·  Legal News, Analysis, & Commentary


10 Legal Steps You Should Take Before Starting a Business

— April 23, 2024

By proactively addressing areas like business structure, intellectual property protection, and compliance requirements, you’ll position your venture for sustainable, long-term growth.

Launching a successful business requires more than a compelling idea and entrepreneurial drive. You must build your enterprise on a solid legal foundation to thrive. This foundation will help you mitigate potential risks, ensure your business operates within the law, and safeguard it for the future. While navigating the legal landscape can seem overwhelming, this article breaks down ten essential steps to consider before starting your business. By proactively addressing areas like business structure, intellectual property protection, and compliance requirements, you’ll position your venture for sustainable, long-term growth.

Select the Right Business Structure for Your Needs

Every business must choose a legal structure. The most common options include sole proprietorship, partnership, Limited Liability Company (LLC), S corporation, C corporation, and nonprofit. Each carries distinct benefits and drawbacks regarding taxation, liability protection, ownership structure, and operational complexity. Deciding on your structure should be done carefully, potentially in consultation with an attorney or accountant, as it has far-reaching implications for your business’s future.

Understand the Implications of Non-Compete Agreements

Non-compete agreements are designed to prevent employees from taking knowledge or trade secrets to compete directly with their former employer for a specified period and within a designated geographical area. While non-compete agreements protect legitimate business interests, courts scrutinize them for reasonableness. Overly broad or restrictive clauses may be deemed unenforceable.

If you’re an employer considering non-compete agreements, consult with an experienced attorney to ensure they are carefully crafted and align with the laws of your jurisdiction. If you’re an employee asked to sign a non-compete, have it reviewed by legal counsel to understand its restrictions, your rights, and the potential consequences of signing.

Stay Ahead of Tax Obligations

Accurate tax filing and record-keeping are crucial aspects of business compliance. Failing to meet tax obligations can lead to significant consequences, including hefty fines, interest penalties, and even audits. Establishing a robust system for tracking income, expenses, and deductions is essential for ensuring timely and accurate tax filings. Consulting with a qualified tax professional can help you navigate complexities and maximize deductions, ultimately saving you money in the long run.

Safeguard Your Business With Contracts

Contracts are the backbone of secure business dealings. Well-crafted documents protect all parties involved, whether it’s an employment contract, a partnership agreement, or a contract with a vendor or client. They clearly outline expectations, responsibilities, payment terms, and dispute resolution mechanisms. Prioritize having clearly defined contracts to minimize misunderstandings and potential legal disputes down the road.

Embrace Data Protection as a Business Imperative

In today’s digital age, protecting customer privacy is paramount. Many regions have enacted data protection and privacy regulations, such as the General Data Protection Regulation (GDPR) in the European Union. These regulations dictate how businesses collect, store, and utilize customer data. Failing to register for compliance can expose your business to hefty fines and reputational damage in case of a data breach.

For instance, under the GDPR, even businesses in the US that handle the personal data of EU citizens must obtain explicit consent before collecting it. Additionally, they must provide individuals with the right to access, rectify, and erase their data upon request. Understanding and adhering to relevant data protection laws will build customer trust and safeguard your business from legal repercussions.

Do Not Forget Employment and Labor Regulations

Hiring employees brings another layer of legal obligations. Employment and labor laws govern various issues, including fair hiring practices, minimum wage & overtime pay, anti-discrimination policies, workplace safety standards (e.g., OSHA compliance), and mandated benefits like family and medical leave. These laws differ between jurisdictions, so it’s crucial to familiarize yourself with those that apply to your location and industry.

Man reading business newspaper; image via Adeolu Eletu, via
Man reading business newspaper; image via Adeolu Eletu, via

Proactive compliance is vital. Seek the advice of an employment law attorney to review your workplace policies, handbooks, and hiring practices. This ensures that you operate fairly, adhere to regulations, and minimize the potential for costly employee-related lawsuits.

Shield Your Brand by Safeguarding Your Intellectual Property

Intellectual property (IP) refers to the intangible creations of the mind—inventions, creative works, and brand identifiers. Safeguarding your IP is vital to protect your business’s unique assets. Consider applying for trademarks to secure rights over your business name, logos, or memorable slogans. Patents may be appropriate for innovative products or processes you’ve developed. Copyright can protect original written works, music, or artistic creations.

Be Vigilant Against IP Infringement

Staying informed about potential IP violations is as important as protecting your assets. Monitor for unauthorized use of your trademarks or copyrighted material by others. If you discover infringement, take steps to enforce your rights. Consult with an IP attorney to understand the best course of action, which might include sending cease-and-desist letters or pursuing legal action in severe cases. Also, be mindful of your own business practices to avoid inadvertently infringing on the IP rights of others.

Secure the Right Insurance Protection

Insurance is a crucial investment to protect your business against unforeseen risks. There are various types of insurance policies, each addressing specific needs. General liability protects against customer injuries or property damage claims. Professional liability (also known as errors and omissions insurance) is essential for businesses offering services to protect against negligence claims. Property insurance covers physical assets like your building and equipment. Workers’ compensation is mandatory in most locations if you have employees, providing coverage for workplace injuries.

Choosing the right mix of policies is vital. Consult an experienced insurance broker to assess your risks and design a coverage plan that provides the necessary financial security.

Play by the Rules by Securing Necessary Licenses & Permits

Every industry has its specific regulations. Businesses may require various licenses and permits to operate legally. For example, a restaurant may need a food service license and a liquor license. Construction companies typically require contractor licenses. Salons often require licenses for individual cosmetologists.

Thoroughly research the licensing requirements for your industry and location. Failure to obtain the proper permits can result in fines, penalties, or even forced business closure.

The Value of Professional Advice

Starting a business is an exciting journey, but navigating the legal complexities is essential for long-term success. The legal requirements can be overwhelming, from selecting the right structure and safeguarding intellectual property to managing employee relations and ensuring data privacy. 

Investing in legal counsel from the outset is wise. A knowledgeable attorney helps you understand the laws, mitigate risks, and tailor solutions to your specific business needs. Taking proactive steps now will secure a strong foundation for your business’s future, allowing you to focus on its growth and avoid costly legal hurdles down the road.

Join the conversation!