Many people dream about quitting their jobs and starting their own businesses. You hear phrases like, "Be your own boss!" and "Set your own hours!" and it awakens a desire in your soul to become an entrepreneur. However, what a lot of budding business owners forget to think about is the potential legal issues they can encounter when they open up their first business. Here are three tips for protecting your new business from lawsuits.
1. Make sure you have a business license and any applicable permits before opening.
One legal mistake new entrepreneurs make is they think they only need a business license if they are opening a business in an actual building. For instance, they think if they start a housecleaning business that they run from their own home, then they don't need to get a business license. However, every business needs to have a business license, or you run the risk of legal troubles with the state your business is based in.
Every state has its own requirements for getting a business license and permits. Take the state of Kentucky, for example. In Kentucky, you have to register your business with the state, as well as the municipal government in the city where you live, in most cases. Then you have to get your tax numbers, fulfill any insurance requirements, apply for and receive any applicable business licenses and permits, and get educated on the laws regarding employees and regulations that affect your industry.
2. Have a trademark search for your company logo performed.
While it doesn't happen as often as you think, it is not unheard of for a new business owner to be sued for trademark infringement. Whether you have a logo that looks similar to or just like another business's logo, not doing a trademark search can potentially open yourself up for serious legal ramifications.
When the other business first finds out about your trademark infringement, they usually have their corporate attorney send you a cease and desist letter. This letter is their way of letting you know that you are potentially infringing on their trademark and they would like for you to stop doing so.
It doesn't mean you are being sued - yet. However, if you refuse to stop infringing on their trademark, they will likely file a lawsuit with the federal government to have them determine if you're infringing on trademark rights.
The good news is, this can be avoided if you consult with a business lawyer and have them conduct a trademark search for you.
3. Understand the difference between actual employees and independent contractors.
If you plan to hire people to help you in your new business, you need to understand the difference between actual employees and independent contractors. Using the housecleaning business as an example, if the worker will be using their own vehicle to get to each cleaning job and they also provide their own cleaning supplies, they would be considered an independent contractor. However, if you were to supply a company vehicle and provide the cleaning supplies they used, you would need to consider them an actual employee.
Why is this distinction important? For tax purposes, of course. If you have employees, you need to pay state and federal taxes on them, as well as have worker's compensation and disability insurance. However, if you only have independent contractors working for you, you are not required to pay for any of that.
If you classify someone as an independent contractor when they should be classified as an employee, it can cause major legal problems for you. Not only can the employee file a lawsuit against you because of taxes and insurance requirements, but so will the federal and state government. So, always be sure you are classifying your workers correctly.
For more information and advice as you're starting your business, work with an experienced business attorney from a firm like Carter West Law.