Most business owners focus heavily on the business idea, the marketing strategies, and other aspects of starting a business without giving much thought or time to make sure that all the legal requirements are met. Quickly, these legal loopholes can turn to big headaches for startups and small businesses. That’s why meeting the legal requirements should be a top priority for any entrepreneur. You need to take adequate precautions to protect your company from any financial damages that might harm your business. One of the biggest questions that might worry many business owners is how legal their businesses are.
To find out the answer to that, these are some points you need to make sure of:
Insurance For Business
Making sure that your business is legit includes purchasing different types of insurance, such as disability insurance, to protect your business and the income of the employees in case of injuries. Legal experts at Doug Terry Law say that just because your disability insurance claim was denied, it doesn’t mean you have to give up on receiving compensation that rightfully belongs to you. Not only does having disability insurance protect your business, but it also protects employees as it provides them with a steady income if the employee becomes unable to perform his work due to disabilities. And this pretty much goes for any type of insurance. Your employees have rights, and it’s best to make sure you know those to maintain legitimacy. Businesses also have wide access to many insurance types to protect them. This includes professional liability insurance, property insurance, worker’s compensation insurance, and legal insurance to cover any unexpected legal expenses.
Here are some of the insurance types that any business must have:
- Professional Liability Insurance
This insurance type is what covers a business for any performance failures or mistakes. Liability insurance (or errors and omissions (E&O) insurance) changes based on the business industry; each one has different concerns that must be considered in a business customized written policy.
- Property Insurance
This insurance type is a must whether the business is renting its place or owns it. It protects the business against losses and damages in case of theft, fire, or storms. Basically, it covers anything that might damage a business’s equipment, signage, and furniture except for some natural disasters such as floods and earthquakes.
- Product Liability Insurance
Any business which is based on the manufacturing of products needs to get a product liability insurance. Regardless of the type of product and how much the business cares to ensure the safety of it, damages can happen. This insurance type also protects businesses against lawsuits, and its coverage can be tailored according to the business industry and nature.
The Optimal Business Structure
Determining the business’s legal structure can form quite the struggle for business owners who aren’t well aware of the necessary requirements. This can easily be solved by consulting a tax specialist to provide their opinions on the right legal structure for your business. You can choose from defining your business as a sole proprietorship, partnership, C corporation, or an S corporation. The choice depends on what suits you and your business more; it’s a choice based on how comfortable you are with formality.
Make Sure You Have Picked The Right Business Name
The first thing you need to check once you decide on starting a business is the name. But this name could quickly turn into the first mistake in how legitimate your business is. Making sure that you choose a name that hasn’t been used before is essential for many reasons. The most important reason is to ensure that you aren’t going to impinge on another’s company trademark. Other reasons include setting your business apart from the crowd, showing originality, and choosing a name that everyone will remember without confusing it with another company. You can do a national trademark search to ensure you’ve cleared the trademark.
Federal And Local Tax Requirements
Any business that isn’t classified under a sole-trader or any business with more than one employee needs to have an Employer Identification Number (EIN) from the Internal Revenue Service. It’s like a social security number, but for businesses and it’s needed for tax purposes. You can use this number to open a business bank account, file tax returns, and apply for business permits and licenses. While a sole proprietorship does not have to apply for an EIN, it cannot hurt as it creates a separation between business and personal liability. Other than federal tax, any business with a number of employees need to pay state unemployment tax. These taxes vary from one state to the other, so it’s important to educate yourself on the laws and rules of your state in order to protect your business and your work.
Mistakes Any Business Should Avoid To Be Legally Compliant
1. Forgetting About Written Employment Contracts
Written contracts are essential to define the terms and conditions of employment. A well-written employment contract helps business owners run their business smoothly.
2. Inadequate Workplace Policies
Not caring enough about drafting workplace policies increases the potential of problems occurring, whether it’s within the company or while representing the business in public. Areas such as discrimination, bullying, harassment, termination, disciplinary procedures must be covered in COC (code of conduct). Sometimes, companies decide to add a dress code in their COC to protect their public image, such as banning ripped jeans, shorts, and sweats.
3. Not Having Contractor Agreements
Engaging an independent contractor is a complicated issue if you don’t handle the situation properly. Business owners could easily find themselves facing claims in areas such as sham contracting, tax, employment rights, and workers’ compensation.
Starting a new business is tiring, challenging and can be quite stressful. However, building something out of nowhere by yourself is exciting, especially when you start to witness the outcome and the positive results. Making sure that your business is entirely legal ensures the consistency in the growth of your company without any setbacks or financial hits that might lead your business to suffer. That’s why it’s extremely important to take the time to plan out every little step while making sure that you are meeting all the legal requirements.
