Starting a Business: Legal Considerations
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Starting a Business: Legal Considerations

This article was written as a response to the question: What are the legal basics for starting a business?

I am not a lawyer. But I am a small business owner, and I've worked for small business owners in other industries. The best advice I can give you is to have your business plan in hand when you go to ask for advice from the experts. A business plan is a fairly formal document. It has several sections, including one on finances, one on legalities, one on projections, capital, etc etc. It is the most detailed break down of every aspect of your business that you can think up.

Take this with you because it will be proof that you plan to succeed. Your business plan is the reference material for you and for the experts you interview for help. Here are two websites with information about creating a professional business plan: The Small Business Administration's Guide and Entrepreneur.com's Business Plan Advice.

One of the first things you need to do is research. Research your future client base, research the names of other businesses in your geographic area and in your service sector of the market. Pick your business name with an awareness of any double meanings to the words you choose, and an awareness of what the name says about your product or service. Portland's local chapter of the SBA SCORE is the 11th incorporated chapter. Therefore, they advertise themselves as "Chapter Eleven." They've lost the opportunity to help some new clients because of the negative associations many people have with going into Chapter Eleven, financially.

Register your business name in your state. At registration, you will be asked to identify the type of business, and to select the structure of your small business. Are you an LLC? Are you a Corporation? Check out SCORE's article on understanding business structures for more information. The structure is important, because it is the first line of legal defense you have. It determines liability if you or your company are ever sued, and it determines your responsibilities at tax time, and whether or not there is joint ownership. The number of employees you expect to hire will also influence your business structure.

Small business owners must also purchase various kinds of insurance, based on the type and risks of their business. SCORE, a non-profit small business owner resource, can help with every aspect of this process, and even provides free one-on-one counseling relating to legal concerns, finances, and every other aspect of starting and owning a successful small business. They are closely tied to the U.S. Small Business Administration.

You may want to consider insurance on the building against fire, theft, and damage. You may also want insurance protection for any clients or employees who are injured while on your property, or in a company vehicle. If you do any sort of consulting, you may want to consider liability insurance in case someone decides to take your advice, and doesn't like the result. There are many kinds of business insurance out there, and the best way to identify your biggest risks is to speak with a specialist. Consider taking this test as a place to start your learning process: The Hartford Risk-Assessment Quiz.

Other areas in which you may want to consider the legal ramifications of your small business decisions include your taxes and financial accounting system for the business. Knowing what records to keep, and what expenses to deduct will save you a lot of time, money, and legal concerns come tax time. Also, you can decide whether it is appropriate for you to pay taxes quarterly, yearly, or with some other system. You will need to have an Employer ID-- an EID-- if you have employees, and will need a system for correctly calculating Social Security and other payments on their (and your) behalf. It is wise to open a Small Business Checking account, and keep all expenses, purchases, and payments (including those made to you!) separate from your own personal finances and bank accounts. Keep track of any money you loan your business, any business expenses or purchases, and any money your business pays out to you.

Go online and familiarize yourself with your state's business laws and tax laws, or consult someone who works with these laws for a living. It is better to have too much information than not enough. If you plan to succeed and grow your small business over the long run, consider the legal and marketing ramifications of every step you take along the way. And check out SCORE. Their free counseling really is worth its weight in gold.

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