Small Business Law

Business law, or commercial law, is the body of laws governing entities and commercial transactions. An example of this would be how if you wanted to start a retail company, business law would dictate:

• How to organize and register your company;
• How to pay your employees; and
• How to legally ship your merchandise to customers overseas, among other aspects of business.

Business laws will also vary based on:

• The type of business, such as private vs. public, and for-profit vs. not-for-profit;
• Its business management structure, such as a corporation vs. general partnership; and
• Jurisdiction.

Some specific examples of business law include:

• The Sherman Antitrust Act of 1890: Antitrust law helps regulate the organization and conduct of businesses to ensure fair competition and protect consumers from oppressive business practices. The Sherman Act specifically is used to prevent monopolies, as well as to restrict business activities that affect interstate commerce, which in turn could hurt consumers;
• The Lanham Act: The Lanham Act, also known as the Trademark Act of 1946, is a federal law that regulates trademarks, service marks, and unfair competition. If you created a trademark for your retail company from the previous example, you could register your unique trademark and receive certain legal protections under this Act;
• The Securities Act of 1933: This Act requires that businesses provide investors with specific financial information before investing in a company. This Act also applies when a company wants to go public, such as an initial public offering (“IPO”);
• The Federal Tax Code: The Federal Tax Code will cover everything from how to tax your employees to how to file federal income taxes for your business correctly; and
• The Fair Labor Standards Act (“FLSA”): The FLSA sets the standards for employee wages and overtime pay. It applies to the majority of both public and private businesses. If your retail company has nonexempt employees, you will need to pay them at least the federal minimum wage and one-and-one-half times their normal rate of pay for overtime.

Many types of business law address various aspects of a business. An example of this would be how if a business needs to determine how to:

• Pay its employees;
• Provide employee work benefits; or
• Arrange employee work schedules, and these tasks would all be covered by the specific area of business law known as employment law.

Alternatively, if a business owner were starting out and needed to register and set up their business, this would involve business laws such as:

• State statutes regarding business formation and structures;
• State tax laws; and
• The Federal Tax Code.

Additionally, federal and state laws will apply if, at this time, the business owner registers intellectual property such as copyrights or trademarks of the business.

A significant amount of business law addresses commercial and contract law, which govern matters such as business deals, sales transactions, and employee non-disclosure agreements. Because of the variety of aspects that contract laws regulate in business, this is considered to be the most important area of business law.

Contract laws also regulate:

• Merging with another business;
• Forming an agreement with a certain distributor to sell their products; and
• Providing a service to the business’ customers.

What Laws Govern Small Businesses Specifically?

Small businesses are owned and operated privately, with a relatively low volume of sales and a small number of employees. U.S. small business standards vary by state, as well as on an industry-by-industry business. Small businesses are especially popular due to their ease of operation and because certain tax deductions for small businesses are commonly available.

Generally speaking, a small business has less than 500 employees for manufacturing industries and less than $7 million in annual income for non-manufacturing industries. When choosing a business management structure, small businesses commonly operate as a corporation, partnership, or sole proprietorship.

The laws governing small businesses mostly address license requirements related to the type of activity in which the entity engages. Failure to adhere to the legal requirements for small businesses can result in various penalties, such as:

• Fines;
• Jail time; or
• A revocation of operation privileges.

Licensing requirements can be further divided up into Federal, State, and Local requirements.

Federal Small Business requirements:

• Employer Identification Number (“EIN”): Regardless of the size of the business and the number of employees that are hired, most businesses must apply for an EIN to operate legally in the U.S.;
• Health Insurance provisions: If the small business provides health insurance for its employees, the business may be required to obtain a National Standard Employer Identifier (“NSEI”) to monitor electronic health care transactions;
• Intellectual property registration: Federal intellectual property registration is not required but is highly recommended. This is because patents, trademarks, trade names, and copyrights can provide small business owners with exclusive use of intellectual properties; and
• Activity-specific licenses: You may need to contact a federal agency if your small business engages in the following types of federally-regulated activities:
  • Manufacturing prescription drugs and pharmaceuticals;
  • Distributing alcohol, tobacco, or firearms;
  • Preparing meat products;
  • Engaging in broadcast activities; or
  • Providing advice regarding investments.

State Requirements:

• Business Licenses: State business licenses are the main document for tax purposes and other basic business functions. Many states provide small business assistance agencies to help organizations meet state requirements;
• Occupational/Profession-specific Licenses: Some occupational fields require specific licenses. Some examples of this would be physicians, accountants, and auto mechanics. Some professions also require continuing education hours, which are generally completed yearly in order to retain a license;
• Licenses for Product Sales: A state license may be required to sell liquor, gasoline, lottery stubs, or firearms;
• Tax Registration: You may need to register for an EIN or a sales tax license if your state has a state income tax or a retail sales tax;
• Trade Name Registration: You may need to register the name of your small business company, generally with the county in which you are conducting business; and
• Employer Registration: Unemployment insurance contributions are commonly required if the business has hired any number of employees

Local/Municipal Requirements:

• Local licenses: Nearly all business operations require a county or city license, allowing the entity to operate within a given county or city jurisdiction. They may involve a small fee and are relatively easy to obtain;
• Permit Requirements: In addition to state permit requirements, a local municipality may have specific activity-related permit requirements; and
• Zoning Ordinances: Generally, small businesses are only allowed to operate in specially designated commercial zones.

What Else Should I Consider When Starting My Small Business?

In addition to the above requirements, many restrictions are placed on the type of start-up and formation procedures a small business can take. An example of this would be how some learned professions may not be practiced when using the form of a traditional corporation; rather, they must incorporate it by using a modified “professional corporation” form.

Additionally, there are a variety of professional and ethical standards that may relate to your small business specifically. You should ensure that your business operations are conducted according to these standards.

Do I Need A Lawyer For Help With Small Business Law?

If you plan to own, operate, or work in a small business, you should contact a small business lawyer for advice. Your small business attorney will ensure that all the applicable Federal, State, and local requirements are met. Your lawyer will also be able to represent you in court should any legal issues arise.