07.04.2022 15:30

Legal Precautions for Startups and Small Businesses

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Legal mistakes can be costly, so you need to do everything in your power to guard against them. With the right approach to legal precautions, you’ll be well-equipped to run a business that consistently operates in accordance with the law. Plus, you can set up your business to comply with myriad rules and regulations for many years to come. 

Here are 10 legal precautions you need to consider as you get your business off the ground. 

1. Business Structure

How you set up your business impacts your personal liability, taxes, and ability to raise money. Therefore, you need to evaluate myriad business structures and choose one that suits your business. 

Common business structures include:

  • Sole Proprietorship: You set up and run your business on your own. 
  • Partnership: You work with two or more individuals to operate your business. 
  • Corporation: Your business is treated as its own independent legal entity. 
  • Limited Liability Company (LLC): Your business has separate corporate and personal liabilities, and its owners share your company’s tax responsibilities. 

Learn about different business structures and their respective pros and cons. From here, you can select one for your business and complete any required paperwork. 

2. Licenses and Permits

You may need certain licenses and permits, depending on where your business operates.

These licenses and permits can include:

  • Building permits
  • Health-related safety permits
  • Liquor licenses
  • Local business licenses

It can be beneficial to hire an attorney to guide you through the process of getting business licenses and permits. Your attorney can offer tips, recommendations, and insights to help you obtain various licenses and permits. 

In addition, reach out to your local government. This ensures you don’t accidentally court one of the many legal issues that can affect startups, especially while registering your business. Plus, you can get in contact with any business licensing agency and learn about its licensing and permitting requirements for businesses. 

3. Taxes

Business owners pay taxes, regardless of their company’s size or industry.

These taxes can include:

  • Income tax
  • Sales tax
  • Self-employment taxes

Accounting software can help you manage your taxes. Or, you can hire an accountant who can help you track your taxes and ensure they are paid on time. 

4. Bookkeeping

There may be bookkeeping obligations you need to follow in alignment with industry standards. For instance, if you plan to operate a healthcare startup and manage sensitive patient data, you must comply with HIPAA standards. Comparatively, if you want to open a global financial services firm, you may need to operate in accordance with International Financial Reporting Standards (IFRS). 

Learn about the bookkeeping requirements for your industry. Next, you can establish an industry-compliant bookkeeping system for your documents and transactions. You can even capitalize on technology for bookkeeping to take your business global.

5. Intellectual Property (IP)

IP refers to anything you create that you use for commerce.

There are several types of IP, including:

  • Copyright: Rights that a creator has over their literary and artistic works
  • Patent: Exclusive rights granted for an invention 
  • Trademark: Signs that distinguish one brand’s goods or services from others
  • Trade Secrets: IP rights on confidential information that can be sold or licensed 

Be diligent with IP. For example, it can take more than five years to get a patent. So if you know you’ll have to complete a patent request, do not wait to fill it out and file it. 

Also, partner with an attorney to protect all IP. Your attorney can determine what intellectual property needs to be protected and how to secure it. Meanwhile, protecting your IP may help your business generate interest from investors. 

6. Cybersecurity

Cybercriminals use ransomware, malware, and other malicious software to attack businesses and penetrate business networks and systems. If hackers are successful, they can compromise business data. At this point, cybercriminals can use business data for identity theft and other illegal activities. They can also demand a cyber ransom or take other actions to disrupt business operations. 

No business is immune to cyberattacks, and your company needs to protect its data from the get-go. This requires you to perform a cybersecurity audit and establish a cybersecurity strategy. 

cybersecurity audit gives you a glimpse into cyber threats that can impact your business. The audit ensures you can address security gaps before cybercriminals can use them to penetrate your company’s networks and systems. 

Following a cybersecurity audit, you can build an end-to-end cybersecurity strategy. This plan can account for the technologies and solutions you’ll use to protect your company against cyberattacks. It can encompass details about how to respond to and remediate data breaches and can include insights into how you will teach your employees about cybersecurity as well as ensure they do their part to keep your business secure. 

