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There is a lot to think about when planning to open a new business, like location, industries, business insurance, competition, services offered, pricing, finances, and growth strategies. Before turning your business idea into a successful company you must understand the legal requirements set by federal, state, and local authorities. In this article, we explore some basic business laws and how they may affect your current or future business plans.
General business laws for every entrepreneur
When deciding to start, purchase, or expand a business, it is always a good decision to consult with a lawyer. Choose to contact a legal professional that is an expert in your industry and the business laws as they apply to your specific state or region. However, even before consulting an attorney, we recommend familiarizing yourself with some basic legal requirements regarding licenses and permits, taxes, and intellectual property.
Business licensing laws
There are many steps to take and forms to fill out before you are ready to officially open your startup business as a legal entity. Most business license and permit requirements are regulated by the state in which you plan to do business, so if you have any questions about registering your new business, choosing an available business name, or applying for the proper permits and licenses; your local Secretary of State’s office, Department of Revenue, or city or county government office is a great place to start.
Some licenses that you may need to get started include:
- General business operating licenses – required for any type of business and issued and regulated at the city or county government level
- Seller’s Permit – required to sell products online or in person and collect sales tax for all legal structures
- Doing Business As (DBA) statement – if you are doing business under a different name than legally registered
- Zoning permits, Health permits, Fire department permits, signage permissions
- Professional licenses and certifications – some professions, like massage therapists, salon owners, dentists, CPAs, and many more, require education, licensing, or certification before doing business
- Federal licenses – for some industries, like alcohol distribution, the U.S. government requires a federal license or permit
Small business tax laws
Just like the federal income tax returns you file annually as an individual; small businesses are required to comply with several state and federal tax laws. One of the first steps to making your new business official is to register with the IRS and apply for an Employer Identification Number (EIN), also called a Tax Id Number or TIN. This number is required for filing income taxes, opening a business bank account, paying payroll taxes, applying for federal grants, SBA Loans, and some small business financing options.
The federal government and most state governments require businesses to pay taxes based on the salaries and wages paid to employees to support government programs like unemployment insurance and social security benefits that are designed to benefit those employees. To learn more about the taxes small business owners pay, work with your certified public accountant (CPA), tax professional, or the IRS. Some business tax laws you may want to consider include:
- Income taxes – All small businesses must pay both federal and state taxes. Every business, no matter the organizational structure, is required to file an income tax return, but the forms differ depending on business structure (limited liability company (LLC), partnerships, sole proprietorships, and corporations.
- Employment taxes – If you decide to hire employees, you’ll need to adhere to federal and state payroll tax requirements. Employment taxes include Social Security and Medicare taxes (FICA), Federal unemployment (FUTA), state unemployment (SUTA) tax, and the federal and state income taxes required to be withheld from employee wages.
- Excise taxes – Manufacturing or distributing certain goods, like gasoline or tobacco, or working in transportation and even certain service industries, like tanning salons, require business owners to pay excise taxes.
Intellectual property as it relates to business operations includes intangible property, like patents, trademarks, and copyrights, and is regulated by the United States Patent and Trademark Office (USPTO).
- Trademarks – words, phrases, symbols, or anything else that is used to identify a specific brand, company, or product. Unique trademarks can be registered with the USPTO.
- Patents – prevent other people or businesses from making, using, or selling someone else’s idea.
Employment laws for small business owners
While we’ve already discussed the tax implications of hiring employees, there are several other employment laws you should concern yourself with before taking on the staff required to meet your business needs. Following employment laws will allow you to comply with federal and local government guidelines as well as protect you from personal liability in the event of human resource issues or disputes. Employment laws are created to protect individuals working for registered businesses and are enforced and regulated by the U.S. Department of Labor. Most employment laws apply only to employees that receive a W-2 from the business, but some laws also apply to independent contractors, consultants, and service providers that receive a 1099 from your business.
- Workers’ compensation laws – workers’ compensation laws protect employees that become ill or injured while at work. The laws are intended to mitigate the financial burden of illness or injury for the employee and encourage employers to participate in programs to prevent workplace injuries. Workers’ compensation laws vary from state to state, so be sure to learn about exceptions and requirements that apply to your state.
- Fair Labor Standards Act (FLSA) – mandates overtime, minimum wage, child labor, and recordkeeping for any business entity in the U.S. The FLSA can be applied to all workers, including home-based and remote workers.
- Healthcare benefits – laws pertaining to health care and health insurance coverage provided by employers are enforced by the Department of Health and Human Services, the Internal Revenue Service, and the Department of Labor. Included in those laws is the Affordable Care Act (ACA), which covers reporting obligations and coverage periods.
