When you think of setting up or running a small business, business owners need to know the legal aspects that helps to running a small business. As we know, when we start a new business or a startup, they have various legal obligations, such as financial regulations, tax return and employment laws.
In this article, we discussed the legal aspects of running a small business and ensuring these legal aspects for a new company, so you can focus on growing your business and do not face any problems when running a small business.
What is Legal Aspect?
Legal Aspects means its consider laws, rules, regulations, and legal principles that are set by the government for running a small business properly. And legal aspects covering everything from formation and operations (contracts, employment, IP, taxes) to compliance and stakeholder protection, ensuring lawful conduct and avoiding penalties. It is all about doing for the growth of your business in the right way while following rules, regulation and paying taxes.
10 legal aspects of running a small business
1. Create A Structured Business
The first legal aspect you will need when you run a new business is to choose your business structure. There are four common structures, and they offer different types of advantages, which depend on your company’s vision and size.
- Sole Proprietorship: It is simply structured, if you want to make a business alone, in which you have to pay loss and enjoy benefits individually.
- Partnership: A partnership structure is when a business has more than one owner; the profit and loss are distributed among all the partners. In this structure, the cost of startup for a single individual is divided among all partners, so the load of the business cost becomes slightly lower.
- LLC: Limited liability company protects your current assets, like your house, car, etc. It means when your business falls and can’t make a profit, or when it is considered bankrupt. You can file your business income as part of your personal income taxes so that your personal assets are safe.
- Corporation: A corporation, or a corp, is legally a separate entity from its owner or owners. Corporations offer the most significant personal protection from liability of all business structures. However, they’re more expensive and complicated to form. Corporations file separate income taxes on profits.
2. Register Your Business Name
After deciding on the business structure, you will need to register your business name. Select a name that shows your brand, and first make sure it has not been taken by another. After the clarify all thing you can choose to register your business. There are four ways to register it. Such as entity name, domain name, and trademark.
3. Trademark
You need to create a clear or identifiable brand by trademarking for your business, and additionally add slogans and logos. This thing protects your intellectual property against other companies with visual branding. So choose simple and easy slogans and logos that represent your business or are easy to understand.
4. Apply for a Federal Tax ID Number
The federal tax ID number is known as the Employer ID number(EIN). It permit to hire employees legally and paying federal taxes, applying for business licenses, and opening a business account. You can easily get an EIN through the IRS website. If you plan to hire and pay employees and filing employer tax return, and tax-deferred revenue. Your business will need an EIN to process this plan.
5. Determine the Need of State Tax ID Number
You need to research when your business needs a state tax ID number. To make a successful startup need only one ID number if your state collects taxes from businesses. Tax obligations work from state to state, and check the local laws that relate to your income and employment tax.
6. Keep Good Records
A good record makes a business reliable, so you need to document the business transaction is a essential for taxation and measure your growth and progress. Every business owner need a maintain their official records as it helps to demonstrate their business compliance.
7. Business Permits and Licenses
If you run a small business, you have to get all the necessary permits and licenses from the government bodies before the start of legal operation. These permissions vary according to your business nature, area, and industry. Here are some of the most common examples, are like general business license. Moreover, some enterprises may require zoning approvals or environmental permits, too. Getting the right permits is a legal matter that helps your business to avoid criminal liabilities and gain customer and authority confidence. Do not forget to renew your licenses on time and keep the copies for your records and inspections.
8. Protect Your Business with Insurance
Business Insurance is a type of protection a company gets which acts as a safety net when the unexpected happens, like accidents, property setting on fire, being sued, or employees getting hurt. Depending on what kind of business you have, you may get different business insurance policies, for example, general liability insurance, property insurance, professional liability insurance, and workers’ compensation. Having the right insurance in place will not only help you survive the financial loss, but it will also help keep the business running and give you a worry-free mind. Furthermore, it will help you stay on the right side of the law and at the same time gain the trust of clients, partners, and employees. Making the right choice of your insurance coverage is an indispensable factor in safeguarding your business for the future.
9. Hire and Classify your Employees Properly
It is crucially necessary to pinpoint the exact human resource hiring and employee classification so as not to break the law and to make one’s business work smoothly. This is a must-have, clear-cut decision of how to distinguish a worker, whether he/she is a full-time employee, part-time employee, independent contractor, or temporary worker. An accurate classification figure will indicate the payment, taxes, benefits, overtime pay, and legal liabilities. Labor law compliance greatly decreases the risk of getting a fine, a lawsuit, or having tax problems. Well-defined job roles, contracts, and payroll records that are accurate create a fair, transparent and friendly work atmosphere which is profitable for both the workers and the employer.
10. Open a Business Bank Account
One of the main reasons for opening a business bank account is to have the ability to easily separate your personal and business finances. Such separation simplifies the bookkeeping, increases the level of financial transparency, and assures that tax filing is done correctly. Besides, having a business account only is very beneficial for your business image when interacting with customers and vendors. It also allows you to have a clear picture of your income and expenses, regulate your cash flow, and get yourself ready for financial reporting. Generally, banks will ask for your business registration details and tax identification number before letting you open an account. Using a business account is a very important and fundamental step for any business that wants to be properly organized and comply with the law.
Conclusion
After reading this informative guide, we understand running a small business is not easy work. We need to know all the legal requirements that make a business progressive and help in its growth. Legal aspects play a crucial role in making a business strong. These legal aspects lead to overall national growth as every business owner pays regular bills, which are used for the development of the nation.