Remember to account for data security requirements relative to your industry and where your company operates, too. For instance, businesses must comply with the General Data Protection Regulation (GDPR) for data protection and privacy in the European Union and European Economic Area. 

GDPR is considered the “toughest privacy and security law in the world.” It requires businesses to follow certain obligations based on how they collect, manage, and secure consumer data. Failure to comply with GDPR can result in compliance penalties. It can cause a business to experience brand reputation damage and revenue losses as well. 

Stay up to date regarding data security requirements. Moreover, leave nothing to chance relative to cybersecurity. That way, you can protect your business against cyberattacks and limit the risk of expensive and time-intensive data breaches. 

7. Insurance

Workers’ compensation insurance is a requirement for many businesses. It provides medical and wage benefits to individuals who are injured or become ill at work. 

Check out local legislation regarding workers’ compensation insurance. If you are required to have this insurance, shop around for coverage options. This allows you to find the best workers’ compensation coverage for your workers. 

Along with workers’ compensation insurance, you may want to invest in cyber insurance coverage.

Cyber insurance is not a legal requirement at this time. However, it can provide you with financial coverage that ensures your business can quickly rebound after a data breach.

8. Employee Compensation

It is crucial to provide fair compensation to your workers. You should offer a minimum wage in alignment with local regulations. 

Learn the laws surrounding standards for wages and overtime pay where your business operates. For instance, the Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, and youth employment standards for businesses in the United States. Companies in both the private and public sectors must comply with FLSA.  

As you hire workers, use contracts to define the terms and conditions associated with employment. Your contracts should include clear terminology regarding compensation and other employment topics. They can be reviewed by an attorney before you provide them to workers. And you should take time to discuss your contracts with employees in detail. This allows you to eliminate any “gray area” and ensure both you and your workers are on the same page regarding employment.   

9. Workplace Conflict

Consider workplace conflict and how your employees should respond to it. Oftentimes, it helps to create an employee handbook that outlines the expected behaviors of workers. The handbook can be provided to an employee as soon as he or she joins your business. This worker can then be required to review the handbook and sign documentation that verifies he or she understands how to address workplace conflicts. 

Furthermore, your employee handbook should account for workplace microaggressions, i.e. subtle behaviors that impact the wellbeing of members of marginalized groups.

Workplace microaggressions fall into three categories:

  • Behavioral: Actions or symbols are used to deliver a message that does not account for stereotypes. 
  • Environmental: A work environment is established that lacks diversity based on gender, race, ethnicity, or sexual orientation.
  • Verbal: An employee says something that may be disrespectful or offensive to members of a marginalized group. 

Your employees may seek legal counsel if they feel they are victims of microaggressions or other conflicts at work. Thus, your employee handbook should explain how employees can come forward to report workplace conflicts. As a result, employees will know exactly how to respond to microaggressions and other workplace conflicts.  

10. Business Policies

Your business needs policies that define what it expects from its employees.

Some of the best business policies to use include:

  • Equal Opportunity Policy: Outlines how your company does not discriminate against employees or job candidates if they are a member of a protected class (race, gender, etc.); most countries require businesses to create and follow an equal opportunity policy
  • Workplace Health and Safety: Describes how you keep your work environment safe and how your employees can do the same
  • Attendance: Defines the days and hours employees are expected to work. 
  • Time-Off: Explains how employees can request time off due to illness or vacation.

Your employees must agree to your business policies before they can work for your company. As such, your business will be protected if it needs to terminate a worker if they do not comply with your company’s policies. 

Keep your business policies up to date. If you revise your business policies, notify your employees accordingly. 

The Bottom Line on Legal Precautions For Your Startup or Business

Business new, old, large, and small alike must account for legal precautions. With careful planning and attention to detail, you can take legal precautions to protect yourself, your employees, and your customers now and in the future.

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