Legal Tips for Young Entrepreneurs
Once you’ve decided to start your own business, you might have the urge to jump right into it and make your dream a reality. It’s important to consider a few implications of having your own business, however, before you go full speed ahead. A legitimate, recognized business needs to meet a few initial legal requirements if it has any chance of success, some of which you may not be aware of. We’ve compiled a checklist of several requirements below that will help you make sure you are fully prepared to launch a successful business.
1. Gather the legal paperwork you need.
Every established entity has a stack of paperwork that needs to be filled out, issued, and filed in order for the business to be recognized and avoid legal pitfalls. Having the right paperwork in the right order will protect you from fines and possible legal issues down the road. The paperwork you need might include business and/or professional licenses, non-disclosure agreements, operating agreements, a memorandum of association, agreements related to intellectual property, shareholder agreements, and employee contracts, among others. These documents are not optional, so get them in order before you really launch into things.
2. Identify how you will structure your business.
Much of how you run your business will depend on the type of business structure you choose. Are you going to join up with a buddy and set up a partnership? Do you intend on having a sole proprietorship? Perhaps you are thinking along the lines of a corporation. There are many types of business structures, and the structure you choose will affect who has control, how decisions are made, how taxes are paid, and more. You will want to make sure that the structure you choose offers you the legal protections you need while at the same time maximizing your benefits and revenues. For a breakdown of various business structures, visit the U.S. Small Business Administration website here and see what fits best for you and your business.
3. Complete contracts.
The purpose of employee contracts is to ensure that both employees and employers are equally aware of their respective responsibilities in the employment relationship. Employee contracts should lay out terms and conditions of employment, such as the employment status (e.g., independent contractor, at-will employee, etc.), behaviors that are acceptable in the workplace (e.g., smoking vs. non-smoking, dress code), expectations (e.g., wages, hours of work), ownership of intellectual property, how proprietary or confidential information needs to be dealt with, etc. You’ll want to have these documents prepared and signed before any of your employees start work. This will offer both parties legal protection and avoid potential misunderstandings related to employment. Check out some sample contracts here.
4. Register your business name with the appropriate entities.
In order to make sure other startups can’t steal your idea (or at least your name and/or logo), you’ll need to register it with a local, state, and/or federal agency. Information about registering your business can be found here. How you register your business and who you registered it with depends primarily on your location and on the type of business structure you select. Not only does registering your name and logo protect you from theft by others, it also protects you from potential lawsuits by ensuring that you haven’t inadvertently copied another business’s name or logo.
5. Select your insurance coverage.
To protect yourself from lawsuits from on-the-job injuries that might happen to your employees, you’ll need to make sure you have a good insurance plan in place (think worker’s compensation) that offers adequate coverage to your employees. You’ll also want insurance to protect your workspace and other property in the event of a natural disaster or accident that causes damage. Without insurance, you run the risk of lawsuits and potential bankruptcy if an accident occurs.
6. Prepare for taxes.
As the owner of a startup business, you will be required to pay taxes on a particular timeline based on the type of business you choose. Visit the IRS here to see the breakdown of tax requirements by business structure. You’ll want to make sure you are aware of these requirements from the get-go to avoid potential late penalties and other charges. You’ll also be able to set aside the needed amount if you know how much that will be beforehand.
7. Retain an attorney.
Since a business is a legal entity, your best friend in making sure everything is done the way it needs to be is your attorney. Retain an attorney specializing in business law to ensure that you are meeting the legal requirements in your area and are able to address legal concerns as they arise along the way.
To sum it up, make sure you check off these major steps to avoid potentially catastrophic legal errors when you are establishing your startup. You can remember them by these key words: (1) paperwork, (2) structure, (3) contracts, (4) registration, (5) insurance, (6) taxes, and (7) attorney. Your startup will be able to start and run smoothly with needed protections in place.
Young entrepreneurs in Florida may be eligible for a Kantner Foundation college scholarship. Click here to learn about what we have to offer and how to apply.