Setting Up For Success: Legal Tactics for Small-Business Success
National Small Business Week is a week-long celebration in recognition of the resilience, innovation, and dedication of our country’s small businesses. Whether you are thinking of launching a consulting service, opening a restaurant, or fundraising for the next big tech breakthrough, setting your small business up for success starts with setting a solid legal foundation. From choosing the right legal structure, to protecting your business interests, making informed legal decisions early in the process can save entrepreneurs time, money, and headaches down the road, and more importantly, it can help support the growth and success of your business in the short and long term.
If you’re a new entrepreneur or planning for your next big idea, continue reading for some of the most important legal steps to take from the outset, so that you can grow and progress with confidence.
Choose the Right Legal Structure
One of the most important decisions a small business owner makes is selecting the legal structure for their business. This affects everything from how the business is taxed to your personal liability for the business’s debts. A sole proprietorship is the simplest option but offers no liability protection. LLCs and corporations take more effort to set up but help shield your personal assets against business liabilities. Choosing the right structure sets the tone for how your business will grow and operate, so make sure you consult your attorney on this issue.
Register the Business
After choosing your business structure, it’s time to register your business with the state in which you plan to conduct most of your business. If you plan on conducting business in multiple states, you may also need to register for a license to conduct business in those other states. This process will involve filing formation documents and paying a fee. Depending on the state of formation, you may also need to make sure you submit annual reports to maintain your business’s status with the state. These are all key steps to ensure compliance and gain access to certain benefits like business bank accounts and legal protections.
Get an EIN (Employer Identification Number)
An EIN, or Employer Identification Number, is like a Social Security number for your business. It’s required if you plan to hire employees, but is also an option for single-person businesses that do not anticipate hiring. You can get one for free online through the IRS by filing a Form SS-4.
Open a Business Bank Account
Separating your personal and business finances is critical for clear accounting and legal protection. Opening a dedicated business bank account not only helps with organization but also reinforces the legal distinction between you and your business—essential for maintaining liability protection.
Draft Operational Agreements
Whether you’re starting your business as a solo practitioner, or with one or more partners, a founders’ agreement is essential. The name of the document will depend on the type of legal entity you choose, but no matter what, this document will outline each person’s roles, responsibilities, equity stake, decision-making power, and potential exit strategy. Setting these expectations early on will create less confusion and streamline operations in the future.
Protect Business Intellectual Property
Your business’s name, logo, product design, and content all have value, so you want to be sure you’re protecting that value by utilizing trademark, copyright, and patent protection where possible. For businesses working with freelancers or developers, using NDAs and IP assignment agreements helps ensure that what’s created for your business stays with the business.
Set Up Contracts and Terms of Service
Whether you’re working with clients, vendors, or employees, having clear contracts in place is key to avoiding disputes. If you operate online, terms of service and privacy policies outline how you do business and protect you legally. Maintaining and implementing well-drafted agreements will help protect your business, and set boundaries for working relationships.
Understand and Plan for Taxes
Understanding your business’s tax obligations is critical. Keep track of the types of taxes you will be responsible for filing – whether that be income taxes, sales tax, payroll tax, etc. – and keep up with federal and state filing deadlines. Maintaining a relationship with a tax advisor will help to ensure that you remain compliant, and take advantage of any potential deductions.
Get Business Insurance
Business insurance may not be on your radar now, but it is important that you obtain it as soon as possible. General liability insurance covers common risks like accidents or damage, while other policies like professional liability or cyber insurance address industry-specific concerns.
Establish a Relationship with an Attorney
Beyond the formation process, many businesses will have little contact with an attorney unless a legal issue pops up down the road. However, it will never hurt to maintain contact with a legal professional throughout the life of your business – an attorney’s most important job is to safeguard their client’s best interests, and to provide support and advice when called upon. So never hesitate to reach out with questions because it may save time in the long run.
If you are interested in establishing your own small business, let’s talk about how to set you and your business up for success. Contact one of the attorneys in our Business Law and Transactions practice group to start the conversation.