Business Laws Every Entrepreneur Should Know
Thanks to the Digital Age, starting a new business can be easier than ever. Staying legally compliant, however, is a whole different issue. There are not only federal laws that business owners must follow but also state, local and municipal laws, as well. When you start a business, there is so much to know and so much to do that it can quickly feel overwhelming unless you have the right legal help.
What Is Business Law?
Business law involves private, public, and civil laws that pertain to individual or company involvement with business matters. This can include things like insurance, employment, banking, contracts, and partnerships.
Business law is different from corporate law in that business law focuses on the formation of your company, while corporate law is based on the sale and distribution of goods.
The Small Business Administration is an invaluable tool when getting started with a new business. It helps you file everything you need to establish your new company. Certain industries may also be required to obtain a special federal permit, such as businesses in agriculture or those in transportation and logistics.
You will also likely need a state permit depending on where your business is held. State regulations are generally more inclusive and specific than federal regulations. Permits are often issued on a limited basis for a certain period of time. Local permits vary depending on not just your state, but your city and county, as well. Your state’s website will provide specific instructions for filing and registration.
Select the Proper Business Structure
When you start a new business, there are different types of formations that you can choose from. The most popular types of business structures include limited liability companies (LLCs), S-corporations, B-corporations, partnerships, and corporations.
- Limited liability company (LLC)
A limited liability company, or LLC, is one of the more common types of businesses because of the extra protection that it provides business owners and their personal assets. In addition to limited personal liability, there’s less work during tax time, because an LLC is a “pass-through entity” that allows you to report your business income and expenses on your personal tax return. Many states don’t require LLCs to file annual reports.
As the owner of an S-corporation, you pay yourself both a salary and dividends from company profits. If you have less than 100 shareholders, you can use this classification to receive the benefits of a corporation with the taxation of a partnership. All income, losses and deductions are moved through shareholders for tax purposes, while business owners also benefit from limited liability protection that shields their personal assets.
Benefit corporations, or B-corps, are certified to make a positive contribution to a variety of issues, including social and environmental impact, public transparency and corporate accountability. The specific measures must be outlined in the company bylaws and also included in the company’s annual reports. There are no limitations to company size, industry, or business formation.
Partnerships have two or more owners that manage the business and share in not just its profits, but its liabilities, as well. The partnership is responsible for filing an annual report, while each partner reports individual earnings or losses on individual personal tax returns.
A corporation is governed not by an individual owner but a board of directors that are responsible for overseeing the operations and management of a business. It is considered a separate entity with its own liability, so your personal tax return and assets are not combined with those of the business.
Your company logo is considered your intellectual property, along with things like product design, manuscripts and inventions, and these are items that can be protected by certain rights.
Three Types of Intellectual Property
There are three types of intellectual property:
- Patents, maintained by the U.S. Patent Trademark Office (USPTO). Used to protect ideas and processes such as plant species, medical strains, and IP protection.
- Trademarks, maintained by the U.S. Patent Trademark Office (USPTO). Used to protect words, phrases, symbols, and descriptions of smell and color like company logos, taglines, and product descriptions.
- Copyrights, maintained by the U.S. Copyright Office. Used to protect how ideas are expressed, commonly used for music, poetry, and programming code.
Requirements, procedures, and costs vary depending on which type of intellectual property that you need to register.
At one time or another, you may need to hire employees for your business. This is why it is important to familiarize yourself with the leading U.S. labor laws that represent the most common reasons for employees to sue their employers.
- Fair Labor Standards Act
Overseen by the Office of Financial Management, the Fair Labor Standards Act (FLSA) sets and oversees employee pay. This includes things like establishing the minimum wage, setting child labor standards, and determining who is eligible for overtime, and how those hours must be reported.
- Federal Equal Employment Laws
The U.S. Equal Employment Opportunity Commission (EEOC) mandates that no employee face work-related discrimination due to race, color, religion, gender, ethnicity, disability, or genetic information. Employees are also protected from future discrimination or harassment stemming from previous complaints, charges, or lawsuits involving discrimination.
- Family and Medical Leave Act
The U.S. Department of Labor maintains the Family and Medical Leave Act (FMLA),
allowing eligible employees to take up to 12 workweeks per year of unpaid time off work without threat to their employment.
- Occupational Safety and Health Act
The Occupational Safety and Health Act, also known as the OSHA or the OSH Act of 1970, establishes basic standards to eliminate workplace hazards and improve employee health and safety.
- Overtime Laws
A provision of the FLSA includes overtime laws that award eligible, non-exempt employees receive time-and-a-half pay for each hour worked beyond a normal 40-hour workweek. Some states also have passed laws stipulating additional requirements.
- Americans with Disabilities Act
The Americans with Disabilities Act of 1990 prevents discrimination due to a disability. This refers not just to employee discrimination in the workplace but in all areas of life, including public accommodations, transportation, and school.
