This article has been written by Garvit Singh, Pursuing LLM from Sharda University.
Some entrepreneurs may have all the luck but most are just good business people. having success in business is not just about doing things but it also about obeying certain business laws. Every entrepreneur are well versed with all the main laws that surround in the entrepreneurial venture
But before becoming an entrepreneur you have knowledge about various business laws.
Entrepreneurs need to know the basics of accounting and marketing, they also need to understand the basics of business laws to avoid the potential failure that follows costly litigation.
What are the basic laws every entrepreneur should know?
Want to start a business? Good! But before starting a business you must have the knowledge of all main laws that surround your entrepreneurial venture. At the counterbalance of any business venture, entrepreneurs must need financial advice which is very important for business growth. Taking advice and balancing the business venture are two very crucial foundational aspects of any enterprise. At the offset of any business venture, aside from financial advice,
Hiring a legal advisor and financial adviser may be a great idea, but it may not be a practical option for those who run small or new enterprises because taking advice from professionals might be a bit costly.
However, every entrepreneur must have knowledge of legal issues, real estate, taxes, intellectual property etc.
These are the following laws that every entrepreneur must know:
Real estate law
Every entrepreneur must be aware of this legal aspect because to validate the purchase of any real estate every entrepreneur must get a warranty deed or quitclaim deed. The deed which transfers the property from the old owner to the new owner in a legal way is called the quitclaim deed.
The warranty deed is that which makes the entrepreneurs free and removes the load from them.
There are many laws who divide the considerations. So entrepreneurs must aware them also. When it comes to property-related transaction and construction then there are different regions within them like residential and commercial zones and these have their own requirement
These requirements are important because it avoids future legal problems for entrepreneurs.
Intellectual property laws
Basically, it refers to those ideas that are governed by ownership and these ideas cannot be borrowed, copied or used without the consent of the owner or creator. Violating the rights of intellectual property is considered a punishable offense by law.
The patent, trademark, and copyright usually protect intellectual property. Copyrights laws are those laws who protects intellectual property from being copied unlawfully.
Books, articles or other important pieces of information which are published are usually copyrighted and protect the owner and author over the intellectual property.
Software, electronic goods, machinery etc all are protected by patents. Trademarks are another important of intellectual property. Generally, trademarks are only extended within the scope of a single business field and it also protects the interest and brand identity.
Every entrepreneur’s primary financial concerns would be regarding their tax payment and rebate. If any accidental misfortune arises on tax payment then it leads the entrepreneur to severe penalization. Therefore it is very important to get advice on tax payment and get familiarized with the low taxes. Also, take help from professional law consultants to ensure that claims and payments are all made in a proper way which gives satisfaction to the entrepreneurs and law also.
Usually, Insurance is very beneficial to the enterprises but it often is mistaken to be financial liabilities. Entrepreneurs must go with the number of insurance categories to save their business. There are many insurance policies in which firms invest like property insurance to protect the office, equipment etc.
Health insurance for worker and employe, worker compensation insurance in the event that if an employee is injured during the job then he/she get compensation under this, and business interruption insurance.
It is important for entrepreneurs to have knowledge of the fair labor standards act which regulates federal minimum wage, child labor bans, overtimes rules, and recordkeeping requirements. Entrepreneurs must read and comply with the current regulations.
Federal equal employment opportunity laws
This act prohibits discrimination based on color, religion, race, sex or national origin. It also includes the laws on equal pay for men and women both and protects people with disabilities.
Family and medical leave act
If an employee or a family member of an employee dealing with the medical condition, then this act gives some rules which must by an employer.
When time off to compensation comes then entrepreneurs should read this guide and understand how this affects your business.
Knowledge of the various business laws and insurance policies is very important and could be highly beneficial for entrepreneurs.
A good and confident entrepreneur is who comes with a great knowledge of business laws and build a strong legal foundation.
Knowledge of laws makes the business easier and entrepreneur run their business with peace of mind without facing the legal problems.
Federal labor standard Act (FLSA)
FLSA sets the federal minimum wage. It also classifies whether the employe would free or not from over time.
Usually, it is compulsory for all employees to do overtime unless a legal exemption applies.
