Small Business Legal Checklist

If you are thinking about starting a small business, it is very important to see an attorney.

What follows are some basic concerns that you should think about as far as legal matters, but it is not intended as legal advice.

Now that I got that simple disclaimer out of the way, it is important for you to think about legalities when you start any small business. The first and perhaps most important thing you should think about is whether or not you should form a legal entity to use to conduct business. There are few disadvantages to having a corporation or LLC to run your business and there are many advantages.

The main advantage to run a business in a legal entity other than your own name is that it shields you from liability. Properly structured, it is very difficult for creditors and other potential litigants to sue you personally. Since there are literally millions of things that could happen that could result in liability from your business activities, it is smart to have some protection from the beginning.

There are also massive tax benefits for having a corporation or other legal entity. These tax benefits are normally significant enough that they far outweigh the cost of hiring an attorney or even figuring out how to form the corporation or LLC yourself.

Another vitally important thing that you must do is get a separate bank account and credit or debit card for your business. You do not want to mix the funds from your business with your personal spending money. Using the same account results in massive confusion when you try to figure out expenses and profit and loss, but it also can result in people piercing through your business in a lawsuit and getting to your own private accounts.

Virtually every business needs to have some type of insurance policy. If you hire any employees at all, you need to get workman’s compensation insurance – it’s the law. Many contractors try to get around this by saying that their workers are “independent contractors” and as such do not require workman’s compensation coverage. If you are thinking about going that route, talk to an attorney or your insurance agent about exactly what your employees are going to be doing and how you are supervising them. Often times, the “independent contractor” defense only works until someone get’s injured on the job. When that happens, and they file a claim, you can be liable for the entire cost of the injury plus you could face potential fines for not having insurance.

Get a good bookkeeper or some good accounting software so that you can keep track of every transaction you do in your business. Income is often a more difficult thing to track than expenses. For every expense, there is usually a canceled check or debit card transaction record which can make it fairly easy to properly categorize expenses if you do not keep up with your books. Income, however, can really mess you up if you don’t know who it came from and what it was for. Characterizing income becomes very important when you need to know whether it was for a product or service and if there were any discounts involved in that transaction. Do not be sloppy with your books or you will spend a ton of time trying to reconstruct what should have been done a long time ago.

You should also be certain that your business will not violate any local laws. If you are running your business out of your home, there may be local ordinances that govern what types of businesses can be run out of a home. In most cities that have such ordinances, you can usually just apply for a permit and everything will be ok. If your business is outside of your home, make sure that it will comply with any zoning ordinances.

These are just some of the most important basic things for a small business legal checklist. If you have serious plans to build a significant business, it highly recommended that you consult with an attorney to come up with a complete checklist that is unique to your situation.

About the Author:
Steve Jankowski is an attorney who transitioned to a business owner and then decided to build a home business. He specializes in training people to utilize the internet to build a home business and in helping companies increase there presence online. He resides in Minnesota with his wife Nancy and their 4 daughters. http://www.toptiermentor.com.

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