Launching and managing a small business is a daunting task that makes most people want to hide under their desk. From choosing the right business entity, obtaining insurance, and complying with regulations, missing a step could be costly. Also, doing it right will set the stage for long term growth, and hopefully avoid unnecessary legal issues and expenses in the future.
In this brief guide, we’ll walk you through key topics that every small business owner should consider and prioritize to get off on the right foot with their new business venture.
1. Choosing the Right Small Business Structure
Selecting the appropriate business entity—whether it’s a sole proprietorship, partnership, limited liability company (LLC), or corporation—lays the foundation for your business’s operations, taxation, and liability. Our team took the time to prepare a blog that distinguishes between the various types of organizations and explains some of the pros, cons, and differences.
One of the most common is a limited liability company (LLC), which offers the pass-through taxation of a sole proprietorship and the limited liability of a corporation. However, in Pennsylvania the LLC Act has been recently updated with some key changes. So if you’re choosing an LLC, it is important to consider the new laws and their impact on your business and operations.
2. Business Registration and Licensing
Properly registering your business with the Commonwealth of Pennsylvania is an essential part of forming a new business. Some businesses also require licenses and permits to operate. You should perform a search (or contact a lawyer) to see if your business is one of those.
You will need an employer identification number (EIN) from the IRS to open a business bank account, legally hire employees, pay federal taxes, and apply for business licenses.
This process varies by location and industry, so it is wise to spend some time on this step to insure that your business complies with local, state, and federal regulations.
3. Drafting Clear Contracts for your small business
Contracts are vital for outlining agreements with clients, suppliers, and employees. Often times, people try to run their entire business on verbal agreements and invoices only. However, this is not a good long term plan. Shareholder or partnership agreements are crucial to a business in the long term to avoid disputes. Not having any type of operating agreement could create costly and time consuming litigation in the future. Additionally, with clients, a business seeking to recover its attorneys fees when a client fails to pay can only do so if that is in their contract. If it is not, you most likely won’t recover it.
Agreements with employees and vendors are also important to protect intellectual property, avoid unfair or improper solicitations / competition, and to make sure everyone’s rights an obligations are clear. A good contract includes important material terms like scope of work, payment terms, termination clauses, and dispute resolution mechanisms ensures transparency and fosters strong business relationships. See our contract basics blog about what are the material terms of a contract here.
4. Compliance with Regulatory Requirements
Staying compliant with regulations relevant to your industry and location, including tax laws, is crucial for avoiding fines and legal liabilities. Ensuring compliance with sales tax regulations is also essential to avoid fines and back taxes. From labor laws and environmental regulations to consumer protection and data privacy laws, understanding and adhering to these requirements demonstrate your commitment to ethical business practices and safeguard your reputation.
5. Understanding Employment Law
Employment laws govern various aspects of employer-employee relationships, including hiring practices, wages, workplace safety, and anti-discrimination policies. To legally hire employees, businesses need to obtain an employer identification number (EIN) from the IRS. Complying with these laws not only fosters a fair and safe work environment but also mitigates legal risks associated with employment-related disputes.
6. Navigating Small Business Taxation Obligations
Tax is one of the most important things to think about when starting a small business. Where do I pay tax, who do I pay tax to, how much tax do I have to pay? As lawyers, we don’t take a position on your tax obligations and suggest that our clients consult with an accountant to familiarize themselves with tax filing requirements, deductions, credits, and deadlines to optimize tax strategy and minimize risks of audits or penalties.
7. Importance of Business Insurance
Protecting your business with adequate insurance coverage—such as general liability, professional liability, and property insurance—safeguards against unexpected events like lawsuits, property damage, or business interruptions. Insurance provides peace of mind and financial security, allowing you to focus on business growth without undue risks.
However, making sure you have the right insurance for your business is just as important. Unfortunately, we have seen too many instances where someone has insurance, but there is an exclusion for the exact type of issue that they are having–and that issue is really the main issue their business might have. The scariest part, if you don’t have adequate insurance, someone could seek to pierce your corporate veil and try to hold you personally liable. Having a good insurance broker or lawyer understand your business, its risks and liabilities, and insurance needs is a crucial step to avoid personal liability.
8. Efficient Dispute Resolution Strategies
Disputes are inevitable in business, but resolving them promptly and professionally is key to maintaining business relationships and reputation. Sometimes a dispute gets too big and lawyers get involved. However, that doesn’t mean you need to sue right away. There are lots of tools that a small business owner can employ to try to resolve disputes before they blow out of proportion. Implementing effective dispute resolution strategies—such as negotiation, mediation, or arbitration—can mitigate legal costs and minimize disruptions to your operations.
Contact Us!
If you are in the process of opening a new business, or recently opened a business and need legal advice on some of the above categories, our team is ready to help. We have contract lawyers, employment lawyers, and business litigators that are happy to provide free consultations and meet your business’ legal needs.
Contact Kaminsky Law for a free consultation today at 215-876-0800 or fill out a contact form here!
