Starting a business goes way beyond having a plan pop and bringing it to reality. Many vital steps should be followed accordingly and vividly to avoid encountering problems with the government by breaking the rules or breaching the laws that govern businesses within that state or country. This article aims to state vital things that you should consider to settle legally before the W of your business.
What Legal Steps Do I Take Before Starting A Business?
There are quite a number of steps that you need to take to do so that your business can flow seamlessly. Examples of these steps include:
Selecting A Business Entity
It is pretty much easy to overlook a legal entity when there are so many parts already moving to start a business. However, it is vital to consider the pros and cons of legal entities carefully. For example, in a sole proprietorship or partnership, the business owners are supposed to report income on their personal tax. This may seem attractive in some instances. However, this also means that you have liability towards the company and are responsible for its debts. The most significant disadvantage attached to this is that your assets could be highly at risk.
A Limited Liability Company (LLC) shares a similar basic tax structure as a sole proprietorship, but it is given few benefits of a corporation in most jurisdictions. An LLC offers you better protection against acquiring liability by using an operating agreement that defines the rights and duties of ownership. C-corps are taxable entities, so the tax comes from incomes, and owners are not taxed personally. This could put your company and your personal income into a particular tax bracket in a couple of scenarios. However, C-corps are often subjected to double taxation when the dividends are paid to all shareholders. Therefore, shareholder agreements should be used maximally to safeguard the company owners and their dividend distribution rights, voting rights, management rights, and responsibilities.
With an S-corp, there are tax savings since there are no self-employment taxes on profits. At the same time, owners who are also employees have to be paid an actual salary, subject to Social Security and Medical taxes. Therefore, S-corps will receive more considerable savings when the company makes a significant profit. Like C-corps, S-corps should also ensure they have shareholder agreements, a certificate of incorporation, and stock certificates to protect all parties.
In this era, it is way faster than ever to start a business. We assume that all you need to create a business is Twitter, Facebook, Square, and PayPal. However, the answer is not that straightforward. While it is true that many people rush right into the business formation process, it does not mean doing so will undoubtedly lead to success. You could be laying yourself up for a quick crash and burn. People selling their creations on Etsy probably do not need an extended written plan for growing their business. However, nearly every other type of business will do itself a favor if it starts with an appropriately detailed business plan.
- The hostility towards formal business plans is founded on several misconceptions, such as “PowerPoint is enough.” Certainly, PowerPoint presentations are excellent and mind-blowing to have, but every investor will still want the complex data. Moreover, investors realize that the numbers are theoretical to a certain degree. Still, they need to know and be sure that your methodology is sound and that you are very aware of your target market and your competitors.
- Business is pretty much unpredictable, so why bother about the odds. Of course, no one can rightly predict the future, but many businesses do have pretty standard measures to enable their future success. The profit margin, for example, is something that you must adequately consider before you even open that small café.
- Business plans are for venture capital. It does not matter if you have to raise millions of dollars or just take a loan from your mom and dad; you need to make sure that nobody is just throwing money away on a bad and futile idea. Writing a business plan will help you determine how much cash flow you need to start and how much you can expect in the future.
Complying With PCI
PCI is a set of standards specially designed to ensure that every credit card information is captured correctly, retained, and transmitted securely. The acronym PCI is short for PCI DSS, which stands for Payment Card Industry Data Security Standard. These are adequately considered and evaluated set of rules set aside to reduce the risk of fraudsters, hackers, and thieves accessing and stealing sensitive card information.
PCI Compliance is mandatory by all the major card brands (Visa, Mastercard, American Express, etc.) In addition, the PCI rules strongly apply to all forms of payment processors, service providers, and merchants. This is inclusive of small business owners who use a mobile app at grocery stores. They are also required to meet all of the PCI standards. PCI is the world’s largest and strongest security standard. Its rules apply to millions of traders, processors, ATM companies, and other related service providers worldwide.
Picking the Right Business Partner
If you are planning on taking on having a business partner, or even multiple partners, there are many things to consider. The idea of having business partners is excellent and commendable. However, the first thing to do is ensure that they are a good match for your venture and have similar goals. Working with your family or friends presents another grand set of complications and challenges. You must have legal documents to protect your interests in either circumstance, as overfamiliarity could breed a great loss for your upcoming business. There are a couple of essential things to consider when you are about to pick partners. They include:
- The role that each person will have to play. You should not assume that every person forming the company with you has the same intentions, ideas, and interest in the company’s involvement. Endeavor to ensure that every potential partner writes out their visions and goals before you form the partnership.
- Sharing profits and losses. Partners just invest their money and assets into a new venture. But before you rush into starting a partnership, all parties involved must agree on how profits and losses will be shared accordingly. Always decide this issue before forming the new business and implementing the partnership. It is vital to write down how much money each person is investing and how it will distribute profits and share losses.
- Talk about the daily operations of the business. You might assume that your partners will be in the background while running the business single handedly, but nothing should be accepted as they may have different intentions. Ensure that the responsibilities of each partner are properly outlined to them
- Discussed capital investments made by each partner: Aquite surprising number of entrepreneurs begin to accept investments without defining and setting a standard on how much ownership can be vested to each person. It is necessary to document the capital investment of each business partner and what percentage of the business each person owns. Then draft a general partnership agreement to define each partner’s assets, rights, and responsibilities.
Although this would appear to be self-evident, there is a significant difference between wanting to make a product or perform a service and running a business. Owning a shoe business is about more than having a great idea. You will have to manage the manufacturing, order all supplies, handle your customers, hire competent employees, and keep the records. This is just a fraction of the duties you will have as a business owner. If this sounds like a bad idea, then you should reconsider starting a business. Some people are inventors who have a primary interest in just making and innovating products. Suppose this sounds like you; selling the shoe or licensing it to another company might be the better course of action. While all these things are being agreed on, it is essential to consult a legal practitioner to seek proper legal advice.
Picking Business Names And Registering
After setting up your business, it is essential to get your business a name and register it at the right place under the proper authorities. This way, you can have legal claims when your products are copied or imitated and have more people trust and patronize your brand. Furthermore, it prevents anyone, anywhere, from using your already registered name to start a business venture as it is your intellectual property. Finally, you can advertise your business on national televisions, the internet, and papers without being sanctioned with a registered business name.
Finally, new business owners quickly find out that starting a business is not that simple. There is paperwork to file and laws to read. The government doesn’t just permit you to start up a business. You need to get it done the right way. Failure to do so may cause a complete shutdown of the business, heavy fines and penalties, or worse. Following legal steps is vital to every new business owner, considering that the breach of a rule could ruin your business, cost you a fortune, or even jail term, depending on the severity of the offense committed.