Building Your Business Wings: 10 Steps to Legally Protect Your Business to Ensure it Soars
They say two things can be true at the same time. In that case, then it is 100% true that running a business can be both incredibly exhilarating and completely draining.
Entrepreneurship is a journey filled with opportunities that can make your heart soar and challenges that can clip your wings and keep you grounded. Whether you are a one-person powerhouse or leading a small team, ensuring your business has a solid foundation is an essential piece to your entrepreneurship puzzle that will enable your business to soar beyond limits and achieve long-term success.
Think about it - if the foundation your home is built on is not solid, it will shift and weaken over time, which, over time, will compromise the home’s overall stability and safety. Same thing for your business - if a small business is not built on a strong legal foundation, it can face significant risks like personal liability for the owner, loss of important rights, damage to reputation, potential fines from regulatory agencies, and time consuming and financially draining lawsuits. These avoidable issues can disrupt a business's stability and ultimately hinder its growth.
Here are 10 steps every small business owner should take to make sure that what you’ve worked so hard to create is protected and able to withstand the test of time.
1. Building Block #1: Register Your Business
Why it’s a Cornerstone: The proper registration of your business legitimizes it and is often as simple as registering your business name with the state and local governments where you intend to operate. Remember, if you don’t register your business to make it a distinct legal entity, you will not have personal liability protection and you will miss out on certain tax benefits.
Foundation Builder: Choose a legal entity structure that aligns with your business goals, such as an LLC, C-corporation, entity taxed as a S-Corporation, partnership, or a non-profit corporation. File the necessary paperwork with state and local governments in the locale where you intend to operate.
2. Cornerstone #2: Secure an EIN (Employer Identification Number)
Why it’s a Cornerstone: Just like everyone has a social security number – every business has an employer identification number or an EIN. A business’ EIN is generally required to open a business banking account, file taxes, and hire employees.
Foundation Builder: Apply for an EIN for free on the IRS website (https://www.irs.gov/businesses/small-businesses-self-employed/get-an-employer-identification-number)
3. Foundation Stone #3: Get the Necessary Licenses and Permits
Why it’s a Cornerstone: Most (but not all) small businesses need a license to operate, but the type of license required depends on the business, its location, and the regulations in the area. For example, in Chicago where I live, most types of businesses require a business license to operate, including, food and liquor establishments, retail, entertainment venues, nail salons, day care centers, manufacturing facilities, accommodations (including Airbnb and vacation rentals), and fitness centers. Operating without a required license can lead to fines at a minimum or the complete shutdown of your business as a worst-case scenario.
Foundation Builder: Make sure you research local, state, and federal licenses applicable to your industry.
4. Pillar of Success #4: Set Up a Business Bank Account
Why it’s a Cornerstone: Setting up a separate bank account for your business is important because it allows you to clearly distinguish between your personal finances and your business finances. This distinction simplifies bookkeeping, protects your personal assets from the liabilities of the business, helps with tax reporting by clearly identifying business income and expenses, and ensures you can properly track your business cash flow and financial health.
Foundation Builder: Small business owners should use their EIN to open a dedicated business checking account. Additionally, small businesses should also consider getting a business credit card to establish credit for the business.
5. Framework Step #5: Have Contracts for Everything
Why it’s a Cornerstone: Contracts for your business provide a clear legal framework for all your business relationships. Clearly drafted contracts protect a business’ interests by outlining each party’s expectations, responsibilities, and potential liabilities. This minimizes misunderstandings and potential business disputes that could create costly legal issues for your business.
Foundation Builder: Every small business needs a contract for its key business relationships such as with its clients, vendors, employees, and contractors. At a minimum, ensure you have an operating agreement/bylaws, non-disclosure agreement (NDA)/confidentiality agreement, independent contractor agreement, and a service agreement/sales agreement.
6. Protection Plan #6: Protect Your Intellectual Property
Why it’s a Cornerstone: The intellectual property or IP (e.g., your ideas, inventions, brand, logo, etc.) of your business are valuable assets that need to be safeguarded. Your IP is what makes your business unique and sets your business apart from your competitors. By safeguarding your IP, you can prevent others from copying your products or brand identity, or from using your inventions or designs. This helps maintain your brand image, reputation and competitive advantage, thereby maximizing the potential value of your business.
Foundation Builder: Trademark your business name and logo, copyright your original content, and consider patents if applicable. If you engage in interstate commerce (i.e., you provide services or goods across state lines), you should register your trademarks with the USPTO. Additionally, you should register your copyrights through the U.S. Copyright Office.
7. Shield of Security #7: Get Insurance Coverage
Why it’s a Cornerstone: Insurance coverage (or as I like to call it – “In case $h@! happens” coverage) protects a small business from unexpected costs related to operating a business such as personal injury, property damage, natural disasters or lawsuits that could be extremely costly for the business. Getting the right insurance coverage provides a safety net against the unforeseen risks that are inherent in running a business.
Foundation Builder: Make sure you understand the risks associated with you business. Most businesses need the following coverage at a minimum: general liability and professional liability. Depending on the business, you may also need cyber liability insurance and worker’s compensation insurance. Consult an insurance broker for advice your business and industry.
8. Compliance Anchor #8: Create a Compliance Calendar
Why it’s a Cornerstone: Having a compliance calendar creates a centralized system for your business to manage and track all its legal and regulatory filings to ensure they are completed on time. Missing deadlines for tax filings or annual reports can result in potential fines and penalties. Having a compliance calendar can help avoid missed deadlines and assist a business with maintaining its operational compliance with relevant laws and regulations.
Foundation Builder: Use a digital calendar or project management tool to track important dates like tax payments, license renewals, and corporate filings.
9. Structural Review #9: Review Your Online Presence
Why it’s a Cornerstone: Most businesses have a website or social media presence for visibility, credibility, reaching customers, and building trust. These sites are extensions of your business and require legal consideration. A small business should regularly review its online presence to ensure compliance with consumer protection laws and to avoid making misleading or false claims in online advertising or marketing that could lead to legal action.
Foundation Builder: Post terms and conditions, a privacy policy, and disclaimers on your website, and consider a disclaimer on your social media sites. In addition, make sure you have copyright permission for any images or content that you use online.
10. Foundation Check-Up #10: Consult a Business Attorney
Why it’s a Cornerstone: DIY legal work can be a helpful starting point, but it often leaves gaps that could expose your business to risks as it continues to build on its solid foundation. A professional can ensure that your documents are tailored to your specific business needs and current industry standards. ensures everything is airtight. A business attorney can issue spot, craft custom solutions, and help you navigate complex legal landscapes, creating a solid and reliable foundation for your business to soar beyond limits.
Foundation Builder: Schedule an annual legal checkup with an attorney experienced in small business law to review contracts, compliance, and new risks.
Taking proactive steps to legally protect your business isn’t just smart—it’s the cornerstone for building long-term success. By addressing these areas, you’ll have peace of mind knowing your business is built on a strong legal foundation.