5 Common Legal Issues for Startups and Small Businesses
- Choosing a business structure
One of the first and most important questions every founder must consider is what business structure to choose. The type of entity chosen can impact taxation, financing, and have other legal consequences down the road for your new business. Generally, entrepreneurs can select from LLCs, S-Corporations, C-Corporations, and general or limited partnerships. These entities have different advantages and disadvantages that will differ greatly depending on your unique circumstances and goals, tax or otherwise.
Business attorneys can help you understand the implications of each choice and assist with formation or restructuring.
2. Compliance with employment laws
There are many different rules for classification of employees versus independent contractors that startup founders should be aware of. In the early stages of a business, it can be costly and founders could incur personal liability for violations of minimum wage or overtime requirements under the Fair Labor Standards Act (FLSA) if an employee is improperly classified as an independent contractor. Government agencies have increased attention to classification issues recently with scrutiny on the gig economy, so it is important for entrepreneurs and small business owners to pay increased attention to contract language and read the current DOL guidelines before classifying someone as an independent contractor.
Once your startup or small business is ready to hire an employee or staff, you will be confronted with developing policies to address employee discipline, termination, wage and hour compliance, employee benefits, harassment and discrimination, and potentially non-disclosure agreements.
Employment law attorneys can help navigate through the myriad of applicable laws when your business is getting off the ground.
3. Protecting intellectual property
In the excitement of launching a new product or brand, many new businesses forget to make sure that their chosen company name does not infringe on another company’s trademark. It is important to do your due diligence early on to avoid this costly mistake.
Protecting your own intellectual property in the beginning stages, especially when your business is based on a unique technology or innovation, should be high on your to do list. Filing for patent, copyright, or trademark protection, where appropriate, can ensure your brand is protected from the beginning.
A law firm can assist you in filing for these protections, drafting licensing agreements, or protecting your rights through legal action if it becomes necessary.
4. Data protection
Businesses of all sizes need to develop a comprehensive plan on what type of consumer data will be collected and how it will be handled and protected. These plans are often communicated via privacy policies and terms of use pages on the website and must provide sufficient protection for consumers’ personal information. There are many state and federal regulations that protect consumers from unwanted access to their information or from unfair and deceptive business practices. Depending on your specific business there are other privacy laws that may impact your policies as well such as the Heath Insurance Portability and Accountability Act (HIPAA) or the Children’s Online Privacy Protection Act (COPPA).
A business lawyer can help a startup or small business owner understand the data privacy laws that are applicable to their particular situation.
5. Working without a contract
Many small businesses and startups engage important services or hire key employees by handshake or word of mouth agreements in the beginning stages. Working without a formal written agreement can leave your business unprotected in the event of a dispute. For example, if your business starts using suppliers as it grows, you will want to make sure you have written supplier or vendor agreements for the goods or software that will be supplied. A carefully drafted contract outlines the obligations owed between the parties such as payment, delivery, and covers other considerations like warranty and maintenance obligations.
Small business lawyers can review your existing contracts or help you draft agreements that cover these areas.
To connect with a Business & Employment attorney who can help you navigate these legal issues and launch your business with confidence, you can call Nauman Smith at (717)236-3010 or email Jennifer Bruce at jbruce@nssh.com.