by Susan Naftulin
There is an old expression that says “the devil is in the details.” Nothing could be truer than when you are starting your own business. Certain legal realities need to be understood thoroughly, as even a very minor infraction can be expensive and sometimes disastrous for a small business. You need to do your own research and consult professionals in order to make sure you start on the right track.
Legal Tip #1: Research Company Names
When choosing a name for your company, do online searches to make sure that the name is available in your geographic area. If you are starting a business in Pennsylvania, you need to search Pennsylvania records to make sure that no other business has claimed that name. If you do not intend to expand beyond your state, one search will be sufficient. But if you plan to grow or have several locations, you want to be able to use your name in all states you could eventually grow into, so you need to search all of those states. The law favors the first business to register use of the name, regardless of the amount of usage. You do not want to grow your business and gain a following to then be forced to change your name because another company has a prior claim to it.
Legal Tip #2: Register Your Office Space
Are you renting an office or working out of your home? If you’re working out of your home, does your municipality require that you register the business with them? Are there limitations on what sort of business you can run out of your home? You don’t want to start a business and establish your home address as the office and then be sent a cease and desist order from your locality for running an unregistered, or unpermitted business from your home. If you are renting an office, make sure that the space is zoned for a commercial space and that you register the business appropriately.
Legal Tip #3: Register Your Business and Get an EIN
Are you operating as a sole proprietor under your own name, or are you forming a company? If forming a company, review your state corporations laws (which generally include information on limited liability companies) to find directions for registering the business. Follow the directions carefully and pay all fees required. Most states will not recognize your registration without payment. Also, be aware that some states require registration in several places, such as with both the Corporations Bureau and the Finance and Taxation Departments. Lastly, contact the Federal Internal Revenue Service to get an EIN (employee identification number). If all of this seems overwhelming to you, ask an attorney to help you. Proper registrations are important and worth the legal fees if you need them.
Legal Tip #4: Purchase Necessary Insurances
Figure out what kind of insurance you need. If you are working out of your home, your homeowner’s insurance may not provide hazard and liability coverage for accidents related to the business located in the house. For example, if a business customer slips and falls on your sidewalk and subsequently sues you for injuries, you may not be covered under your pre-existing homeowner’s policy for liability related to the non-consumer use of your property. If you have employees, make sure that you have worker’s compensation insurance. All fifty states require that employers have such insurance. A claim for injuries made by an employee against an uninsured employer can be a disaster for the employer.
If you have people working with you as independent contractors and not employees, make sure that you have a written agreement that states specifically that they are not employees. This is important for several reasons, including limiting the company’s liability for worker’s comp in the event of an injury, and the payment of payroll taxes.
Legal Tip #5: Manage Your Money
Lastly, keep track of the money. Make sure you know what your expenses are and that you can manage them.
Invest in a good accounting system to track your income and expenses. The Internal Revenue Service and your state Department of Revenue are going to expect accurate tax returns, not excuses at tax time. If you are not a numbers person, invest in a part time person to handle the accounts and records. Don’t assume if you are busy that business is good, so you don’t have to worry about the money. Busy does not always mean profitable, so you need to keep your eye on the bottom line.
There is a lot to think about when starting a new business. Don’t be discouraged. Make lists, stay organized, ask for help when you need it, and you will be able to navigate the initial legal issues when starting your business.
Susan Naftulin is co-founder of Rehab Financial Group, LP and currently holds the title of President. Prior to forming RFG, Susan has held several senior management positions in the mortgage industry, including General Counsel, Managing Attorney, Chief Operating Officer and Senior Vice President for both privately and publicly held mortgage lenders.
Prior to entering the mortgage industry, Susan was a creditors’ rights attorney with the Philadelphia Law Firm of Fox Rothschild LLP. Susan lives in suburban Philadelphia with her husband and two teenage sons.
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