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The legal basics of starting a new business

| Jun 14, 2012 | Business Startup, Incorporation

This article originally appeared as a column for the Cleveland Jewish News.

Maybe you invented the world’s next best-selling product, and you want to start a business to market it to the masses. Or, perhaps, you have decided to set out on your own in a service-based business. If you are thinking about starting your own business you have probably already given some thought to your business plan. You may have already identified your target customer and started developing your marketing strategy. In other words, you have probably focused your efforts on the “business” aspect of things. But, have you considered the various legal aspects of starting your business?

A little forethought during the planning stages can save a great deal of hassle down the road. Depending on the nature of your new business, below are a few things you may want to consider:

Intellectual property protection: If you have invented something, you will want to consider patenting it and make certain that it does not infringe on someone else’s patent. Any prospective copyright protection issues should be considered as well, especially if you are working in the arts or if you are making use of software that you, yourself, did not write.

Incorporation: While no one starts a business thinking they will be sued, the truth is that it could happen. Maybe your employee gets injured on the job or a customer is unhappy with your services. The fact is that operating as a business entity, rather than as an individual, is smart. From partnerships to corporations, there are a number of types of business entities that may be appropriate for you. Determine which type best suits your needs and be sure to file any appropriate paperwork with the Office of the Secretary of State.

Licensure: Especially if your business is service-based, make sure you secure any appropriate licensure that may be required.

Insurance: Depending on the nature of your business, you may need to take out a liability insurance policy. Or a malpractice insurance policy. Or a workers’ compensation insurance policy. Or all of the above. Insurance may seem like an unnecessary overhead expense, but keep in mind that your monthly premium will probably amount to peanuts in comparison to an adverse jury verdict should you be sued, and even more importantly, the law might require certain types of insurance coverage.

Labor laws: Several laws exist regarding wages, non-discriminatory hiring practices, using contract labor versus employees, and the like. If you are intending to hire anyone to help in your business, you will want to become educated in the various laws and regulations involving labor and employment.

Taxes: Uncle Sam collects taxes from businesses, too. Seeking advice from your accountant or tax attorney at the inception of your business could save a few bucks down the road.

Contracts: Two words – partnership agreement. If you are going into business with anyone else, you should put in writing how your business will be run, even if it seems silly or you think everyone is in agreement. Such an agreement might cover the process by which business decisions will be made, how everyone gets paid, where any capital contributions will come from and how they will get reimbursed, and what happens if someone wants out, to name a few. And while we’re on the topic of contracts, check the consumer protection laws for any mandatory right of rescission periods that you may need to provide your customers.

Consumer protection and fair practice laws: If you are going to provide a service, you will want to make sure the outstanding marketing campaign you are planning is allowed by law. You do not want to risk the integrity of your company’s name by engaging in any unfair business practices.

Starting and running your own business can be every bit as scary as it is gratifying and as stressful as it is fulfilling. This is exactly why you want to consider potential legal aspects at the beginning. It is impossible to plan for everything, but some advance planning will go a long, long way toward preventing future legal issues and will allow you to keep your focus on the more fun and rewarding aspects of your new business.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.