Small Business Law: Things to consider

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What Is Small Business Law?

Small business law can cover a wide range of subjects and requirements. When you start a small business, you need to understand all of your legal obligations, from employment law and tax requirements to how to set up the right entity for your business.

Choosing the Right Legal Entity

A successful business starts with setting up a business entity. Small business owners must decide what type of legal entity their business should become. The type of legal entity you choose has implications for everything from the taxes you need to pay to the amount you can be held liable for your business's actions.

The most common business types include:

  • C corporations
  • S corporations
  • Limited liability companies (LLCs)
  • Partnerships
  • Sole proprietorships

Internal Requirements for Small Business Types

In addition to local, state, and federal requirements, certain types of small businesses must also meet internal requirements.

  • Corporations: Corporations typically have the strictest requirements for internal procedures. For example, corporations must:
    • Adopt and then maintain bylaws
    • Hold initial and then annual director meetings as well as shareholder meetings
    • Record minutes for these meetings
    • Issue shareholder stock
    • Record stock transfers
  • LLCs: While internal requirements for LLCs are less strict than for corporations, LLCs generally need to:
    • Hold annual meetings
    • Issue membership shares
    • Maintain updated operating agreements
    • Record membership interest transfers
  • Other business structures: Although other business structures don't have many internal requirements, most small business owners document important business decisions.

Essential Types of Small Business Laws and Procedures

Small business owners need to be aware of different components of the law.

Employment Law

If you hire anyone to work with you in your small business, you will need to understand employment law. These laws can vary by state, so it's helpful to consult with an employment lawyer to ensure that you're following important regulations.

Laws and regulations you'll need to follow when you hire employees include:

  • Anti-discrimination laws
  • OSHA regulations
  • Payroll laws
  • Tax withholding rules
  • Unemployment insurance
  • Workers' compensation

You could end up with a lawsuit if you break employment laws and regulations.

Tax Law

In addition to withholding employee taxes, you will need to know how to follow tax laws and regulations for small businesses. You need to file taxes with the IRS correctly as a small business owner. It's also essential to know the answers to any questions about sales and VAT taxes as well as when you need to file business income tax returns.

Trademark Law

One of the first tasks to take on when you're starting a business is coming up with your company's name. Though you'll likely want to start using the name you decide on right away, that can create problems. If you inadvertently choose a name, motto, or logo that's similar to another company, they can send you a cease and desist letter (or even a lawsuit) if they have already registered that information. You also want to make sure that your own information remains protected.

Take these steps to avoid running into problems with trademark law:

  1. Check if your chosen name is available by visiting your state's secretary of state website and searching for registered corporations.
  2. If your name is available, file a "Doing Business As" form, or DBA, in your state or county.

Customer Policies and Protections

You will need to have a legally binding terms and conditions policy to which your customers agree to be bound. This is especially important if you are providing some kind of service. The agreement should detail specifics for using your services or products as well as any customer obligations.

Likewise, you will need to have a clear privacy policy that specifies the customer information you do and don't share. Laws such as the GDPR in Europe and CCPA in California most likely apply to your business, no matter where you are based, if you interact with consumers in those places.

Here's some additional information about GDPR, and here's some about CCPA.

Licensing, Permit, and Recertification Procedures

You will need to familiarize yourself with all licensing and permit requirements for your business's particular field. Types of licenses and permits you may need depending on your industry include:

  • General business operation licenses
  • Health department permits
  • Health and safety certificates
  • Land use permits
  • Occupational permits
  • Sales permits for regulated items (such as alcohol, tobacco, or tires)
  • Sales tax licenses
  • State certifications with third-party boards (such as nursing or plumbing)
  • Zoning

Most localities and states publish various required licenses and permits online. You need to keep your business in compliance so that federal, state, or local authorities don't shut down your business. The documents your business needs to stay legally compliant vary based on industry and location. Renewal requirements for these documents also vary, so you should check with your local business licensing offices to stay updated.

Common federal agencies and departments small businesses may register with include:

  • Alcohol and Tobacco Tax and Trade Bureau (TTB)
  • Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF)
  • Federal Aviation Administration
  • Federal Communications Commission
  • National Oceanic and Atmospheric Administration
  • U.S. Department of Agriculture (USDA)
  • U.S. Fish and Wildlife Service

State and Federal Filing Requirements

Small businesses also need to keep up with state and federal filing requirements to stay legally compliant. Many of these are ongoing processes.

State Requirements

Although annual filing requirements depend on a given business structure and the state where you do business, there are a few common requirements, including:

  • Initial reports: Some states require businesses to submit an initial report and fee shortly after the business's incorporation.
  • Franchise tax: Some states charge franchise taxes for LLCs or corporations operating within those locations.
  • Annual reports or biennial statements: Most states will require one of these documents.
  • Statement filing fees: You typically need to pay a fee along with the annual report or biennial statement.
  • Articles of amendment: You will need to report any key business changes using this document, such as changes to:
    • Name
    • Address
    • Membership
    • New shares

Federal Requirements

Many businesses will not need to keep up with federal requirements as long as they pay federal taxes and comply with the Affordable Care Act, which requires businesses that employ 50 or more people to report providing health coverage to the IRS. However, you will need to meet all federal tax obligations, which include employer and income taxes. You must also keep your federal certificates, licenses, and permits up to date.

Additionally, some federal requirements don't require ongoing filing. Small businesses must remain in compliance with:

  • Americans with Disabilities Act laws
  • Copyright laws
  • Marketing and advertising laws
  • Workplace health and safety laws
  • Workplace poster laws

Contracts With Other Parties

Small businesses often need to partner with a variety of people to perform needed services. Working with a lawyer who understands the intricacies of these contracts can help you protect your business.

If your business works with any outside vendors, you need to use appropriate and complete contracts. You should never enter into any arrangement with an outside party without first setting up a legally binding agreement. Some examples of when you need to use contracts include:

  • Having tenants on premises you own
  • Renting property from someone else
  • Purchasing raw materials
  • Using outside services

Similarly, you will want to protect proprietary information that belongs to your business by using nondisclosure or non-competition agreements. This may apply to things like:

  • Customer or client lists
  • Special recipes or formulas
  • Former employees/partners setting up competing businesses

No matter what aspect of small business law you need to understand, it's important to work with an experienced lawyer to ensure your business remains in compliance in order to operate effectively.

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