Legal Protections That New Business Owners Should Have

There are numerous entrepreneurs and business owners whom are lauded as visionaries, futurists, and industry leaders. Books are written about them, they become household names, and numerous other businesses attempt to mimic their success. But other new businesses quickly flame out and are shuttered within a few short years. What sets these two groups of business owners apart? What explains the wildly different trajectories that businesses take?


As a business owner, one is expected to have knowledge of all legal requirements needed to create and grow their business. New business owners need to be especially cognizant of what particular legal protections they need to take in order to protect the various components that constitute the “business”—this can include intellectual property protections, human resources protections, and insurance protections. What follows are just a few examples of legal protections that every new business needs. This is not an exhaustive list, and it is advisable that a new business owner does research on what protections are applicable for their line of work, and do everything they can to ensure that they are safeguarding their business.


1. Choose the proper business entity


Online services like LegalZoom and RocketLawyer have made creating business entities a breeze—a person makes a few online selections, submits their payments online, and pow! A new business has been born. The relative ease of this online process belies the huge importance in picking the right business entity. The business entity and structure of the business can affect the business owner’s personal liability, the amount the business pays in taxes, and the businesses’ future ability to raise funds. New business owners must carefully and thoughtfully determine what business entity is best for the business at the moment and also for the future path that lies ahead.


The small business website Fundera lists 15 different business entities that are options while creating a new business structure—these include limited liability companies, sole proprietorships, general and limited partnerships, and corporations. Each option should be carefully considered. It is also important for new business owners to carefully consider, decide on, and record decisions regarding the rights, responsibilities, and profit splitting of various parties when a business is being founded by multiple owners. A new business owner must then have documents that memorialize all of these key decisions, with those documents acting as a reference point as the business grows and expands.


2. Intellectual Property (IP) Protections


It is also hugely important for new business owners to ensure that their intellectual property is protected. Many persons wrongly believe that intellectual property protections are only needed for persons operating within the tech world, or in the world of art and design, but this is false. That new logo you created for your Instagram boutique? That’s intellectual property. Those unique recipes that you created for the dishes at your new restaurant? That’s intellectual property as well. The list of things that can be trademarked, patented, copyrighted, and otherwise protected via intellectual property laws and processes is immense.


When starting a new business venture, it is paramount that the new business owner consult with an intellectual property lawyer to see if anything that falls within their line of work needs to be covered by the protections offered by intellectual property safeguards. Protecting their intellectual property can help new business owners prevent copycats from stealing ideas, processes, and trade secrets.


Intellectual property protections can also provide the business with exclusive rights to manufacture, reproduce, brand or display their work, which makes it easier not only to operate but to also successfully quash any other business that is operating in violation of that intellectual property.


3. Business insurance


It is crucial for business owners to thoroughly research what type of insurance is needed for the work that they are doing. The list of various business insurances offered by well-known companies like Nationwide and Progressive is large, with the most popular policies being for general liability insurance and professional liability insurance. However, there are many more options available, and for some businesses, a combination of a few different insurances might be necessary.


For example, a person selling items online and receiving payments from customers online will perhaps need both general liability insurance as well as cyber-security insurance, to protect against liability in the case of a hack in which customers’ credit card information is compromised. A person opening a neighborhood coffee shop with just a few employees, for example, might need several different types of insurance. General liability insurance would cover customers making complaints about food poisoning. Workers compensation insurance would cover the expenses of any employees that might get injured while on the job. Food contamination insurance would cover the cost of food ruined because of a shutdown in the restaurant’s refrigeration system.


Any of these three scenarios—a worker hurt on the job, a customer being ill from a restaurant’s food, or a refrigerator going on the fritz—can be financially damaging if a business is not properly insured, and could be ruinous to a brand-new business that does not yet have deep financial reserves.


4. Strong Human Resources Function


Whether a business has two or two hundred employees, having a strong human resources function is critical. A strong human resources department will help to recruit, hire, and retain the talent that helps a new business grow and thrive. Also, in this particular #MeToo moment, a good human resources department must create the policies and procedures that will shape behavior in the workplace. Whether writing a strong anti-sexual harassment policy, or implementing a consistent reporting process for a person making complaints about workplace misconduct, human resources sets the tone for how the business will function.


Today’s new business owners have much more to consider than just the problem of disgruntled employees. Lawsuits filed by employees accusing the business of creating a hostile work environment, or of allowing sexual harassment run rampant, can be financially devastating for a company, and can be harmful or ruinous to a new business trying to establish its reputation.


In New York in 2018, an employee was awarded a whopping 13 million dollars in a lawsuit against her employer, in which she accused that employer of ignoring her complaints about sexual harassment. Cases like this one should strongly incentivize employers to be deliberate about the workplace culture that exists within their new business, and to strategically decide how human resources can help the business be a safe workspace for employees, and to protect the business from any costly and embarrassing lawsuits.


There is an endless amount of grit, determination, courage, and hard work required to launch a new business, and taking this leap is not for the faint of heart. New business owners, no matter how anxious they are to launch, must spend a considerable amount of time doing the research and taking the steps necessary to protect their business, their reputation, and their bottom line.

(Kia Roberts is a Workplace Expert, Attorney and Founder of Triangle Investigations)