Starting a new business is an exciting venture with many legal responsibilities. From choosing the right business structure to understanding tax obligations, new entrepreneurs need to navigate a complex legal landscape. Cole Evans Denver breaks down some key legal considerations for new businesses, using simple language to make it easy to understand.
Choosing The Right Business Structure
One of the first decisions new business owners must make is choosing the right business structure. The most common options are sole proprietorship, partnership, corporation, and limited liability company (LLC). Each structure has advantages and disadvantages, so it’s important to understand the differences before deciding.
A sole proprietorship is the simplest form of business structure, where one person owns and operates the business. While this structure is easy to set up and requires minimal paperwork, the owner is personally liable for all debts and obligations of the business.
Partnerships involve two or more people sharing ownership of the business. There are two main types of partnerships: general partnerships and limited partnerships. In a general partnership, all partners share equally in the profits and liabilities of the business. In a limited partnership, there is at least one general partner with unlimited liability and at least one limited partner whose liability is limited to the amount of their investment.
Corporations are separate legal entities that can conduct business, sue and be sued, and enter into contracts. One of the main advantages of a corporation is that it provides limited liability protection to its owners, meaning that the owners are not personally liable for the debts and obligations of the corporation.
LLCs are a hybrid form of business that combines the limited liability protection of a corporation with the flexibility and tax benefits of a partnership. Like corporations, LLCs provide limited liability protection to their owners. Still, they are taxed as pass-through entities, meaning that profits and losses are passed through to the owners’ tax returns.
Understanding Tax Obligations
Another important consideration for new businesses is understanding their tax obligations. All businesses are required to file an annual tax return with the IRS, and depending on the type of business structure, they may also be required to pay estimated quarterly taxes.
Sole proprietors and partners report their business income and expenses on their personal tax returns using Schedule C (Form 1040) or Schedule E (Form 1040). They must also pay self-employment tax, which covers their share of Social Security and Medicare taxes.
Corporations and LLCs, on the other hand, are separate tax entities and must file their own tax returns. Corporations are subject to corporate income tax, while LLCs are taxed as pass-through entities and are not subject to corporate income tax. Instead, the profits and losses of the LLC are passed through to the owners’ personal tax returns, and the owners are responsible for paying taxes on their share of the profits.
Protecting Intellectual Property
Intellectual property (IP) encompasses the products of human creativity, including inventions, writings, art, designs, and identifiable symbols or names used in business. Protecting IP is crucial for new businesses, as it can give them a competitive edge in the marketplace.
There are several ways to protect IP, including trademarks, copyrights, patents, and trade secrets. A trademark is a word, phrase, symbol, or design that distinguishes the source of goods or services. Registering a trademark with the U.S. Patent and Trademark Office (USPTO) gives the owner exclusive rights to use the mark in commerce.
Copyright, however, protects original works of authorship, such as books, music, and artwork. Copyright protection is automatic upon creating the work, but registering the copyright with the U.S. Copyright Office provides additional benefits, such as the ability to sue for statutory damages and attorney’s fees.
Patents protect inventions and are granted by the U.S. Patent and Trademark Office. There are three main types of patents: utility patents, which protect new and useful processes, machines, and compositions of matter; design patents, which protect new, original, and ornamental designs for articles of manufacture; and plant patents, which protect new and distinct varieties of plants.
Trade secrets are confidential information that gives a business a competitive advantage. Unlike patents, trademarks, and copyrights, which require public disclosure, trade secrets are protected by keeping the information confidential.
Complying With Employment Laws
As a new business owner, it’s important to comply with federal and state employment laws to avoid legal issues. Some key areas to be aware of include:
Fair Labor Standards Act (FLSA)
The Fair Labor Standards Act (FLSA) sets rules for how much workers must be paid at minimum, how overtime pay should be calculated, how records should be kept, and what jobs minors can do. These rules apply to employees in businesses and the government at the federal, state, and local levels. It also prohibits oppressive child labor practices and ensures that employees are paid fairly for their work.
Family And Medical Leave Act (FMLA)
The FMLA requires covered employers to provide employees with job-protected and unpaid leave for qualified medical and family reasons. This act also ensures that employees maintain their health benefits during their leave and can return to their same or equivalent position after their leave ends.
Americans with Disabilities Act (ADA)
The ADA prohibits discrimination against individuals with disabilities in all areas of public life, including jobs, schools, transportation, and public and private places open to the general public. The ADA requires employers to provide reasonable accommodations to employees with disabilities to enable them to perform their job duties.
Occupational Safety And Health Act (OSHA)
OSHA sets and enforces standards for safe and healthy working conditions. Additionally, OSHA provides training, outreach, education, and assistance to employers and employees to ensure a safe and healthful working environment.
Equal Employment Opportunity Commission (EEOC)
The EEOC enforces federal laws prohibiting employment discrimination. It also investigates discrimination complaints and works to promote equal employment opportunities through education and outreach programs.
Conclusion
Cole Evans Denver says starting a new business can be daunting, but entrepreneurs can confidently navigate the legal landscape with the right legal knowledge. By choosing the right business structure, understanding tax obligations, protecting intellectual property, and by complying with employment laws, new businesses can set themselves up for success in the long run.
