Starting a new business is an exciting journey, but it also comes with legal requirements that must be met to ensure long-term success and compliance. 

Understanding and following these regulatory standards can help small and medium-sized businesses (SMBs) avoid costly errors and maintain a smooth operational flow. 

You can also read: Positive Workplace: Building a Work Culture in Your SMB

This blog will explain the 5 legal requirements every SMB needs to consider while starting a new business.

1. Register Your Business Name

You must obtain legal recognition for your business before you can start operations. Usually, this begins with registering your company name. Your company name needs to be original and not violate any already-existing trademarks, regardless of whether you are a corporation, partnership, or single proprietorship. 

You can safeguard your brand identification and guarantee that you have the right to use your business name by registering it with the relevant state or local authorities.

Key Consideration: If your business name differs from your legal entity name, you may need to file a “Doing Business As” (DBA) form.

2. Obtain Necessary Licenses and Permits

To operate lawfully, various company operations and industries need different licenses or permits. 

Failing to secure these licenses, which can be granted at the federal, state, or municipal level, may result in fines or even the liquidation of your company. 

Business operating licenses, health permits (for enterprises involved in the food industry), and professional licenses (for sectors such as banking or law) are typical examples.

Key Consideration: The type of business you’re starting determines the kind of licenses or permits required, so always research the regulations specific to your industry.

3. Comply with Tax Identification and Registration

Complying with Tax Identification and Registration is crucial for small businesses to operate legally. Businesses should register for Goods and Services Tax (GST) if their annual turnover exceeds the prescribed limit set by the government.

GST registration allows businesses to collect tax on behalf of the government and claim input tax credits on business-related purchases. It is important to stay compliant with GST filing requirements and ensure timely submission of returns to avoid penalties or legal issues. Proper tax registration is essential for smooth business operations.

Key Consideration: Register for GST and comply with tax filing requirements for legality.

4. Choose Your Legal Structure

Choosing your company’s legal structure is one of the most crucial legal decisions you will make when you first launch your enterprise. Your liabilities, your tax obligations, and other factors are determined by the structure you select. SMBs typically have the following legal structures:

• Sole Proprietorship: Simple and cost-effective but doesn’t protect personal assets.
• Partnership: Suitable for two or more people sharing ownership and responsibilities. Requires a partnership deed and clear profit/loss sharing agreements.
• Private Limited Company: Offers liability protection to owners and better credibility with investors. Suitable for businesses aiming for growth or raising funds. Offers more liability protection and can attract investors but requires more paperwork and compliance.

Key Consideration: Each structure has distinct legal and tax implications, so it’s important to select the one that best suits your business needs.

5. Understand Employment Laws and Regulation

SMBs must comply with legal requirements like anti-discrimination policies, health and safety regulations, employee classification, wages, and benefits, including worker’s compensation insurance and tax reporting.

Ensure hiring processes follow legal standards, including non-discriminatory practices, employment contracts, confidentiality agreements, and background checks.

Key Consideration: Employment laws vary by state and industry, so be sure to stay informed about specific regulations that apply to your business and workforce.

Key Insights

• Register your business name, obtain licenses, and secure tax identification to operate legally and compliantly.
• Choose the right legal structure and adhere to employment laws for a strong foundation.
• Consult legal professionals to ensure compliance with industry-specific regulations and avoid potential legal issues.