Legal Limitations to Consider When Starting a Business
By Amber Sheppard, Esq. | Legally reviewed by Amber Sheppard, Esq. | Last reviewed September 13, 2024
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Every business has certain legal restrictions and obligations. Entrepreneurs should know the laws before starting a new business. Even an innocent oversight by a small business owner can result in serious legal trouble.
This FindLaw article focuses on common legal restrictions when starting a small business.
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Intellectual Property
If you don't have a license to use someone else's photo, name, or song, do not use it in your business. You cannot use someone else's trademark, copyright, or patent without permission. That is someone else's intellectual property.
Limiting Professional Liability
Starting a new business is risky. The business owner can be responsible for the business's obligations. This is true for a sole proprietorship. A small business owner may choose a business structure limiting liability to address this risk. They can do this by forming a corporation, a limited liability company, or a limited liability partnership.
These professions have particular liability concerns:
- Accountants
- Architects
- Doctors
- Engineers
- Lawyers
- Therapists
Licensed professionals have a duty to their clients due to their profession. They can be financially responsible for negligence and professional malpractice.
Some states, like California, do not give complete liability protection to professionals for their negligence. This is even the case if they operate as a professional business entity. In other states, professionals can't form limited liability companies. They may instead have to create a professional corporation.
Professional Limited Liability Company
When a licensed professional wants to start a business, how do they limit personal liability?
In some states, licensed professionals can operate a liability-limiting business called a Professional Limited Liability Company (PLLC). State legislatures recognize clients' rights to get compensated for malpractice. State laws limit liability for business financial obligations but do not limit liability for professional malpractice.
Employment Law
When a business hires people, it must follow rules and regulations for business law. This includes following regulations issued by the Department of Labor, which enforces more than 180 federal laws and regulations. Which rules apply depends on the kind of employees, the number of employees, and the type of business.
Become familiar with employment laws on:
- Job classifications like employee or independent contractor
- Minimum wages, overtime pay, age restrictions, and hour restrictions
- Non-discrimination in hiring and employee training to prevent discrimination and harassment
- Tax laws and an employer's state taxes plus federal taxes to the IRS for employment taxes, Social Security, and timely filing of business tax returns
- Workplace Safety Issues and the Occupational Safety and Health Administration (OSHA)
- Workplace injuries, medical leave, and workers' compensation
The minimum wage can't be less than $7.25, but state laws may increase that amount. Labor laws address the issues above and collective organizing. Even small businesses can have unions.
Environmental Law
Environmental regulations may be a factor depending on the type of business you will operate. The Environmental Protection Agency (EPA) is the federal agency that regulates the environmental impact of industries. The EPA considers a small business as a business that has less than 100 employees. There is a free small business EPA compliance guide available for these businesses.
Common regulations affect business operations in these industries:
- Agriculture
- Automotive Recycling
- Automotive Service and Repair
- Construction
- Education
- Hazardous Waste
- Health care
- Oil/Natural Gas Energy Extraction
- Paints and Coatings
- Ports
Disclaimer: review relevant federal laws and government regulations for your industry.
Licensing and Permits
A new business needs business licenses or permits. Many states have a bureau of business licenses that can help you.
The federal government and state laws require licenses and permits to:
- Allow a business to serve as the state's agent for collecting sales and excise taxes
- Control the development of new technologies (patent, copyright, trademark, and licensing rights)
- Ensure the competency of practitioners of a profession or trade (professional license)
- Ensure the safety of a building (fire department permit)
- Ensure the safety of food (health department permit)
- Prevent fraud (federal business license for investment advising)
Local governments could need more licenses depending on your type of business if it involves:
- Cannabis sales
- Firearm and weapon sales
- Gasoline sales
- Liquor and alcohol sales
- Lottery ticket sales and gambling
If you have trouble determining which licenses you need, contact a business attorney in your area with experience in your business. The Small Business Administration (SBA) is an excellent place to start for any prospective new business owner.
Surety Bonds
State and local governments often make licensed businesses get surety bonds. A surety bond is like an insurance policy. It guarantees that the business will perform on the contracts it signs. Businesses that contract with government agencies need this. Private firms and notaries may also require bonding, particularly in the construction industry.
Zoning Ordinances
Contact your local zoning board or planning commission early in your business planning process. Real estate laws and zoning restrictions can derail your new business before you start selling anything. Ask if there are any restrictions on business activities at your intended location. This is especially true if you conduct a home-based business in an area zoned residential. It also applies to startups in heavily regulated industries, like medical marijuana.
Business Lawyers Can Help You Stay Legal
The best way for small business owners to address legal limitations on a business is to work with a business and commercial law attorney.
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