Business Startup Students

What You (Legally) Need To Know Before Starting Your Own Business

Written by MicroStartups

In many ways, there’s never been a better time to start your own business. There may be a lot more competition around, and you’re unlikely to find a huge gap in your chosen industry, but there’s so much opportunity around — and the barriers to entry are so low because of digital technology — that there isn’t that much to lose from giving it a try.

But being able to create and run a business from a laptop in your kitchen doesn’t absolve you of legal responsibilities, so you still need to be aware of (and adhere to) relevant laws and regulations if you want to make your business profitable and safe.

When it comes to handling legal matters, here are some notable things you need to know before you start your own business:

Trademark is automatic (but is worth making official)

When you fill in all your business paperwork and establish your business name, you’ll earn common law trademark protection without needing to do anything more. Should someone try to use your logo or business name for a comparable business, your right to legally challenge them will be presumed by the courts.

However, because business name registration is only statewide, you can’t expect that presumed trademark to extend nationwide — and there’s no way it will hold up in the event of an international incident. If you’re at all serious about your business, it’s absolutely worth registering an official trademark and giving yourself further protection.

You should keep records for at least 7 years

Keeping meticulous records of finances and business decisions is vitally important in general because you need to be able to gauge the success of your operation, but the main legal reason why you should keep your records for at least 7 years is that Congress made the decision in 2016 to allow the IRS to audit anyone who fails to disclose over 25% of their income as many as 6 years after their filing (the standard limit being 3 years).

Being audited isn’t a good experience for anyone, regardless of how squeaky-clean their finances ultimately prove to be, so it’s something that you should strive to avoid. If you can handle all your tax demands appropriately, thoroughly document everything, and protect those files for at least 7 years, you should be safe from the wrath of the IRS.

Tax requirements vary by state

There’s a lot of complexity in taxation in the US. Not only are there numerous different types of tax, some corporate and some pass-through (depending on the nature of your business), but there’s also the difficulty of handling state differences. This is something that has always been a problem for businesses with physical premises, but is now becoming a problem for ecommerce businesses as well following a Supreme Court decision earlier this year.

Every state has a different sales tax rate (with some having no sales tax at all), and it was previously the case that ecommerce businesses without stores or distribution systems in a given state could sell to customers in that state without incurring any sales tax, providing a competitive advantage over brick-and-mortar retailers. Now, though, any state has national legal backing in requiring a retailer selling to its populace to collect and pay sales tax, regardless of its location.

If you’re planning to run an online business, either by creating it from scratch or buying a ready-made ecommerce business, be aware that selling across state lines will possibly require you to fill in a lot of paperwork involving distinct sales tax rates. Either run your business within your home state, or be absolutely sure you know your different state obligations.

You can fire at will (except in Montana)

Very often, the difference between a business floundering and growing rapidly is the ability and determination of the first few staff members, but it’s understandable that a new business owner might be reluctant about hiring people — after all, it invites feelings of obligation, and you don’t want to make the wrong choice and end up feeling stuck with someone incompetent.

In truth, though, this is very unlikely to happen unless you run your business in Montana, because all other states run on the at-will employment model. Essentially, it means that an employee can leave at will should they wish, and an employer can fire an employee at will and for any reason that isn’t illegal, regardless of their specific justification.

So if you aspire to grow quickly and you have a good feeling about a prospective hire, take a gamble on them. If it doesn’t work out, you can simply them go and try again. (Unless you’re in Montana, of course… in which case, you can always file for bankruptcy!).

About the author


A team of writers and marketers, MicroStartups was founded to inspire the entrepreneurial and business community to give back. We believe in business growth through giving and supporting the local community.

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