of their size or industry.
– Josh Kohlbach, Wholesale Suite
3. Secure Your Business Name
The most important, but commonly neglected, legal consideration for new business owners when getting started is carefully selecting the name of their business and ensuring that it’s not registered by someone else.
Just because you are planning to start an online business and were able to secure a domain, it doesn’t mean that your preferred business name is available as well. It can be registered by someone else whose business may not have a digital presence, but the owner has the legal rights to use the respective name. Looking into these things is critical before starting a business, as you may not want to run into legal complications from the get-go.
– Stephanie Wells, Formidable Forms
4. Understand Taxation Laws
One of the important legal considerations for new business owners is getting familiar with the taxation laws and regulations that apply to their respective business structures. A business owner should know how to calculate taxes for their respective business and get acquainted with the tax-filing process. They should also learn how to estimate the taxes for an upcoming tenure preemptively. This will help them leverage the available resources to their fullest and take essential measures to maximize profits.
5. Choose the Right Business Structure
The first steps are always the hardest ones when starting any business or project. You might lack confidence and guidance, and when you are the one leading it, the pressure can increase considerably.
I think back to when I started; one important legal consideration I would have appreciated knowing was choosing the correct business structure from the beginning, such as a sole proprietorship, LLC, or corporation. This decision impacts everything from how your business is taxed to your liability for business debts and obligations. For instance, forming an LLC can protect your assets in case of legal disputes, while a sole proprietorship may offer simplicity but leave you personally liable.
Understanding the legal implications of your business structure empowers you to make informed decisions that protect your interests and set a strong foundation for growth. Consulting with a legal professional is key to making the best choice for your specific business needs.
– Alfredo Atanacio, Uassist.ME
6. Protect Intellectual Property Early
One important legal consideration for new business owners is securing the proper intellectual property (IP) protection. Ensuring that your brand, products, and creations are legally protected from infringement is crucial for safeguarding your business’s unique assets. At Velvet Caviar, we prioritized trademarking our brand name and logo early on. This step helped protect our brand identity and ensured that no other business could legally use our name or similar branding elements.
Additionally, we looked into design patents for some of our unique product designs, which gave us legal recourse if competitors tried to copy them. Failing to secure IP protection can lead to costly legal battles or loss of market share if others imitate your products or brand. Therefore, it’s essential to consult with an intellectual property attorney to determine the best way to protect your business’s assets from the start. This proactive approach not only helps you secure your market position but also adds value to your business as it grows.
– Michelle Aran, Velvet Caviar
7. Develop Termination Clauses and Dispute Resolutions
There are many legal considerations for new businesses, but one that stands out for me is having well-crafted customer contracts that protect your interests. For example, include a clear termination clause outlining conditions regarding ending an agreement to help prevent disputes. Also, set liability limits to cap potential damages if things go awry.
Finally, another one that comes to mind is including a dispute resolution mechanism, like mediation or arbitration, to resolve conflicts efficiently and cost-effectively without resorting to litigation. In short, developing robust customer contracts at the outset will help prevent issues down the line.
8. Adhere to Data Protection Laws
When starting a new business, it’s essential to focus on data protection and privacy compliance. In many places, you’ll need to comply with state and federal regulations like the Arkansas Personal Information Protection Act (APIPA) and possibly the Health Insurance Portability and Accountability Act (HIPAA) if you’re in certain industries.
This means implementing strong data protection measures, such as encryption, and ensuring your employees are well-trained on privacy practices. Failing to adhere to these laws can lead to substantial fines, damage to your reputation, and loss of trust among consumers. It’s a critical area to get right from the start to avoid serious issues down the line.
– Rosana Tejada Crespo, Tejada Solicitors Law Firm
9. Follow Employment Compliance Checklist
Ensuring compliance with employment laws from the start involves creating a detailed compliance checklist that covers all aspects of employment, including hiring practices, workplace safety, and employee benefits. This checklist should be used to verify that all legal requirements are met before making any employment decisions.
Engaging with a professional employment consultant or legal advisor can help verify that the checklist is comprehensive and up-to-date. Conducting periodic audits of employment practices ensures that the business continues to adhere to relevant laws as it grows.
Proactively managing these aspects not only minimizes legal risks but also fosters a positive and fair workplace environment.
– Chris Aubeeluck, Osbornes Law
10. Manage Contracts Effectively
Ensuring proper contract management is a crucial legal consideration for new business owners. Well-drafted contracts are essential for defining the terms of your relationships with clients, vendors, and employees, ultimately safeguarding your business from potential disputes. This encompasses a range of agreements, from service contracts to employment terms.
Clear, legally sound contracts can prevent misunderstandings and establish a solid foundation for your business operations. It is vital to consult with a legal advisor early on to review or create these documents to avoid costly legal issues in the future.
– Anthony Michel, Michel | King Attorneys & Counselors