Running a business can be stressful. Getting started shouldn’t be with the right preparation. Having knowledge of the basics of business law will help make sure that a startup runs smoothly. This knowledge will further help you avoid various accidental legal errors that many small businesses make. Let us now get to learn about three situations where your understanding of business law basics can prove to be helpful.
1. Selecting the structure of the company
It will be a great idea to perform a risk assessment and then decide if it will be ideal to incorporate, be a sole proprietor, or become an LLC.
A sole proprietorship allows you to have a different name than the owner, yet it will not be a separate legal entity. This is the easiest to set up and most entrepreneurs prefer this. However, if lawsuits are held against this company or taxes are owed then the owner will share equal responsibility with the startup.
Jessica Bryan with Stone & Sallus Law, “Pros and cons of each type of business can be considered. For instance, corporations are own entities and capital is raised by selling stock or shares. These stockholders become partial owners. Incorporating can bring about tax consequences that you can avoid by instead creating an LLC. LLC have to use their own capital as they do not have stocks to sell, however, they pay less tax compared to the corporations.”
2. Creating the Founder’s Agreement
It is important to create a legal agreement that is beneficial for all parties (if many co-founders are involved). Various business law topics must be given importance, like breaking down percentages of ownership, dividing the daily responsibilities in the company, and deciding how ownership stakes or shares will be divided if a co-founder decides to leave.
3. Tax Obligation
Tax law is a very important part of the business law, and anyone trying to understand the basics of business law needs to be aware of the same. By having a thorough knowledge of tax obligations you will be saving yourself from headaches while making plans throughout the financial year. Since you have to pay taxes in some form to the social entities, state, and the nation, you need to know what laws apply to your company. It is thus important for you to be aware of the requirements of your state, as far as the legal business structure is concerned.
Entrepreneurs need to know the risks that are associated with starting a new company. An understanding of business law basics can greatly help you, making sure you meet all the necessary legal obligations and thus face no troubles in the future. Many a time, startup businessmen think they will learn about the laws later as the company grows, but once you have more responsibilities, you might not have enough time and might overlook important legal issues. So, first learn about these basic laws and then move ahead. If, however, you face troubles in the future you can always seek the help of a good attorney.