On the path to success, most people dream of starting a business. With a great idea and good management, it can give you and the generations that follow financial freedom. This is why hundreds of thousands of ventures are started in the US every year.
Though the journey to entrepreneurship is promising, it comes with a myriad of challenges. As a result, many companies end up closing down after a few years of operation. This is not to say that there was no need for their products and services but to demonstrate how much businesses require a lot, if not everything, to go right to succeed.
Are you thinking of starting a company? Other than the quality of the products and services you will offer, many other things will play a role in its success. Key among them are legal requirements or hurdles that may arise along the way.
Read to gain crucial insight on how to overcome such legal hurdles.
1. Form A Separate Entity
Along with the opportunity starting a business offers, also comes risk. The type of structure you choose for your company influences things such as taxes, the method of selling the business, how you borrow, and whether you are personally liable for its debts and obligations.
If your business is registered as a sole proprietorship or partnership, the liabilities that the business incurs can spill over to you and your partners. You can limit your liability by registering it as a limited liability company or a corporation. By doing so, the company will be recognized by law as a separate legal entity. Though it is more expensive to do so, the benefits undoubtedly outweigh the cons.
2. Keep Proper Financial Records
Once the registration is complete, keep documents such as licenses, the memorandum of association, permits, and the likes safely. Once you begin operation, the business will be subject to audits and paying taxes, among other things.
As such, you are required by both state and federal law to create and maintain proper financial records. Such records document and create a reference point for business decisions and expenses such as salaries. Regardless of the size of the business, its finances should always be maintained separately.
Other than meeting legal requirements, keeping proper records has benefits such as:
- Allow you to identify sources of income
- Preparing financial statements is easy
- Easy to monitor the progress of your company
- Filing taxes is easier
3. Protect Your Earnings by Working Under Contract
One of the primary causes of business failure is cash flow problems. Sadly, close to 70% of small business owners are kept up at night because of cash flow challenges. Depending on the industry, it is common practice to receive payment for goods and services at a later date. In some cases, clients can delay excessively with payments, leading to cashflow problems which can affect the business in the following ways:
- Limit your capacity to service other clients
- Strain your relationship with suppliers
- Affect your ability to meet expenses such as salaries
- Reduce employee morale
To protect yourself from such stress, always work with written contracts that clearly indicate how and when you will be paid and steps to be taken in case of late payments.
4. Use Employment And Independent Contractor Agreements
As your business grows, you will be required to bring in more people on board, either permanently or on a short-term basis. Either way, there are state and federal regulations that must be observed. In addition to finding the top talent, you must focus on meeting such requirements and protecting your business.
With this in mind, you must hire an employment attorney. They will create a comprehensive employment contract that ensures trade secrets such as client lists, pricing, business plans, and product specifications are protected.
5. Protect Your Intellectual Property
In a time where competition is high, businesses are always watching what competitors are doing to catch up or stay ahead. If your business venture is based on an invention, discovery, unique process, or creativity, you will have a great competitive advantage. To ensure that no other company can use your ingenuity to compete with you, apply for all the necessary patents, trademarks, and copyrights.
With such protection, you will be able to take legal action against any individual or institution that infringes on your rights. Should you need to disclose your intellectual property to an employee or potential partner, have them sign a non-disclosure agreement beforehand.
Better Safe Than Sorry
As you prepare to open your company, you may want to start as soon as possible due to the excitement. Nonetheless, it is important to follow the necessary procedures, especially regarding matters that may have legal implications. Some of these steps may seem unnecessary early on, but they will protect you and your business when such challenges arise.