Entrepreneurs should not need to pay overtime to their employees if they are earning a guaranteed salary and also if they are getting such requirements administrative, executive or professional etc.
Health care laws
There are several federal agencies like internal revenue services, department of health and human services and department of labor. These types of agencies see that laws regulating health care and health coverage are provided to employers or not, including the Affordable Care Act (ACA).
Most entrepreneurs want to do advertising on the internet or in a print, but there are specific rules and guidelines which protect the consumers and businesses and gives help to maintain the credibility of advertising media.
Laws work to prevent deceive and unfair practices in advertising. There is a one governing body name as Federal trade commission (FTC) it aims is to enforce the laws and enacts the rules.
The entrepreneur also uses the customer testimonials but it has regulations that every entrepreneur must know, for example, testimonial must reflect the typical customer’s experience and entrepreneurs must have to explain their results also.
Every entrepreneur duty is to maintain customer privacy. Employers and consumers do not want their private information will leak. So it is important to take care of privacy.
Entrepreneurs should communicate clearly with their employees and consumers on how they are using their data. This including everything from storing and sharing email addresses to protecting their payment information.
Suppose you are accepting credit cards at your business then you have to ensure that you are PCI-DSS. If any complaint against you or your businesses then you must prove that you have a secure environment in which every information is safe.
If you are using a consumer credit report in business to evaluate customers or credit scores for a job application, insurance and leases then you are coming under responsibilities of the Fair credit reporting Act.
The entrepreneur must ensure that he is aligning the reporting and disposing of information with those reports in the same way that aligns with the law.
Finance laws are those laws that govern how companies spend their money and expand their businesses. For a business entrepreneur should follow finance laws.
Bankruptcy also falls under the finance law.
If the unbearable debts are coming into business the entrepreneur can file for closing the business or plan to reemerge the business but the entrepreneur mentions the file chapter and structure of the business.
The entrepreneur must have to show how much debt, assets are remaining in the business.
Why is it beneficial for entrepreneurs to know the law?
There are so many entrepreneurs out there, they struggled day in and day out to set up their dream organization.
They give their best shots and did not leave any unturned stone in their work.
Every entrepreneur hired the best available people to do jobs that are suitable for them.
Things are turned under entrepreneur but their so many roadblocks which hit them so hard.
Here, roadblock means a “legal roadblocks”
To fight with the roadblocks every entrepreneur must have to hire a business lawyer not to become a law-abiding but because if they do not comply with the whole legal framework, then they would be in some serious trouble.
But hiring a legal lawyer or legal service is quite costly. So the solution is every entrepreneur should equip themselves with some basic legal knowledge
Here are a few reasons as to why a law is beneficial for every entrepreneur
- To reduces cost- Equipping oneself with the legal knowledge would drastically help in reducing legal cost because businesses are drives profit and losses.
Thus, if there is any little hole in businesses that trickling down your investing money.
In order to stabilize the growth of business then there are many laws that help entrepreneurs to a problem.
- Law gives life to your business- To admit or not, but the law provides a valid recognition to business. How Much as good as your startup but if a law does not recognize your startup then entrepreneur would be in great trouble if he/she cannot morally claim.
Basically, a law is a great tool for every entrepreneur in this area of competition.
- Law as an effective business strategy- Entrepreneurs are the captain of a startup. And, if the captain ignores problems then the startup will start sinking.
For example, A mighty corporation runs into crores of rupees and losses just because of small legal decisions and on the other by one right decision corporation also earned a lot of profit in crores.
Like Motorola vs apple case
- To better strategize- lawyers have very good knowledge in structuring an equity split or they also know how to draft the joint venture agreement. But the question is would a lawyer know how much that structuring would personally affect the finance of entrepreneurs?
Lawyers are experts but they are the only expert on those subjects which are related to laws only. Lawyers cannot stand in between the client and entrepreneurs and cannot assess the situation.
Lawyers only give advice to entrepreneurs once they are done with and it is up to the entrepreneur to decide what is best for him and for his startup in a strategic way.
How does the law affect businesses?
The government can change the rules and regulations in businesses from time to time. So it is very important to know about government policies and rules. Therefore, if you want to go on top then you are up to date with your government laws.
