4 Legal Questions Every Small Business Owner Should Ask

Updated on January 17th, 2022
freelance strategies

The legal aspects of running a small business are important, but often overlooked.

Sure, being an entrepreneur is the American dream. Who doesn’t pine the work day away thinking about being their own boss, escaping the hamster wheel of being a salaried employee or clock puncher, and making your own destiny?

However, many new entrepreneurs and small business owners often fall short dealing with the law and regulations. Typically, new business owners starting out have not had to worry about legal issues in their past jobs. Now however, you are at the helm of your own company.  You must master the laws and regulations governing your business..

Ignorance of the law can harm your company’s growth. It can also expose you, your employees, and your customers to significant liability risk. You may end up in legal jeopardy if you run too far afoul of regulations.

However, hundreds of thousands of people have started successful companies.  You can too. But before you do, here are four great legal questions to ask.

What about my Company’s Name?

If you think choosing a name for your company is risk-free legally, think again.  Your state or municipality likely has rules concerning what you can and cannot name your company. You will have to comply with them all.

Choose your company’s name carefully. That name you like may already be in use. It it is or  it’s trademarked, you might not be able to use it. Even if the name isn’t in use, it may infringe on another company’s trademarked name. So watch out!

Once you do settle on a name you can use,consider pursuing a trademark yourself. A trademark offers legal protection for your company’s name. It will prevent others from using or infringing upon it. A trademark will also protect the name from activities that could  negatively affect your business.

There are rules and regulations governing how trademark protections work.  Consult your lawyer to ensure the name you choose will be trademark-compliant.

What Kind of Company Should I Set Up?

The first questions you should ask yourself  is what type of company structure will best suit you. The answer will depend on the size of the company. However, you should also consider your expected cash flows and revenues. Finally, don’t forget about the level of liability you are willing to assume, or can afford.

Sole proprietorships offer one business structuring option. A sole proprietorship is great for a really small business with minimal tax and legal liability risk.

Incorporating is another way to set up your business. If you’re concerned about legal liability and taxes,  a corporate structure makes sense.

Of course, your business might to be a business at all. You may be living the dram providing a public service right now. Otherwise, whatever your doing may be tax-exempt. If that is the case, you’ll likely need to establish ome sort of non-profit organization.

There are several other types of business structures that entrepreneurs may wish to consider. Consult your attorney or accountant while considering the type of business you’re going to create. They can help you determine the best structure to establish when you are ready to start working.

Is My Business Legal Right Now?

There are hundreds of local, state, and federal laws governing business practices. There are evermore regulations.  You may need a to have a license, or pay a fee to operate your business.

Your company is responsible for understanding all of those laws. You are also responsible for complying with all of the applicable rules and regulations as well. Failing to do so can expose your company, and you, to fines, penalties, and other legal liabilities.

Prior to starting your business, you should consult with a knowledgeable attorney, as well as your municipal government. Work with both to determine all of the applicable rules and regulations. You should also establish a relationship with the government offices that regulate or inspect your business. Knowing your inspectors  will likely help you in the long run.

Finally, rules and regulations frequently change, and ignorance of the law is no excuse. Make sure you make sure you are cognizant of any changes to the law. When laws do change, work hard to comply with them.

What is my Level of Liability?

Virtually any business is going to incur some level of liability. There is always a chance that something can happen to a customer or employee where you are liable.

However, every business is different, with owners incurring vastly different levels of risk. A  car wash, for example, likely incurs far less liability for its owners than an emergency clinic.

Consult with your attorney to determine the best ways to minimize your liability risk. In some cases, choosing the right business structure can eliminate nearly all liability risk to you as an individual. In other cases, simply taking preventative measures may be enough.

You’ll almost certainly need insurance to help manage your company’s liability risks. keep your policies up to date!  And when all else fails, having an attorney you trust to handle any potential legal proceedings is critical as well.

Final Thoughts – Stay on the High Road

You will likely invest your heart and soul into your company to make it successful; don’t undermine all of that hard work by failing to ask the right legal questions from the start, and leaving yourself liable to a variety of different risks.

Right from the beginning, ensure that your company’s name is appropriate, and can be trademarked to protect your interests. Determine the best structure for your business, and then ensure that it is and remains in compliance with all applicable laws and regulations. Ensure that your business is managing legal risk appropriately, too.

Finally, as a business owner, you should have a trustworthy lawyer to help you answer any legal questions that arise during your day-to-day operations. This will help you stay on the high road, and enable you to achieve the success you seek.

William Lipovsky

William Lipovsky

William Lipovsky owns the personal finance website First Quarter Finance. He began investing when he was 10 years old. His financial works have been published on Business Insider, Entrepreneur, Forbes, U.S. News & World Report, Yahoo Finance, and many others.

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