Whenever starting a new business, all entrepreneurs should ensure they comply with the legal obligations of running it. There are different legal requirements for businesses, and they can be from local to state and federal level, depending on where you are operating.
Legal requirements start with tax obligations, employment laws, financial regulations, and much more. Moreover, you have to make sure your company is in line with all of this and even other rules that we will go through in this article.
You want to be an entrepreneur with a good start, so in this article, we will show you the top 5 legal checks you should consider when starting a business.
Top 5 legal checks to undertake when starting a business
Define your business structure
Before you start your business, there are a few questions you should be asking yourself:
- What are the goals that I want to achieve?
- What kind of goods or services am I providing? Or am I providing any?
- What type of business am I starting?
- How much capital do I have?
What kind of financial requirements am I going up against?
All of this information is vital to have before you do anything more. Every business has its structure, and legal entities don’t work with the “one size fits it all” method.
Independent professionals will differ in their federal tax obligations as each business structure has different federal tax obligations and different forms that are submitted.
Don’t forget that tax laws will vary wherever you go, so ensure you know them in your own country.
Furthermore, here are the different types of business structures:
- Sole Proprietor: a typical business structure and is a business that is run by one person only. Most individuals will start this type of business for tax purposes.
- S Corporation: considered a unique entity by federal law. Profits with your business are reported under separate tax returns with an S corporation. In short, there is only a single level associated with taxes.
- C Corporation: Owners here are considered shareholders. With a C corporation, you aren’t only the owner of your business and a majority shareholder. According to the International Revenue Service (IRS), since a corporation is considered a separate legal entity and is an individual taxpayer according to the International Revenue Service (IRS), c corporations may become complex at times. Still, at the same time, they are very attractive to independents!
Register your company’s name
This counts if you are setting up a business as a Sole Proprietor, meaning that you are the only owner of your company. To register your name, you’ll need to register as a “Fictitious Business Name” (FBN) or “Doing Business As” (DBA). By doing this, you let your local government know by which name your business is operating. Moreover, you have to consider that your name registration doesn’t provide any trademark protection or any form of legal protection for a sole proprietorship. Every country across the world has different requirements for registering names, and in some countries, you’ll need to register your DBA with the name you came up with. If you don’t do this, then your legal representation will be confirmed as your own (your name), meaning if your name is, for example, John Adams, then that’ll be your legal name. Again, however, as we said, this varies from every country.
Furthermore, if you are operating online, which in most cases, many companies are, you’d want to have your business name trademarked. It isn’t mandatory to get your business name trademarked, although it does provide excellent protection. Additionally, don’t forget to conduct research and see if the name you are looking for is available or not.
Ensure you comply with the GDPR and CCPA
Depending on where you live, when starting a business, ensure that your business complies with the General data protection regulation (GDPR) or the California Consumer Privacy Act (CCPA). The GDPR is an all-important regulation all webmasters need to consider, and you can read more about it here.
The GDPR and CCPA are data protection regulations that have changed the world of privacy. All companies must modify their data protection and privacy policies to comply with the GDPR or CCPA.
The GDPR accounts for all EU citizens conducting business within the EU states or outside the EU but operating within EU boundaries. As for the CCPA, it accounts for all citizens of the state of California and those who conduct business in it.
Many companies are starting to take this seriously as it has been shown that from 2014 to 2021, there has been an increase of over 40% of online attacks on private data. Moreover, fines are getting more prominent for those who refuse to comply with these regulations, and big companies like Amazon got to taste these fines last year. They paid a fine of nearly $1 billion due to a data breach by refusing to comply with the GDPR.
Obtain business insurance
Starting a business doesn’t only require registering your name, paying taxes, and nothing else. You also have to be concerned about the financial and legal wellbeing of your company. However, it’s important to remember that you are in control of your business, and all issues that arise will have to be covered by you.In short, this means that you should have your business protected and not risk losing any valuable assets. Furthermore, the types of insurance that suit your business will vary, but in general, there are about five types of business insurance you should be considering:
Types Of Business Insurance
- General liability insurance: usually required for independents. It covers available cases, a vast range of incidents that include property damage to your client that was done unintentionally, lawsuit costs, and more.
- Product liability insurance: companies that are manufacturing, distributing, wholesale, and retailing a product are suitable for the safety of all product assets that you possess.
- Professional liability insurance: any business owners’ services should consider having this type of insurance. It protects your business against any forms of errors, negligence, and much more. Some industries make it mandatory to have this type of insurance.
- Commercial property insurance: is a crucial type of insurance and usually covers any property damages associated with clients or your company. Property damages can occur from storms, winds, smoke, and many more natural disasters, so this type of insurance should be a must to have.
- Home-based business insurance: depending on the level of risk associated with your business, home-based insurance will cover things such as property damages. However, in most cases, you’ll need to purchase more policies related to the insurance that range from professional and general liabilities.
Acquire required business licenses and permits
Business licenses and permits depending on the type of industry you are in and the location you are operating from. Some licenses and permits are acquired at a state, federal, and local level. This will help you to check what you are eligible for. Fees for obtaining licenses at the state level will depend on the business activities you are conducting and your location.
Furthermore, you must possess a license at the federal level and on the local or state level. However, this will all come down to what your industry requires.
Why are legal checks necessary?
To ensure your business isn’t going to operate illegally or have you pay unnecessary fines, your best bet is to always check-up with the legal requirements.
Moreover, when you undergo legal checks, if any natural disaster or even damage occurs to your business, business insurance can cover it. This happens as you are registered at the local and state level.
Wrapping up this article
That’s about everything for this article. Hopefully, you’ve found some constructive tips on how to start your business with the proper legal requirements. Don’t get surprised by any uncertainties that may arise after you start your business. It’s not a surprise since many business owners don’t know much about their legal liabilities.
Initially, you should find out what industry you are in, come up with a name, what kind of business structure you have, and acquire the required license and insurance your business needs. Not every country has the same laws regarding locations, so it’s crucial you first find out your local legal requirements and start putting these steps into action.
Figure out what you have to do before you do it, and then everything will come into place. It’s better to do everything initially than try to solve issues after you start your business.