Once upon a time, starting a business was a simple process. You only needed a good idea, start-up capital, and some self-discipline. However, gone are the days where simplicity reigned supreme. Complicated legalities are now an unfortunate evil every business must contend with. No matter how brilliant your idea may be, if you don’t have your legal bases covered, you stand to lose everything by the first lawsuit or IRS audit. It’s important to remember - ignorance of the law is not a legitimate defense.
You’re likely asking yourself what legal steps you need to take to start your business. Unfortunately, there is no hard and fast rule. A standard Inc. is a little different than your typical LLC. S-Corp is a different type as well. If articles of incorporation are too scary for you, you can choose to brave the storm as a sole-proprietorship, risking everything you own with this business environment.
The business framework isn’t the only factor to consider in the legal area. Products and services can fall under different agencies to verify a standard level of work. Lawyers need to pass a BAR exam to practice law. Plumbers or electricians have to attain their own certifications or licenses in order to sell their services. Without those certifications, even if the work is impeccably done, it is considered illegal. Also, don’t forget to pay the appropriate taxes to whatever government entity has jurisdiction over you.
Setting up a lemonade stand? Well, it likely depends on the local municipal codes – not kidding. The federal government isn’t likely to be all that concerned with such an enterprise. However, the local city government may have rules and permits for carts or kiosk based businesses. So wherever you reside, it behooves the entrepreneur to become familiar with his city, county, and state laws regarding business ventures.
It’s a safe bet that the more profitable a business or field is, the more regulations you will need to comply with and more licenses/permits need to be obtained. For example, you want to enter the energy generation business and start a nuclear power plant? There is likely a mountain of regulation you’ll need to comply with, and another mountain of permits to obtain from the government. After all, you can’t very well put up a nuclear power plant in the residential district. The local zoning laws would likely prohibit that.
There are certain caveats though. Want to be a personal trainer?
You’re a personal trainer now and it’s fantastic. Certainly there exist schools and certification programs that can help bolster your credence with clientele, as well as your proficiency in the field. At their core however, they are third party certifications that are appealing to the industry but are not required by law to have. Presently there exists no hard and fast license via the government you need to obtain - yet.
“Yeah I know all that Daniel, just tell me where I go to figure out where to find all the specifics for my business.” To this I simply say “No.” First and foremost, I am not a lawyer nor a CPA so I will not give you specific advice to your business.
See what I did there?
This is a general article written to stimulate the creative juices of the reader. It is also a cautionary tale to prevent you from inventing the better light bulb and then going to jail because you didn’t register for a Tax ID number for your legal fiction. That being said, your local chamber of commerce or city hall would be a good place to start. Often times it is actually a good resource depending on your business. Registering with your local chamber of commerce can refer to you all sorts of other avenues which may assist in the growth of your business. Assistance from potential grants to advertising specials may be available. Keep in mind that if you are going to profit, the local government will also, so they will usually be quite helpful to you in getting started. But it is important to have realistic expectations from them.
Other good places to look are professional associations related to your field. Are you going to set up shop as the local electrician? Then the International Brotherhood of Electrical Workers is where you’ll want to poke around.
Bottom line is this – unless you of your own proficiency know how to set up everything for your business regarding the legal spectrum, or can’t figure it out on your own, it might just behoove you to bite the bullet and go see a lawyer to get set up properly. Some things are pretty straight forward like the lemonade stand or a machinist’s shop, but if you want to open a local car rental…? See a lawyer and pay your fee with a smile, because if he does his job right, your business will have a much better position when troubles do arise in the future.
Next, we’re going to be going into detail about the pros & cons of the various business structures that exist. Stay tuned and let us know what questions you have and we’ll do some general legwork for you. Let us know in the comments below.