Those who are new in the business industry, then all that is new for them. As a starter or a beginner, you must have to visit various websites relating to business law. Read the business attorney’s intelligence or business law articles and grasp the basic knowledge of business law from them and it would be a great start for you.
To achieve a successful legal business you have to read expert guidelines. In most cases, the regulations are imposed by the governments on businesses which are mainly classified into four categories: Taxes, relation with employe, international trade and bureaucratic.
If the government changes any business law then it means you have to change the operating way of your business.
Policies who affects the businesses directly is Tax policies because taxation is based on the amount of money earned by all businesses.
For eg- if any increase in corporation taxes and which focuses on the profit of businesses then it will make a similar effect to increasing e in cost.VAT (value added tax) is also a tax policy that will affect the bottom line.
In most governments value added tax (VAT) is a cost that is on the consumer and not on the business owner.
It is mandatory for employers to follow government rules and regulations regarding business law. Business law affects the relationships between both employer and employee or vice-versa.
Business laws are imposed in regards to international trade tariffs when it comes to international trade. These rules and regulations are so strict on those products which are going in and out internationally. Rules and regulations of international trade are also enforced guidelines on the parties that should take part in international trade.
Basically, the government imposed various business rules and regulations to make sure that all the businesses are run in a proper way with codes of ethics and with safety.
However, it is important to understand the different business laws of state, country, locality but yes, it is quite not possible to know all the rules and regulations that apply to your business line. So it is important for you to get someone who or make contact with who knows better than you and represent you. For this, a business lawyer is a perfect option and a business lawyer is a right a person to direct you toward your success and profit without breaking the laws.
How does the founders understanding law which provides a sustainable competitive advantage to startups?
Nowadays, the environment of business is very competitive. In today’s era, it is easier to start a business in a cheaper way, particularly with technology.
Many businesses are conducted online and internationally to win customers in foreign markets.
Online retailing is one of the biggest examples of business and all activities are increasing competition which makes it difficult to stand out from the crowd.
Sustainable competitive advantages avoid this and also differentiates the entrepreneurs and their competitors.
sustainable competitive advantages are the key to business success. it is that kind of force in which business makes a great focus on more selling, higher customers, better profit margin and retention of staff then competitors.
In a basic level there are three types of sustainable competitive advantages:
Those businesses which are small in nature usually don’t have market shares and buying powers and there competing for the price is not big enough to handle all customers in a market.
therefore, founder s must have to understand the basic law and if wanted to compete successfully in the small business then every founder must have to develop a sustainable competitive advantage that provides superior value to a specific niche.
These are the five-step to develop a sustainable competitive advantage.
Founder really has to understand the customer need according to that he/she has to establish proposition value which grabs their attention.
Understanding the market and its segments are very important. Founder looks for those recess which isn’t well serviced by competitors and profitably targeted.
Every founder must develop the business model in that way which gives supports to them and delivers the proposition value.
The founder must have to do really hard work and found out the key things that support and deliver the proposition value.
Sustainable competitive advantage gives so many benefits. Once the founder has this advantage then he/she can get so many ways to use it.
Using sustainable competitive advantages in sales and marketing is very important because it makes easier for a customer to understand why they part with their money and give them founder rather than competitors.
They generally know that the whole business is focused on making the sustainable competitive advantage more protective and capitalized.
If the founder founds that new business opportunity doesn’t support their sustainable competitive advantage then, the founder should raise the question of whether to pursue the opportunity or not.
Using the sustainable competitive advantages in an effective and for long term way then it can support a higher return on invested capital in the business, even in the strong competition.
Sustainable Competitive advantages build the value in the business which adds the premium to the sales price.
It is important for every entrepreneur or founder to own this advantage in his business.
How startup founders can stay on the right side of the law.
When we are a kid, we get so excited about new toys but when toys get damage or old then we realized that we missed a few steps and t suddenly became infinitely less fun.
The same thing happens with a startup founder when he rejects legal standards.
If laws are implemented correctly then it will help to protect your business or to those people also who build your business.
Every founder should make legal decisions before building a startup throughout its lifespan.