- Equal Pay Act
The Equal Pay Act is a 1963 amendment to the FLSA that prohibits gender-based discrimination relating to an employee’s compensation.
Worker’s compensation is essential coverage that protects a business in the event that an employee is hurt on the job. It offers wage replacement and medical benefits to the employee while also protecting the employer from legal liability, like a lawsuit.
The details of worker’s comp laws can vary significantly from state to state, so it is important to check with the Division of Federal Employees’ Compensation (DFEC) on the exact requirements.
At-Will Work Doctrine
To prevent wrongful termination and employee-employer lawsuits, the At-Will Work Doctrine was created to define the extent of an employer-employee relationship. An employee is free to leave the job at any time and without reason. Accordingly, employers have the right to terminate an employee at any time and without notice or cause.
Tax Laws For Businesses
One of the first things you should do for your new business is to apply for your Employer Identification Number, or EIN. This ID number is assigned by the IRS and used for a whole host of taxation purposes.
These are some of the business taxes you may be responsible for filing.
- State Business Taxes
Every state has different business tax requirements, but this usually includes an income tax on company sales and profits.
- Sales Tax Collection
If you sell a taxable product, you are responsible for paying sales tax and filing the appropriate return.
- International Sales Law
If your company engages in international commerce, you may have to pay an international sales tax. The United Nations Convention on Contracts for the International Sale of Goods, also known as CISG or the Vienna Convention, provides specific tax guidelines for transactions between participating countries, or Contracting States.
- Excise Tax
This is a specific tax assessed on certain goods, like gasoline, motor fuel or coal. Excise taxes are included in the cost of the product.
- Employment Taxes
As a business owner, you are responsible for paying employment taxes. This means that you must withhold these funds from your employees to report, file and pay directly to the IRS. These taxes include not just employee federal income tax but also Social Security and Medicare and Federal Unemployment Tax Act (FUTA) taxes.
Marketing and Advertising Laws
As a licensed business, the public looks to you as a company that they can trust for a specific service. As a business owner, you have an obligation to portray your products accurately and within the legal limits of the law, as specified within these U.S. marketing and advertising laws.
- Truth in Advertising and Marketing
According to the Federal Trade Commission (FTC), all advertising and marketing materials must reflect truthful and accurate information that is based on scientific evidence where available.
- CAN-SPAM Act
Also monitored by the FTC, the CAN-SPAM Act is a direct result of the Digital Age, setting forth basic guidelines for commercial email communication and conduct.
- Telemarketing Sales Law
Telemarketing Sales Law ensures that companies do not misrepresent themselves and that customer privacy requests are honored.
In doing business, you will come across personal and sensitive data relating to your customers. It is absolutely essential that you employ a safe and secure way by which customer information is used, stored and discarded. Many large corporations have suffered immense losses and intense public backlash from sweeping data breaches that have compromised the identity of millions of people.
As a business owner, you have a responsibility to follow the appropriate laws regarding your employees’ healthcare.
- Affordable Care Act
Also known as Obamacare, 2010’s Affordable Care Act is a way for millions of uninsured Americans to benefit from healthcare.
- Healthcare Privacy
According to the Privacy Rule, a health plan or covered medical provider may not legally disclose private health information about an employee with an employer unless that provider has written consent from the patient to do so.
Financial laws may apply whenever you make financial transactions regarding your business. This can also include antitrust, banking, bankruptcy and securities laws, which provide both businesses and investors with federal protection.
Four Types of Financial Law
- Antitrust laws – Promote a competition-based market while preventing unlawful mergers and business practices. Managed by the Federal Trade Commission (FTC)
- Banking laws – Sets lending requirements and provides investment and reporting guidelines for banks. Managed by Federal Deposit Insurance Corporation (FDIC)
- Bankruptcy law – Determines how financed debts are handled in the event that you cannot repay your debts and must file bankruptcy. Managed by United States Court System of the Federal Judiciary
- Securities law – Regulates a company’s publicly traded stocks through reporting and financial disclosure. Managed by U.S. Securities and Exchange Commission
Bankruptcy can be a reality for American businesses who find themselves too deep into debt to find a way out. Filing for bankruptcy offers business owners a chance to hit the reset button on their finances, but it is a nuanced process that is conducted in federal court, and often requires the help of a professional attorney to navigate.
There are many types of bankruptcy that a business owner can file, named according to chapters:
- Chapter 7 – individual bankruptcy with business liquidation;
- Chapter 11 – individual bankruptcy with business reorganization;
- Chapter 9 – municipal bankruptcy;
- Chapter 12 – bankruptcy for family farmers and fishermen, and;
- Chapter 15 – bankruptcies within multiple counties.
Owning a business is a major responsibility, and while no one sets out to find financial despair, it is a huge comfort to know that help is always there if you need it.
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