Businesses must operate legally or may risk being assessed with severe fines. It goes without saying that few startup companies have budgets that can account for those types of penalty expenses.
Therefore, companies need to be aware of all of the regulations pertaining to federal, state and local mandates. This begins with setting up the firm properly and continues with staying abreast of changes in all relevant laws.
Below are five ways to ensure that a startup business is complying with the law.
Select an accountant and an attorney
Their advice will prove to be invaluable. A well-qualified attorney can help to choose the best and most appropriate legal structure for the company, whether it be a sole proprietorship, partnership, limited or general partnership, limited liability company or corporation. This structure is what will determine many of the tax and liability implications. It can also determine how you can raise capital for your startup.
Many budding entrepreneurs find themselves in the middle of a securities fraud lawsuit when things go bad, and they didn’t take the time to ensure that their funding activities were compliant with SEC regulations.
Known as Regulation D (or Reg D), these rules govern the money-raising activities of businesses. Your lawyer and your accountant should be familiar with these regulations to help you avoid indictment on securities fraud. If convicted of this felony, you could face jail time, huge fines, and be severely limited in your future career choices.
Understand regulatory issues
Hiring an attorney will certainly ensure that legal aspects are covered. However, it is important for new business owners to understand the rules and regulations concerning running the business.
For instance, the federal, state and local regulations that govern issues such as labor codes and environmental safety, as well as health. Subscribe to local governmental newsletters in order to keep up with the various city ordinances that may affect the business. You will want a local attorney who is familiar with state and even city code, where necessary.
Some cities and counties have strict covenants and codes in place, as well as confusing zoning rules that could land you in hot water unless you’re careful. Better to err on the side of caution and hire someone who knows what they are doing than face fines and court.
Protect intellectual property
The intellectual property of the business may be a significant competitive advantage. Therefore, not protecting it may turn out to be devastating for the company. This generally includes company logos, trademarks and technology.
In addition, many firms that have acquired patented technology are surprised to learn that U.S. patents are only good within the United States. This leaves them vulnerable if they are doing business overseas. It is important to protect intellectual property early and in each country the company will be doing business in.
Before you plan to launch a product or service overseas, be sure that your intellectual property is reasonably protected. Especially if you choose an overseas partner to manufacture your product, be careful to avoid irreputable companies that would mass produce your product and sell it on the gray market.
Use effective business contracts
It is essential that every business use enforceable business contracts. To do this, companies must engage both defensive and offensive strategies. Many startups have important trade secret information they also need to protect. Failing to use nondisclosure agreements can also leave companies exposed.
Especially if you are looking to raise capital, bring on a new employee or partner, or even a consultant, be sure that your nondisclosure agreement (NDA) has some teeth. Many companies make the mistake of courting a potential acquirer without properly protecting their disclosures, and effectively hand over their trade secrets and private data.
Monitor compliance
Legal compliance is an ongoing process. Therefore, keep track of important dates and other information both digitally and on paper so that it is kept current. Use a calendar system as a reminder so that when licenses and other contracts need to be renewed, there is no gap.
Businesses that let legal compliance lapse are putting themselves at risk that they may never recover from. Remember that your business might not be law, but legal compliance better be a big part of your business. This is one area you don’t want to take chances on.
Essentially, the best way to ensure that a business is and remains in compliance with laws is to engage a lawyer who has the expertise to set up the startup properly. More than just a resource you turn to to make sure you aren’t breaking any rules, your attorney can be a trusted consultant to help you identify opportunities, and reduce risk.
Whether you choose to engage the services of a local expert or a Wall Street big wig, proactively seeking the help and protection your business needs is a great way to ensure that you are safe to grow and thrive.
About the Author:
Marlena Stoddard writes on small business and entrepreneurship. Originally from Senoia, GA, Marlena lives in Santa Rosa, CA with her husband and two children. Information on Reg D compliance credit of Dietrich Law. For more on Marlena, you can follow her on Google+.
Image credit: Salvatore Vuono | FreeDigitalPhotos.net
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