Laws solve legal issues and it can help every founder to avoid pitfalls down.
These are the some best practices if every founder wants to stay on the right side of the law.
Do a founder prenuptial
Sometime, being a startup founder, you will be going to meet new people in the business.
And it is very difficult to know everyone motive and ideas in the business market.
The founder prenuptial means- where every founder must have to agree on the terms of their ownership, vesting and their stock. Founders also have to agree upon companies needs.
This means that founders must analyze what percentage of their stock will vest or either their termination was with or without cause.
It is true that team members are the most important part of startup so it is a duty of every founder to protect the teammates from unseen compliances which can arise from an insignificant equity agreement or an undeveloped vesting plan.
To start a good business it is important for every founder to decide how each team member will add value and shares will vest.
Most of the time founder thinks that issuing shares without vesting help him but in reality, it blows the business badly. The founder must negotiate with others and make a proper vesting schedule.
As a founder, you have to use some common sense to build brand value. The founder must have sure about his business name and he/she should also make sure that it hasn’t been targeted by any competitors and should not hold any connotation to something that already exists in the market.
“If founder carefully choose a brand identity then it makes harder to change the trade dress”
While choosing the name of the brand, the founder must have to sure that it is a name he/she loves. It also makes sure that it tells the story and doesn’t sound too much like something else that is already out there.
Making the right choice.
Different businesses will have different legal needs. Founders first duty is to look into the specific-legislation of industries and their regulation which affects the businesses most.
There are so many general issues considered by many startup companies.
When founder establishing their business then so many questions are arises in front of the founder and the most confusing question is to choose a CORPORATION or LLC business.
LLC has so many attractive benefits, it absorbs the losses in starting but for the long term, it will actually work against the founder. “The main reason for this, is that venture capitalists are prohibited from investing in LLCs.
So to overcome from this founder has to convert the LLCs into a corporation at the time of the venture capital investment.
There are two types of a corporation in the business one is C corporation and other is S corporation.
here, C corporation means that the business will exist as a taxable entity that pays all the taxes of the business.
And, S corporation is based on selection which gives similar tax benefits to an LLC.
Considering the intellectual property
When the founder building their business, then he/she should make sure that they are not violating any intellectual property right or non-competing agreement.
It is important for every founder that he/she must pay close attention to who can claim the ownership of the IP when they are developing software or spinning out from another project.
Once the founder laid down its IP then it means founder seed ownership of it which further owned by the company.
“Founder must sure that if any ideas or IP is conveyed into the company then it is sure that it goes from individual to the entity”
Every founder must think about their product, their space, and about their company also. By thinking accurately makes contact with the public in the market.
Choosing a startup lawyer
Decisions to hire a lawyer are often contested because many of the entrepreneurs are self-starters. The founder must understand that Law is not something that should be taken lightly. A good startup lawyer is who resolves the difficulties and will free founders from things like gaining traction and customer retention.
Generally, most founders do mistake they hire friends or another person but in actuality, founders must have to hire a good startup lawyer for their business because startup lawyers should primarily focus on early-stage corporate and venture law.
It is not a good idea to hire a friend or someone that investors recommend because it creates conflicts in both of these situations.
What are the types of insurance every entrepreneur needs for business?
One of the biggest mistakes is made by entrepreneurs is they are failing to buy adequate insurances for their businesses. Entrepreneurs mind are so busy to himself against those disasters which do not actually exist.
So here, we take a closer look at some types of business insurances that are very important for entrepreneurs.
There are seven fundamental basic insurances that help entrepreneurs in their businesses.
Workmen’s compensation insurance
In Workmen compensation insurance has been added to a business insurance policy when their first employee is hired. This insurance covers disability, medical treatment and death benefits when an employee is injured or dies as a result of his work with that business.
Many entrepreneurs start their small businesses from their own homes. Sadly, but homeowners policies don’t cover home-based businesses in the way of commercial property insurance does. If any entrepreneur operating their business out of home then he must ask their insurer for additional insurance to cover their equipment and inventory if any problem arises.
