Legal Issues Faced By Small Businesses Before And After Incorporation
At some point in life, everyone gets an idea of starting their own business – be it that of dealing in diamonds, opening a restaurant or simply starting a bar they always wanted to open! It is always exciting to start a small business of your own and dreaming about it. However, the excitement starts dwindling the day you get out in the market and start implementing your plans. There are hundreds of considerations to make before you finally start a business, nomatter how small it is. You need to gather enough capital, hire the most suitable employees plan ahead in order to sustain the business for a longer time and market it in the best possible way to reach your target the want to.
However, none of this would make sense if you’re struggling with legal issues. The most basic aspect of starting and running a business is the fact that it should comply with the legal legislations of the state and the country. Though it is possible to start a venture without complying with legal norms, it can make your business unstable and raise issues later on. There is no surety of a business organisation that is not legal in nature. Moreover, there are strict actions that can be taken by the authorities if your company is found to have not complied with legal policies.
There are certain legal issues you can encounter if you’re starting with a small business. For the sake of simplification, the issues are divided into two broad categories – Issues faced before incorporation and issues faced after incorporation. If you are on your way to venture with your new business in a market niche, you should be aware of these:
Business Issues Faced Before Its Incorporation
These are essentially the issues that you may encounter before you start with your business operations. You will face these problems in the phase when you are setting up your business:
Choice Business Structure
You need to be clear about the business structure you are choosing before starting it. Choosing a business structure would define the way your company will be formed and the way it should function. Every structure would be governed with separate sets of laws and there are unique legal procedures to be followed for registering your company in each case. The most common business structures to choose from are:
Sole Proprietorship – Here, you are the sole owner of the business. You are the only one who is responsible for running the business and making every single decision. Here, the identity of the firm co-exists with that of the owner.
Partnership – Here, there are two or more partners (but less than 100) who come together to fulfil a common purpose and deal in the same goods. The power and responsibility vests equally in the hands of every single partner, unless decided otherwise (with mutual consent). Here as well, the identity of the business is not different than the identity of the partners.
Joint Stock Company – Here, an individual or a group of people decide to start business on a comparatively bigger scale, where there is no limit in the number of members/owners (in case of a public company). The initial capital is divided in smaller units called shares, which are open for the public to purchase in order to get a stake in the company. A joint stock company has a separate legal identity of its own, independent from that of its owners.
Licenses for the Business
You need to apply for licenses depending on the type of business you are planning to start. Business License and tax Registration are the two licenses that are mandatory to be issues in spite of the nature of your business. Additionally, businesses dealing in medicinal drugs, alcohol, weapons and other such articles require separate licenses to operate. Also, if there is any activity in your business which is specifically regulated, you need to go to relevant authorities in order to obtain licenses for that activity.
Business Issues Faced After Its Incorporation
These are the issues that you may encounter after you start with your business operations. These are some of the many issues your business may face after its incorporation:
It is often noticed that majority of the legal issues faced by a firm after it is incorporated is the problem of delayed payments. It is very likely that you will either receive payments or make them after the stipulated due date. Though major payment issues can be dragged to the district court of law, nominal issues can be sorted in the system of Small Claims Court.
Payment of taxes is the first thing you should start considering after starting with your business operations. Around 9% of the small and medium enterprises last year were reported to face legal problems regarding the payment of various taxes. Don’t forget to register your business with the tax authorities. Also coordinate the procedures of your accounting for making sure that you are complying with all the tax laws applicable for your business.
The law regarding the drafting of contracts acts as a basis for any business organisation. The primary purpose of having a contract made wherever necessary is to ensure safety and evidence for the future. A legal contract would make any business relationship official – be it between the partners of a firm, between a debtor and a creditor or even between the company and it owners. You may also need a contract for legal authorisation of your company, as it would then appear in the official legal records of the country.
Without complying with the legal framework of the country, your business becomes susceptible for a lot of troubles. It is always advisable to leave no formality or procedure incomplete before and after incorporating your enterprise. History has proved that a legitimate business lasts much longer than the one that takes a shorter illegal route. It is always good to wait and start the business only after every single legal requirement is taken care of. After all, no one likes taking chances with their dream ventures!