4 Legal Questions Every Startup Should Ask

You will likely invest your heart and soul into your company to make it successful; don’t undermine all of that hard work by failing to ask the right legal questions from the start.

June 24th, 2017   |    By: Will Lipovsky    |    Tags: Strategy

legal questions

Owning a startup, to many, is the epitome of the American dream. Who doesn’t pine the work day away thinking about being their own boss, escaping the hamster wheel of being a salaried employee or clock puncher, and making your own destiny?

However, one area where may new entrepreneurs and small business owners fall short is dealing with the law and regulations. Typically, new business owners starting out have not had to worry about legal issues in their past jobs; now however, at the helm of your own company, that lack of knowledge can be detrimental.

Ignorance of the law can inhibit your company’s growth, expose you, your employees, and your customers to significant liability risk, and even put you into legal jeopardy if you run too far afoul of regulations. So before you start out on the road to owning your own business, here are four great legal questions to ask, so you stay on the high road at all times.

What about my Company’s Name?

If you think choosing a name for your company is a creative endeavor with zero legal risk, think again.  Your state or municipality will likely have rules concerning what you can and cannot name your company, and you will have to be in compliance with them all.

Additionally, the name you would like for your company may already be in use, or be trademarked, and you may not be able to use it. Even if the name is not in use, it may infringe on another company’s name that has already been trademarked. So proceed cautiously as you choose a name for your company.

Once you do settle on a name, and determine that your company is cleared to use it, you may wish to pursue a trademark yourself. A trademark will offer legal protection for your company’s name, and prohibit other companies from using it or infringing on the name in a way that negatively affects your business.

There are rules and regulations regarding what types of business names can and cannot be afforded trademark protection; consult your lawyer to ensure the name you choose will be trademark compliant if you plan to seek this type of legal protection.

What Kind of Company Should I Set Up?

As an entrepreneur, one of the first questions you should ask yourself, your accountant, and your lawyer is what type of company structure will best suit the business you plan to conduct. The answer will depend on the size of the company, your expected cash flows and revenues, and the level of liability you are willing to assume, or can afford.

For example, for very small businesses with one owner and moderate levels of liability risk, that are also looking to minimize tax liabilities, a sole proprietorship may be the best option.

For business owners whose companies will incur greater potential liability, and possess significant physical and other assets, a corporate structure may be a better choice.

Other businesses that are designed to provide a public service or some sort may be totally exempt from taxes, and may wish to seek some sort of non-profit status.

There are several other types of business structures that entrepreneurs may wish to consider; again, your attorney and accountant can help you make the best decision based on your particular business’s situation.

Is My Business Legal Right Now?

Wherever you set up your business, and regardless of type, there is an enormous patchwork of local, municipal, state, and federal laws that you must comply with to operate legally. You may need a to have a license, or pay a fee to operate your business in a given location.

Your company is responsible for understanding all of those laws, and ensuring it remains in compliance of applicable rules and regulations as well. Failing to do so can expose your company, and you, to fines, penalties, and other legal liability; it can even cause your business to be shut down altogether.

Prior to starting your business, you should consult with a knowledgeable attorney, as well as your municipal government, to determine all of the rules and regulations you must comply with. Establish a relationship with the government offices that regulate or inspect your business, it will likely help you in the long run.

Finally, rules and regulations frequently change, and ignorance of the law is no excuse; make sure you are cognizant of any changes to the law, and ensure you rapidly get your business into compliance with them.

What is my Level of Liability?

Virtually any business is going to incur some level of liability; you have to be prepared for the chance, even remote, that something can happen to a customer or employee where you are legally liable.

However, every business is different, with owners incurring vastly different levels of risk; a car wash, for example, likely incurs far less liability for its owners than a private zoo housing dangerous animals does.

Consult with your attorney to determine the best ways to minimize the risk to your company when it comes to liability. In some cases, choosing the appropriate business structure can eliminate nearly all liability risk to you as an individual; in other cases, taking certain preventative measures may be worthwhile as well.

In nearly every case, purchasing the appropriate insurance policy will be necessary to ensure that your company does not assume too much liability risk. And when all else fails, having an attorney you trust to handle any potential legal proceedings is critical as well.

Final Thoughts – Stay on the High Road

You will likely invest your heart and soul into your company to make it successful; don’t undermine all of that hard work by failing to ask the right legal questions from the start, and leaving yourself liable to a variety of different risks.

Right from the beginning, ensure that your company’s name is appropriate, and can be trademarked to protect your interests. Determine the best structure for your business, and then ensure that it is and remains in compliance with all applicable laws and regulations. Ensure that your business is managing legal risk appropriately, too.

Finally, as a business owner, you should have a trustworthy lawyer to help you answer any legal questions that arise during your day-to-day operations. This will help you stay on the high road, and enable you to achieve the success you seek.

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About the Author

Will Lipovsky

Will Lipovsky is a full-time personal finance freelance writer. His work has been published on Yahoo Finance, Credit.com, the Department of Defense Technical Information Center, Lifehacker and elsewhere. His most embarrassing moment was telling a Microsoft executive, "I'll just Google it."

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