Starting a small business can be an exciting and rewarding endeavor, but it’s important to make sure you’re complying with all the legal requirements. In this article, we will discuss some key legal considerations for starting a small business.
Choosing a Business Structure
One of the first legal considerations when starting a small business is choosing a business structure. The most common structures for small businesses are sole proprietorships, partnerships, limited liability companies (LLCs), and corporations.
Sole proprietorships are the simplest and most common business structure, where the individual is the business. The owner has significantly fewer registration requirements, if any. However, the drawback is that the individual is personally liable for all business debts and obligations – including if the business is sued.
Partnerships involve two or more owners who share in the profits and losses of the business. Partnerships can be general partnerships, where all partners have equal management and liability, or limited partnerships, where one or more partners have limited liability. Again, like sole proprietorships, the individuals are personally liable for all business debts and obligations – including if the business is sued.
LLCs are a hybrid structure that combines the liability protection of a corporation with the simplicity of a partnership or sole proprietorship. In Pennsylvania, there are minimal registration requirements and the state fees are small. The greatest benefit of an LLC is that the owners of LLC’s are known as “members” and are not personally liable for business debts and obligations (except for in extremely rare circumstances). It is the business itself that is subject to all of the debts and obligations of the business. Moreover, LLC’s can be taxed as sole proprietorships or partnerships. That way, the members avoid having both the business taxed and then the members’ distributions taxed.
Corporations are separate legal entities that can issue stock and have shareholders. Shareholders are not personally liable for business debts and obligations. However, corporations are subject to “double taxation” where the corporation is taxed and distributions to shareholders are taxed.
Corporations are also subject to more state and federal reporting requirements, especially if publicly sold. However, the reporting requirements also often make it easier for corporations to draw new shareholders and raise capital for larger projects.
Registering with the State
Another important legal consideration when starting a small business is registering with the state. Most states require businesses to register with the Secretary of State’s office, which typically involves filing Articles of Incorporation or Articles of Organization, depending on the business structure.
Depending on your area of business, registration with the state may also involve obtaining a business license. A business license will authorize your business to operate within the state. Some states also require businesses to obtain additional licenses or permits, depending on the nature of the business.
Protecting Intellectual Property
If your small business involves creating or selling products or services, it’s important to protect your intellectual property. Intellectual property refers to creations of the mind, such as inventions, artistic works, and symbols.
There are several types of intellectual property protection, including patents, trademarks, and copyrights. Patents protect inventions and give the owner the exclusive right to use, sell, or license the invention for a certain period of time. Trademarks protect logos, symbols, or phrases that are used to identify a business or its products. Copyrights protect original works of authorship, such as books, music, and art.
Complying with Employment Laws
If your small business has employees, it’s important to comply with federal and state employment laws. Some key areas of employment law include minimum wage and overtime requirements, anti-discrimination laws, and workplace safety regulations. It’s important to have an employee handbook that outlines your business’s policies and procedures, as well as to have written employment contracts that specify the terms of employment.
However, it is best to have the handbook reviewed by an attorney because there are circumstances where Pennsylvania law will consider an employee handbook as an employment contract even for employees who the business sees as “at-will” employees. Therefore, an employee handbook should not be created lightly or without review from counsel.
Obtaining Insurance
Finally, obtaining insurance is an important legal consideration for small businesses. Insurance can help protect your business from liability in the event of accidents, lawsuits, or other unforeseen circumstances. There are several types of insurance that small businesses may need, including general liability insurance, property insurance, and professional liability insurance.
Conclusion
In conclusion, starting a small business involves many legal considerations. Choosing a business structure, registering with the state, protecting intellectual property, complying with employment laws, and obtaining insurance are all key areas to consider.
If you are getting ready to start a business, or have recently started a business, contact Sperring Law Firm, LLC at (484)-250-9058 or at csperring@sperringlegal.com. We are happy to help new and small businesses take care of their legal needs and help them navigate the regulatory frameworks governing their industries.