There are many laws that regulate how your company must operate. Data from the SBA reveals that there were 33.3 million small businesses operating in the US during 2023, which employed 61.6 million people. Sadly, 20% of SMEs fail in the first year, and only 50% make it to survive until the year 5.
Starting and running a business involves complying with many legal requirements. While large companies usually have in-house legal departments or teams, small business owners often need to understand the specifics of laws themselves if they don’t seek support from legal experts.
Here is an overview of key business law basics that entrepreneurs and small business owners should be aware of.
Business Structure
According to Adam Zayed, founder of Zayed Law Offices Personal Injury Attorneys in Chicago, IL, “One of the first legal steps when starting a business is choosing a business structure. Common options include sole proprietorship, partnership, limited liability company (LLC), and corporation. Each has different legal and tax implications in terms of ownership liability, ability to raise capital, paperwork and compliance requirements, etc.” Consult with an attorney to select the best structure for your goals and situation.
Contracts
Contracts are legally binding agreements between two or more parties agreeing to don something and in such a way protect themselves that the agreement between them will be accomplished.
You already know that your business relationships and transactions involve contracts, like those with clients, suppliers, employees, partners/shareholders, commercial leases, loans, insurance policies, and more.
To avoid possible disputes or liability issues in the future, it is important for you to understand contract law basics like offer and acceptance, consideration, capacity, legality, and piercing the corporate veil.
You can always work with a lawyer, or legal experts to review and negotiate all of your contracts.
Intellectual Property
More than 3,5 million patents were filed globally in 2022, according to World Intellectual Property Organization (WIPO).
Simply, intellectual property (IP) refers to creations of the people’s or company’s mind, like trademarks, copyrights, patents, and trade secrets.
Remember that IP can provide you with valuable protection for your brand, creative works, proprietary processes, and innovations. Registering your IP will establish your legal ownership and can prevent possible infringement.
Also, you must ensure that you don’t violate others’ IP rights in any way through your business operations.
Employment Laws
Specific employment laws also exist, and you, as an employer, must comply with federal, state, and local employment laws.
This compliance includes requirements related to hiring, firing, minimum wage, overtime pay, discrimination, workplace safety, family and medical leave, and more.
So, you must have clear employee policies and procedures, properly classify employees as exempt vs. non-exempt, keep adequate payroll records, and consult employment lawyers when needed.
Following employment law will help you avoid possible lawsuits regarding employment areas.
Taxes
As a business owner, you must pay various federal, state, and local taxes.
These taxes include income tax on business profits, self-employment tax, sales and use tax, excise taxes, payroll taxes, etc.
You must also comply with tax laws for deductible business expenses, estimated quarterly tax payments, 1099 contractors, W-2 employees, and more.
So, you must work with an accountant or tax professional to understand your tax obligations, file taxes properly, and avoid interest and penalties.
The average tax that must be paid by a small business is around 20%, but it can vary depending of type of business or industry.
Insurance
Various types of business insurance policies can protect you from major liabilities and losses. This includes general liability insurance, product liability insurance, professional liability insurance, property insurance, errors and omissions insurance, cyber insurance, and more.
Licenses & Permits
Most businesses will need to have some specific licenses and permits in order to operate legally.
Exact requirements regarding licenses and permits will depend on your industry, business location, activities, and other factors.
Generally, you may need licenses and permits from federal, state, and/or local government agencies related to your business name, type of company, location, signage, industry, products sold, health and safety, environmental impact, professional certification, and more.
Non-compliance can lead to hefty fines or forced closure.
If you understand key legal issues can help you run your business successfully while avoiding major pitfalls. So, don’t cut corners legally – do things right from the start!!