- Equal Employment Opportunity (EEO) laws – prohibit discrimination and enforce nondiscrimination laws like the Equal Pay Act of 1963 (EPA), the Age Discrimination in Employment act of 1967 (ADEA), and the Americans with Disabilities Act (ADA).
- Family and Medical Leave Act (FMLA) – allows employees to take unpaid leave for certain family and medical reasons while remaining covered by group health insurance benefits. FMLA requires employers to hold an employee’s job for up to twelve weeks while on an FMLA approved leave of absence.
- Occupational Safety and Health Act – Occupational safety is mandated by the Occupational Safety and Health Administration (OSHA), a federal agency tasked with protecting workers from being exposed to safety and health hazards while on the job. OSHA provides workplace standards, safety training, and communication guidelines for both employees and business owners.
- At-will work doctrine – At-will employment means an employee can be terminated at any time for almost any reason by their employer or decide to resign at their own discretion. While all U.S. states recognize at-will employment, exceptions, restrictions, and limitations vary by state. Common exemptions include the Public Policy Exemption, Implied Contract Exemptions, and the Covenant of Good Faith Exemption.
Additional business laws to know when operating a successful business
Understanding business licensing requirements, tax laws, and employment laws are a great start to operating a successful small business. However, the federal and state regulations do not stop there. Additional business laws mandate data security, advertising laws, and bankruptcy proceedings.
Marketing and advertising
In order to successfully run a business and generate a profit, most business owners develop a marketing strategy that details the advertising tools and methods the business will use to attract new customers. However, before advertising your goods and services on the internet, through social media or a website, or in print, like with brochures and magazine or newspaper ads, you must become familiar with the advertising laws as enforced by the Federal Trade Commission (FTC).
- CAN-SPAM Act – protects consumers from misleading subject lines in emails or electronic messages and requires businesses to provide the location of their business and give consumers the option to stop receiving messages at any time.
- Truth in Advertising and Marketing – federal law that requires marketing material to be truthful, able to be supported with scientific proof, and free of false or misleading claims.
- Telemarketing Sales Law – regulates the frequency of advertising calls made by telemarketers, protects the public from unwanted phone calls or internet communication, and requires specific disclosures to be made to consumers during these marketing efforts.
Privacy and data security
Consumer privacy is protected by the Federal Trade Commission’s privacy laws. The laws address a company’s policy on gathering, storing, and sharing email addresses, personal information, and payment and financial records for employees and customers.
- PCI Security Standards Council – The Payment Card Industry Data Security Standard (PCI DSS) ensures that businesses process, store, and transmit consumer credit card information in a secure manner. The standards include encrypted internet transactions and traditional merchant credit card processing. The purpose of the PCI DSS is to protect consumers and businesses from financial information fraud and data security breaches.
- Fair Credit Reporting Act – Any business that reviews consumer credit reports for the purpose of extending credit, hiring, or leasing, must comply with the requirements of the Fair Credit Reporting Act. The law states that information collected in the credit report, including social security numbers, can’t be shared with any unidentified or uninterested party and regulates credit bureaus and businesses from reporting false information.
Finance and dissolution
Finance laws for business owners dictate how entrepreneurs can spend revenue earned by the company, settle financial disputes during dissolution, and regulate operational growth and expansion. If a small business is not successful or considering a merger, acquisition, or restructured incorporation finance laws also cover bankruptcy including Chapter 7 bankruptcy, where the business is closed, and Chapter 13 bankruptcy, when the owner plans to restructure or reorganize the company.
Resources for small business owners
Starting your own business is an exciting and rewarding time but understanding all of the business laws that you must now comply with can be overwhelming. Fortunately, there are many organizations and resources available to help you on your journey.
Small Business Development Center
Small Business Development Centers (SBDC) provide information and guidance to small business owners in every state. The available programs at these centers are administered by the U.S. Small Business Administration (SBA) and include management and technology resources, as well as services to match entrepreneurs with other qualified professionals, like attorneys, small business lenders, chambers of commerce, and trade associations.
The Internal Revenue Service provides many resources on its website at IRS.GOV for small businesses. The site shares information about income tax, self-employment, payroll tax credits, recordkeeping, professional licensing, and more. For more information about the business laws discussed here or any other business topic, including employment laws, liability insurance requirements, and EIN changes, start by exploring the IRS’s A-Z Index for Businesses.
Whether you are just starting the planning phase of a new business or registered your legal entity years ago, it is important to stay informed about the laws that regulate small businesses. Business licensing laws are typically the first legal hurdle for entrepreneurs, but it is equally important to learn about tax laws, employment laws, and other federal regulations like privacy and advertising laws. Fortunately there are experts available in every area. If you are seeking legal advice, contact an attorney or reach out to your local SBDC to get in contact with local legal services. If you have questions regarding startup funding or payroll tax credit advances, check in with a financing expert at Biz2Credit.