10 Legal Considerations for Entrepreneurs – Part 3

business-plan-2061633_1920In Part 2, we discussed selecting a business entity, taking advantage of protections provided by an entity, and funding your business.  Now we’ll look at other licenses you may need to run your business, considerations when working with employees and contractors, and the importance of written agreements.

6. Obtain Licenses, Permits & Certifications.

There are numerous federal, state and local regulatory agencies that may govern everything from education to professional licenses and violations. Most businesses need licenses in order to begin operations. Licenses may be required for your city, your municipality, your county and/or your state. Some occupations and professions require a state license or permit as well. If you’ll be running a home-based business, then you’ll need to make sure you’re not violating any zoning restrictions or homeowner association rules.

The U.S. Small Business Administration provides information about industry-specific federal and state business licenses and permits, as well as links to the specific agencies that maintain such licenses and permits.  Many states provide state-specific information and links to helpful business-related registration, licensing, permit and related sites, such as the Missouri Business Portal and Texas Wide Open For BusinessUSA.gov provides an A-Z list of all agencies as well as information regarding federal, state and local government.  A list of state regulatory agencies is available at All Things Political.

7. Employees and Independent Contractors.

If you intend to hire yourself or anyone else as a full or part-time employee of your company, then you may have to register with the appropriate state agencies, withhold and pay taxes, verify each employee’s eligibility to work in the United States, obtain workers compensation insurance or unemployment insurance (or both), create an employee handbook, and comply with other employment regulations. Hiring independent contractors instead of employees for your new business may be less burdensome, but working with independent contractors has its own set of risks. For example, if your independent contractor is discovered to meet the legal definition of an employee, you could face a number of costly legal consequences. Furthermore, unless an employee is performing services within the scope of his employment (work-for-hire), it is best (and often required) to have a signed, written agreement transferring rights in intellectual property created by an individual, independent contractor or entity to your business. For more information about hiring employees and working with independent contractors, visit the U.S. Small Business Administration and/or consult with an attorney.

8. Get it in Writing.

Relying on verbal or “handshake” deals may seem appealing, but it’s almost always advisable to have a written agreement in place. Whether it’s an office or equipment lease, an agreement with your business partners, a confidentiality agreement, a contract to provide services to a customer, or an agreement with someone providing services to your business, written contracts set out the details of the transaction, each party’s responsibilities and obligations, and often provide for procedures or remedies in the event something goes wrong. This last part is precisely why it’s advisable to negotiate a deal up front when the parties are happy with each other and excited about the transaction rather than waiting for an issue to arise and attempting to negotiate an agreement when at least one party is soured on the deal.

All contracts related to the business should be entered into in the name of the business and not by you personally. Know that it is rare for anyone to sign the first draft of an agreement.  It is always advisable to have an attorney review (and potentially negotiate) the agreement before it’s signed to ensure that you’re not missing something hidden (or not included) in the fine print.

In Part 4, the last installment in the series, we’ll talk about other issues you should consider to help your business grow.

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