The legal side of starting a business always seems to take the backseat when most people think about starting one. However, meeting legal requirements is equally important, if not more important, than other aspects of business, such as financing and managing.
What makes it even more important is that failure to meet some legal requirements can get you into trouble with the state and federal governments and is the last thing you want as a startup. The first thing that comes to mind when seeking to understand the legal side of starting a business is getting a lawyer, which is perfectly okay.
But even then, it is still a good idea to know the requirements so that you factor them into your planning and avoid surprises along the way. This guide highlights critical legal requirements you must know and meet before starting a business.
- Register Your Business as an LLC
Business registration is among the requirements that state governments will look at before issuing an operation license, so this is where you need to start. While there are different types of business structures, sole proprietorships, partnerships, LLCs, and corporations are the most popular.
Out of these, an LLC is the most applicable business structure for many startups as it protects the business owner’s property from liability and has flexible set-up requirements. The good news is that setting up an LLC is relatively easy though it can get fairly complex because of the paperwork involved.
Having an LLC agreement is one of the most important documents you must create when setting up an LLC. While you can ask a service provider to help you create this document, you can obtain a free LLC agreement online, but you have to ensure that the forms you get meet the legal standards.
- Get EIN from the IRS
Most businesses must have an EIN, especially if they intend to have employees. EIN stands for employer identification number issued by the IRS as a business identifier.
The EIN acts more like the business’s social security number and helps identify a business for tax purposes. Sole proprietors and single-owner LLCs may not be required to obtain an EIN under the law, but it is advisable to get one to keep your business separate from personal matters. The good thing is the EIN is issued for free on the IRS portal.
- Obtain Business Permits and Licenses
Different industries have different licensing requirements. If you are unsure about the federal licensing requirements for the type of business you want to start, this list of common federal license requirements from the Small Business Administration’s can be helpful.
Besides federal licenses, you must get licensure from the state and local governments. If you are unsure about state and local license requirements, you should consider talking to other business owners or consulting a local lawyer.
- Worker Compensation Program
Most states require employees to carry workers’ compensation insurance. If you think you will need an extra hand in your business, get one even where it is not a mandatory state requirement.
Workers’ compensation insurance protects businesses from liability for any accidents that occur at the workplace. Most states have a state-run workers’ compensation program, but you could opt for a private insurer or self-coverage if your state allows it.
- Secure Your Intellectual Property
Securing your intellectual property (IP) may not be mandatory. But it is worth considering if you are getting into business for the long haul. IPs fall into different categories, including trademarks, patents, industrial design, and copyright.
The most effective way to secure your IPs is by registering them with the relevant body, which can vary by country. In the US, IPs registration falls under the purview of the United States Patent and Trademark Office, after which you get an exclusive right to their use and the legal authority to stop others from using them.
- Get a Lawyer
Every business needs a lawyer on call. Even when you are careful not to get into trouble, there is no guarantee that trouble won’t find you, and you want to be ready when it does.
If you can, keep a lawyer on retainer so you will have them at your disposal whenever you need them. If you cannot afford to have them on retainer, you can enter into a manageable agreement with them.
Conclusion
While sourcing capital may seem like the only thing you need to do to start a business, having the right legal documents is equally important. Therefore, before setting up your business venture, take time to understand the legal requirements you must fulfill and how you can go about each.
