Small business owners often save money by trying to wear as many hats as possible. However, when it comes to legal issues, sometimes this strategy is penny smart, but pound foolish. In other words, it is often cheaper to prevent a problem from arising than to fix the problem after it has already arisen. Here are five areas where a lawyer can help a business as it launches:
Intricately intertwined with the question of how to start a business is the issue of the legal business structure to be used. Often, an entrepreneur will start a business as a sole proprietorship or partnership without fully appreciating the risks involved. Lawyers can explain the differences between sole proprietorship or partnership, on the one hand, and a limited liability entity such as a corporation or limited liability company, on the other hand. More importantly, a lawyer can help form the entity in the relevant state to ensure that all the benefits are there when they are needed.
Almost any agreement, whether written or oral, can form the basis of a valid contract. One of the most important tips for entrepreneurs is to have a lawyer on board to help navigate the startup business through the field of contract law. For example, finding a business partner can supercharge a business’s growth and give the business the safety net to avoid failure. In fact, over 80% of businesses fail due to cash flow issues, according to a study by U.S. Bank. However, defining the relationship between the business and the business partner is often done through a contract that specifies the rights and obligations of each party. A “silent” or “passive” business partner is different from an “active” business partner. An equity business partner or venture capitalist is different from a business consultant. Having a lawyer who can define the role of each party in a contract may avoid future problems.
“How to start a business” is different from “how to build a business.” Critical to building a business is that business’s reputation and goodwill. Trademarks are the link between the consumer and a business. If every auto repair business was called “Joe’s Garage,” consumers would have no way of distinguishing the Joe’s Garage that the next door neighbor loves and the Joe’s Garage that ripped off a relative. A lawyer can not only help an entrepreneur to secure trademark protection so that no other business uses the same name or logo, a lawyer can give an entrepreneur tips on avoiding problems with other business’s trademarks.
Zoning and Licensing
“How to start a business” leads naturally to “where to start a business.” Common entrepreneur mistakes include assuming that everything is legal as long as the landlord does not object. However, there is an entire legal structure that defines what businesses can do, where businesses can do it, and what licenses are required. For example, in certain states, hunting guides and outfitters, audiologists, and unarmed security guards need licenses. Similarly, some state and local governments restrict where a business can feed the homeless, raise chickens, or build a church. A lawyer can assist entrepreneurs with zoning and licensing for their new business.
Taxes and Compliance
A common entrepreneur mistake is to forget that the only things that cannot be avoided are death and taxes. While no business owner should pay more than their fair share of taxes, it is equally true that no business owner should evade taxes. A lawyer can help entrepreneurs to make sure that they only pay the right amount of tax. Moreover, an ongoing relationship with a lawyer can ensure compliance with other local, state, and federal agency regulations, such as fire and building inspections, family leave, workers compensation, unemployment insurance, and many other business regulations.
In researching how to start a business, an entrepreneur should consider the role professionals, like lawyers, can play. Often, hiring a lawyer when starting a business can avoid problems and their associated costs down the road.