Five Legal Issues for Small Businesses to Consider
There are many aspects that go into starting and maintaining a small business and it is important to understand the legal challenges that come with it. Here are five common legal issues for small businesses to consider:
1. Business Structure:
When starting a small business, it is important to determine the type of legal entity that best suits your needs. The type of structure you choose will have an impact upon a variety of issues, including, but not limited to, how taxes are filed and personal liability. Businesses can be classified as a sole proprietorship, partnership, S corporation, LLC, or PLLC. Sorting through the available options can be confusing. Consequently, it is helpful to consult with an attorney who can analyze the different types of legal structures and advise you of the legal ramifications of each.
2. Business Licenses:
Most small businesses need an operating license and the type of license varies from jurisdiction to jurisdiction. The licensing requirements also vary based upon the type of service being provided or product being sold. For instance, a start-up looking to sell alcohol will need a specific license that permits them to do so because of the heightened responsibilities and liabilities involved. Likewise, certain service-based businesses will need additional licenses and permits.
3. Trademarks and Patents:
Intellectual property rights are an important consideration when starting your own business. A small business might have a specific logo that distinguishes its products and wish to trademark it. An owner may have developed a new process of manufacturing or have designed a new innovative product and need to take steps to ensure that their intellectual property is protected. Similarly, a business owner will want to ensure that she/he is not infringing upon existing intellectual property rights so as to minimize liability.
4. Employment Law Issues:
Small business owners who hire individuals need to be able to distinguish whether they are employees or independent contractors. Recognizing the distinction helps a small business understand its obligations to them as an employer. Employees of a business are people who work under the management of the owner while independent contractors are people who are typically part-time and usually work for other businesses or organizations throughout the year. Correctly determining whether someone is an employee or contractor will help businesses avoid costly legal problems in the future.
Proper documentation of all the matters relating to operating a small business, such as tax returns, income statements, and expense reports, need to be kept in an orderly and accurate manner. Record-keeping is important for transparency. It makes it easier for small businesses to show the IRS that they are in compliance with regulations as well as other agencies that may legally have the right to monitor the business’s activities. This can be difficult for small businesses because human resources can be limited. However, a small business owner cannot ignore the importance of proper record-keeping.
The nature of running a business requires legal counsel to help in its decision-making, but many small businesses just starting up have a harder time accessing legal business services because of the high costs associated with it. For small business owners who are financially struggling, there are other avenues to explore to receive this legal assistance. One of them is Louisville’s Legal Aid Society, whose Economic Development Program provides free legal services for low-income members of the community looking to start or maintain their small business. Navigating these legal issues is much easier with an attorney so it is important for small businesses to take advantage of the resources that give them affordable access one.