Professional liability insurance
Professional liability insurance covers a business against the negligence claims which harms the results and make an effect on performance. Each industry has its own concern which will be addressed in a customized policy written for business. Professional liability is also called errors and omissions insurance (E&O insurance)
Professional liability insurance is important for any business because it deals with high risk and related activities like in construction there should be appropriate levels of insurance.
It is also required in any job or business also. So entrepreneur must speak to their commercial insurance professional to make sure that he also have the levels and different kind of business insurance.
Product liability insurance
If the product is manufactured for sale on the general market, then product liability insurance is compulsory.
It is also important when business measures their product and make sure that their product is safe and can find name by itself named in a lawsuit due to damages caused by one of its products. Basically, product liability worked as tailored in such cases.
Every entrepreneur must ensure their vehicle if that vehicle is used for the business purpose to protect the businesses against any liability. Businesses should ensure against third party injury, but if complete insurance is done then it will cover that vehicle in an accident, as well. Entrepreneurs must also ensure their own cars if their employees are using for business because their own personal insurance will cover them in the event of an accident.
Business interruption insurance
If the business’s operations are interrupted by disaster or dreadful event then business will suffer and income will also be lost due to staffs inability to work in the office, the business interruption insurance should be applicable by entrepreneurs in the company which require a physical location to do business.
Business interruption insurance renews the business and recovers the lost income which is lost during the events.
Entrepreneur those major financial losses which occur due to disaster or lawsuit events. The entrepreneur must ensure and found out what type of insurance is advised and good for their business and put those plans in place as soon as possible.
What are the legal issues in entrepreneurship?
You have to be pro when it comes to starting a business, but what about when it comes to working through the legal issues you must consider as an entrepreneur when launching your start-up?
The business world feels very complicated quickly when you add all the laws which apply – liability, trademarks, finances etc.
Most entrepreneurs forget quickly about the legal aspects and get caught up in the midst.
So you have no chance to avoid the negative reaction of avoidable mistakes.
So these are the following common legal issues every entrepreneur should be aware of :
In this entrepreneurs should not talk about anything to anyone about the secrets. Revealing secrets to everyone is not a priority or even a concern.
Especially to those who come from outside of your business and who might become involved with your business in any way.
Those persons who interact with you either are from the business side or even if they are not your clients. Every entrepreneur must sign a nondisclosure agreement with them to ensure that they won’t run and share their ideas with you in competition.
Finding the perfect co-founder is quite difficult for every entrepreneur
Whom do you trust? Who’s good for your business and lead your business in the right direction?
Every entrepreneur must build the chemistry with others and it is important for him to make a similar work ethic and timelines for investment.
An entrepreneur should not get all shares at once. Vesting is a good option because if the chemistry is not built among employes then he should have time to vesting the equity. This the good and fair solution to deal with the problem.
Future of the business
Sometimes people leave this world too soon. If an investor or employee of the company dies or fold there hand for investing then it is very important for every entrepreneur to invest in a will kit to ensure the assets of the business.
In these entrepreneurs should protect their shares and become designated.
Choosing a business name was difficult.
But the entrepreneur must have to be creative if he is not then someone else will.
An entrepreneur should choose a business name very precisely.
Every entrepreneur should have a killer search to ensure that his business name would be a different name and did not match with another company’s trademark.
Every entrepreneur starts their business from small. It is hard to imagine but he could face so many issues. Sometimes people ignore their intellectual property assets also but entrepreneurs must have to keep patient.
It is worth the investment of both time and money to get a trademark, patents, trade secret legally registered and copyrights.
It will be a lifesaver for every entrepreneur during the time of issues.
Corporate compliance laws affect companies in various industries. There are several business laws that apply specifically to entrepreneurs business. So every entrepreneur should mention the entity of his business or state of his business or any other determining factors.
An entrepreneur should do some research and take the help of an attorney to ensure to know what type of document should be generated and maintained by his business to remain compliant.
There are so many business structures.
Like: s corporation, sole proprietorship, partnerships, and a limited liability company.
Every structure has a different meaning which offers a variety of benefits. An entrepreneur has the right to remain his business privately funded, or make the plan on taking on investors or fix the growth of his company in the future.
What are the most important legal practices startup entrepreneurs should always implement?
