Less than 15 years ago, small businesses were mainly Mom and Pop establishments that hardly made a dent in the overall business economy of the country. Today, according to Forbes, more than 50% of the working population is found in small businesses. One of the drivers for this steep upward trajectory is the immense growth and popularity of the Internet, mobile commerce, and online opportunities. However easy it is to set up a small business today, many small businesses have an average lifespan of about 4 years especially if it has a poor foundation, lacks the legal support, and is based on trends or fads. Focusing on the legal angle, it is a fact that in order for a new business to survive the 4 year test, it has to be compliant. Here are the basic legal requirements if you plan on starting your own business.
Step 1 Decide Your Legal Structure Every business has to be categorized under a form of ownership. The choices start with sole proprietorship which means one owner running an unincorporated business and assuming the responsibility for operations, liabilities, income, debts, and losses. It is also the simplest to work with since all you will need are: business license (federal, state, and local permits), tax registration, and specific licenses related to your business. The second legal structure is partnership where there is more than 1 owner and each partner contributes to the start-up capital, has shared and pre-agreed responsibilities as to operations and management of the business, and a percentage of the profits. Other types of legal business structures that are more complex are the nonprofit, cooperative, corporation, Limited Liability Company (LLC), and S corporation. You will need to hire a lawyer to help you set up these kinds of businesses.
Step 2 Registering your Business Technically, this can be done without the services of a lawyer. In most cases, it’s a matter of filling up forms, submitting documents, and paying the fees. However, if there is anything you do not understand regarding the registration process; do not proceed until you do. Under the law, ignorance is not a valid excuse. Most government offices have websites or staff able to explain anything with regards to the registration process.
Step 3 Getting Your TIN and Insurance Once you have your permits and licenses, you will need to file for your Business Tax Identification Number (TIN). If you do not have a personal TIN, you will have to also file for one since the obvious conclusion is that you will be earning soon. There are mandatory insurance requirements for most businesses with employees such as unemployment, worker’s compensation, and disability. You should consult with a lawyer regarding your insurance specific to your business instead of depending on the Internet for this kind of information.
Step 4 Understanding Business Laws All businesses have to adhere to certain business laws and there are specific laws on employment, advertising, finance, privacy, intellectual property, workplace safety, environment protection, and online business. It will save you money and time to hire a lawyer even on a part-time basis or contractual basis so that when your business is up and running, you do not run into major legal obstacles that would eat into your start-up capital. The general advice most lawyers would give to new entrepreneurs is to “understand before you sign” and “consult before agreeing to anything.” By treading carefully and studying your options, you protect your new business from suffering the fate of an early business failure or creating a complicated legal problem that would take months to untangle.