Starting a small business can be overwhelming. For most small business owners, there are more issues to deal with than they possibly could have predicted, which leads to the neglect of some important areas of small business law. Unfortunately, this can have disastrous consequences—both from a regulatory and financial standpoint.
You don’t have to worry about this all on your own. Hiring a small business lawyer early in the formation of your company can be a way to ensure you are dotting all your i’s and crossing all your t’s while keeping your focus on the big picture. At Priori Legal, we have pre-vetted small business attorneys who understand the unique needs of a new business and are willing to grow with you.
Legal Structure
The way your small business incorporates can have a major impact on your operations, not to mention establish compliance requirements, legal rights, tax burden and liabilities. That’s why it’s important to weigh all your options when choosing the appropriate legal structure. There are merits to a number of legal structures, but each have their downsides as well. A lawyer can help you decide what structure and state of formation makes the most sense for your unique needs.
For small businesses, the following corporate structures are the most common:
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Sole Proprietorship. If you are the only person in your company, a sole proprietorship may be an option. This relatively simple structure allows you to avoid double taxation problems. However, as a sole proprietor, you’ll have unlimited personal liability for any lawsuits, which can be a substantial risk.
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General Partnership. Partnerships are similar to sole proprietorships in that they are pass-through tax entities with unlimited liability, but they involve two or more owners. It’s also possible in most states to limit the liability of some or even all owners through limited partnerships or limited liability partnerships.
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C-Corporation. Most large public companies are C-corps, because of the clear shareholder structure, the enduring nature of its individual tax and legal entity and its predictable legal outcomes. For small businesses, though, the reporting and corporate governance requirements can sometimes be a burden.
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S-Corporation. S-corps are similar to C-corps, but they are taxed as pass-through entities and more limited in terms of the investors and stock options allowed.
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Limited Liability Company. An LLC, or limited liability corporation, is a highly flexible form of incorporation. Generally speaking, they are more flexible and less predictable than corporations.
Employee Law
For small businesses, employees and employee law can be among the most complex and costly issues they will face. Even if you only hire one or two employees, your small business needs to fully comply with employment law. You must put in place clear human resources policies, hiring practices, procedures and employment contracts. In addition, it’s vital to comply with immigration laws, payroll taxes and all of your state’s worker’s compensation requirements. While all of these issues are important and may be worth discussing with an employment lawyer, the following three issues come up the most often in small businesses.
Termination
Just because your business only has a few employees doesn’t mean that you don’t have to have clear termination policies, or you could find yourself facing a wrongful termination lawsuit. Clear employment documentation upfront can mitigate some of the risk of litigation post-termination. Before you fire an employee, make sure you understand whether they are an at-will or contract employee.
ADA, Discrimination, and Harassment
The American Disabilities Act and other civil rights protections make discrimination based on age, sex, race, disability, ethnicity or other protected class illegal. Any discriminating human resources decisions or associated harassment can lead to a costly—and often public—lawsuit. To avoid even the appearance of discrimination, policies and procedures must be in place to stop the problem before it starts.
Fair Labor Standards Act
An often-overlooked employee law with major ramifications for small businesses is the federal Fair Labor Standards Act (FLSA). The FLSA requires employers to pay overtime to “non-exempt” employees who work more than 40 hours in a week. If you are not paying overtime, you need to make sure that all employees qualify under the permitted exceptions or are not clocking more than 40 hours in any given week.
Taxes
Every small business is responsible for a host of taxes from payroll and income taxes to sales tax and everything in between. To stay in compliance, it is critical to file for a federal and state tax identification number as soon as soon as you incorporate. Then you must pay all relevant taxes when they are due. An accountant or tax lawyer will be able to provide a more accurate understanding of the exact tax liabilities that your small business may have.
Regulatory and Corporate Compliance
With all the laws that regulate the many aspects of your business, a well thought-out corporate compliance program is of the utmost importance. Regulatory and corporate compliance keep you in line with the laws and regulations that apply to your small business so you can avoid any costly fees or other sanctions applied following a violation. Work with a Priori lawyer to design, implement and monitor the necessary policies, trainings and procedures to keep your company compliant.
Customer Complaints and Lawsuits
When you have a small business, your customers are key. While they are your main source of income, customers can also be the biggest drain on your legal budget through complaints and lawsuits. Dissatisfied customers can file a complaint with the FTC, sue you individually, or even file a lawsuit. Make sure to promptly and fairly respond to all customer complaints before the dissatisfied customers become a larger issue.
FAQ
I own a very small company with friends and we’re all fine with our informal arrangements. At what stage should we consult with a lawyer?
You should already have spoken with a lawyer. The best way to avoid a legal issue down the road is to proactively work with a small business lawyer to stop a problem before it begins. This is especially critical with regards to formation, employment and tax matters. Reach out to a Priori legal lawyer today and prevent costly legal trouble in your company’s future.