These are the following legal practices that every startup entrepreneurs should always implement:
Entrepreneurs should maintain a ring note with “Corporate minutes” because when entrepreneurs have a meeting with board members, investors, etc then writing important items in notes makes the business easier and further which fundamentally changed the assets of the business like a new hire, loans, purchase.
If nothing happened in that month then entrepreneurs should simply write “nothing important happened in this month” in the ring notes.
Every entrepreneur should maintain the income and expenses record along with the corresponding hard copy because if there is the use of a software package like QuickBooks or service bills which are performed by entrepreneurs should be kept in a file drawer. Maintaining the records of purchasing and selling in the business is good for entrepreneurs.
Every entrepreneur must have to pay for all the due taxes on time. Remember, it is better to file a return because if the return is not the penalties are so exponentially high and later on file could not be filed in any case.
HR records must be accurate and up to date on all employees.
Email should not be controversial because emails are admissible in the court if anything wrong in an email then it could be used against the entrepreneur
Trusting is an important part of the business but trusting too much is also a danger for business. So every entrepreneur gets everything in writing. For eg- if relative loan money, then writing up in a promissory note is effective.
Treat your customers and employees well and do it with integrity. Enter into every transaction and everything does with the idea in mind. Suppose, if entrepreneurs were sitting on a witness stand and plaintiff attorneys were cross-examining to him then entrepreneurs could defend himself in good conscience. Entrepreneurs should walk away if he/she sees something shady.
Entrepreneurs should not allow anyone to sign checks unless his business gets big enough. Entrepreneurs should create a system of checks and balances whereby only he can approve checks to be written.
What are the legal issues while starting-up in India?
Start-up actually means taking risks. And it is true but, when it’s come to legal issues then you have to concern with your entrepreneurial ventures because precaution is always better than cure.
In India most entrepreneurs have great ideas, family, friends support them and have a good amount of capital investment which all goes for a toss by ignoring the legal issues. Most entrepreneurs avoided this because they seemed to make a plan is boring or they were not aware of certain laws.
Here, I am giving you one example of a SuKam company. The SuKam entrepreneur who landed up in jail for a very simple reason, the reason is that he did not know that he had to pay excise duties.
Non-implementation of laws and bribing and slow inefficient judicial system are all issues which are very difficult to handle in India.
Starting and growing your business in India is a tough challenge because in India our regulatory and legal system is so complex, especially when even written agreements are not followed by the parties
Big and more established companies like Tata, Birla, Reliance etc are spending a huge amount of cash to sort out their legal problems and issues with the judicial system and regulatory bodies.
You have to customize your legal documents or employing a lawyer for your company but it is not possible until unless you are not generating a handsome amount of revenue.
Tips on legal matter that can stabilize and exponential growth to your business
Agreements between company founders
If there is more than one founder in the company then you have to decide the ownership matters in the very beginning.
If there is a demise or accidental departure of one founder then you have to discuss the further course of action.
You can also enter into an (LLP) limited liability partnership to save yourself from the negligence or co-founder’s misconduct and even from heavy tax bills.
If you are entering into incorporate business, then there are many online services who give legal pieces of advice which will serve you better and will be more cost-effective than chartered accountants and lawyers.
You will have to go through a lot of legal documentation to obtain the licenses in India like licenses of employment or labor registration
You must track the license condition to save yourself from lawsuits and from heavy fines.
Before entering into any business investment you have to very care full on license issues because it is necessary to take care of the licenses.
If you are starting a small business or with a low key business then you not have to pay any amount on taxes.
If you having a plan to expanding your business or you already have a big startup venture then tax officers will ask you to pay the taxes otherwise not.
You must clear all taxes deals before reaching to the radar of the tax officers otherwise big lawsuits and accusations of criminal offenses are against your account.
If your company has more than one founder then the amount of shares of the company is most important. So you have to need focus and attention on those shares at the starting of your business venture.
So, It is important for every entrepreneur, business owner, manager or other professional to have some basic knowledge or understanding of some laws which help them to make better decisions. Just as there are various laws that apply to people, there is a huge body of law that applies to business. Business needs these laws for the same reason that people do; to define unacceptable behavior, to provide certainty and stability, to protect the public, and to provide a mechanism for business.
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