All About Business Law

All About Business Law As soon as you begin a new business endeavor, small or big businesses need to comply with many legalities of running such a business. Entrepreneurs, company owners or directors need to make sure that they do not waste their time in just complying these obligations and focus on growing their business too. These legal obligations include tax compliances, registration of a company, mandatory compliance of labor laws etc.,

If you have an idea, that you want to bring to life. You will have to first make sure that it is legal and in you should also ensure that you are not bypassing any laws. In addition to this, compliance of all legal obligations ensures a smooth functioning and progress of your company. Let us try to learn the same, with the help of this article.

Steps to Creating a Business:

1. Create an LLC or Corporation: You will first need to understand and select the composition of the business. This can either be an LLC or a Corporation. Both have their own merits and demerits.

A Limited Liability Company, or commonly abbreviated as LLC. This safeguards you from any personal liabilities that might be in any way may be imposed on you in certain circumstances. “This means that if your business is sued or if it declares bankruptcy, your personal assets including your home and vehicle won’t be at risk. With a LLC you’ll be able to file your business income as part of your personal income taxes, but you will likely need to pay self-employment tax.”[1]

Then you have something called a A corporation, or C corp, is a company that is legally a separate entity from its owner or owners.[2] These usually offer a greater protection from business liabilities.

Sole Proprietorship: “The simplest structure for a one-owner business is a sole proprietorship. As a sole proprietor, a business owner has relatively few regulatory burdens and a high degree of control and flexibility. There’s no paperwork required to establish a sole proprietorship–it’s automatically created as soon as you start doing business. However, if you’ll be using a business name other than your own name, you’ll probably need to register your business name as a DBA with your state or locality.”[3]

2. Register the Business Name: Registration process is the second step in the process and the most vital one. Your business name should need to reflect your ideas and aspirations. It is even important that you research on whether the name has already been claimed or not by some other business entity. There are four ways to register, and they are listed below:
3. An entity name,
4. Trademark,
5. A DBA (doing business as),
6. Setting up a domain name.

Laws:

In the United States of America, the supreme law of the land is the U.S. Constitution. This will always supersede any other laws that are in existence. In addition to this, the highest legal authority at the federal level is the U.S. Supreme Court. “Federal tax law applies to all US persons, whether citizens, permanent residents, corporations, LLCs wherever located worldwide. Citizens, permanent residents, and corporations are all taxable on their worldwide income, regardless of which state they are resident in. Most business entities are created at the state level, and the laws that regulate corporate governance and shareholder rights are determined by the state of incorporation.”[4]

The Privileges and Immunities Clause (U.S. Constitution, Article IV, Section 2, Clause 1, also known as the Comity Clause) in reference to businesses: “means that a company formed outside the state cannot be prevented from doing business in the state, unless the company intends to perform activities that are illegal within the state. A business entity formed outside the state is called “foreign,” while a business formed under the laws of that state is called a “domestic” business. In practice, the states consider a business formed anywhere outside their borders to be “foreign,” so that from New York’s point of view, a Vermont, New Jersey, Canadian, UK or Indian company are all equally “foreign” and subject to the same laws that admit foreign companies. Therefore, a business is free to find a state with favorable laws for corporate governance, incorporate there, and register to do business in other states.”[5]

Security Regulations: “Securities regulation focuses on how stocks or securities are issued and managed. Specifically, it deals with the Securities Act of 1933, which details, among other points, what a company must do in preparation to offer stocks (initial public offering), and the Securities and Exchange Act of 1934, which created the Securities and Exchange Commission and regulates what companies report and how they manage their stocks after the initial public offering.”[6]

3. Applying for Tax Identification Number: Next step is you must acquire an Employer Identification Number (EIN). This is a must for all entrepreneurs or businesses. For tax purposes, this serves as an identity of the business that is established. “Think of it like your Social Security number but for your business. An EIN can be used for: opening a business bank account, applying for business licenses, and filing tax returns.

To qualify for an Employer Identification Number, you must:

• Operate your business primarily within the U.S. or U.S. Territories
• Have a legal Taxpayer Identification Number (TIN)
• Be the owner
• Complete an IRS Form SS-4

The easiest way to apply for your EIN through the IRS’ website.”[7]

4. Get Business Insurances and create a Business Bank Account: “Business insurance is one of the best ways you can protect yourself from liability. There are a variety of insurance options you can select from, and you should be aware that not all of them are legally mandated. That said, even if it’s not legally required, you should ensure that your business is adequately covered. All it takes is one natural disaster or lawsuit to ring the death knell for your small business. The different types of business insurance for new business owners to consider include:”[8]
5. General Liability Insurances,
6. Product Liability Insurances,
7. Professional Liability Insurances,
8. Commercial Property Insurances,
9. Worker’s Compensation Insurances,
10. Auto Liability Insurances.

Outsourcing “refers to the practice of contracting workers outside of a company or business for work duties or services previously performed by company employees or “in-house”. This practice is also often referred to as offshoring due to the increasingly prevalent use of “non-U.S.” service providers for these outsourced duties. However, strictly speaking, outsourcing can and does refer to the use of contracted labor provided by individuals outside of an organization, but still within the U.S.; whereas when these same services are provided outside the U.S., it is both outsourcing and offshoring.”[9]

Regulations of Outsourcing Transactions: “US federal laws do not specifically regulate outsourcing transactions. Contract law is generally governed by state law, subject to any applicable federal laws (such as laws relating to intellectual property (IP) rights, immigration, export controls and bankruptcy).

Certain industries such as healthcare, finance and insurance are regulated either on a state or federal level or both. These regulations (and related regulatory guidelines) frequently affect the negotiated content of outsourcing transactions to the extent that the outsourced activities implicate regulatory obligations of the entity purchasing the outsourced services. For example, outsourcing transactions involving entities subject to federal financial laws (such as banking laws) may address certain regulatory compliance obligations of the outsourcing customer financial entity if the outsourced functions affect the customer’s ability to comply with regulatory reporting, audit, privacy and data security requirements.”[10]

HR outsourcing “in the U.S.A means you can have staff and a presence in one of the biggest markets in the world, without having to go through the legalities of setting up a separate entity in the country. Many companies use HR outsourcing to grow their businesses in the U.S. and test the market before diving deeper into the market. Additionally, outsourcing HR can assist smaller businesses by avoiding the hassles and manpower needed to manage HR in foreign lands. When you outsource your HR you can ensure your employees can focus on your core business and not administrative tasks. The U.S. especially can be an HR burden due to the different laws and regulations on a city and state level.”[11]

Laws that will govern Outsourcing:

1. Fair Labor Standards Act (FLSA),
2. Occupational Safety and Health Act 1970,
3. Office of Worker’s Compensation Programs (OWCP),
4. Employee Benefits Security Administrations (EBSA),
5. Employee Retirement Income Security Act 1974, for private entities,
6. Family and Medical Leave Act,
7. “Other statutes that may apply to outsourcing transactions by banks, lenders and other financial services companies, and which require them to meet various disclosure, reporting and anti-money laundering requirements, include the:

• Bank Service Company Act.
• Bank Secrecy Act.
• USA Patriot Act and the USA Freedom Act.
• Secure and Fair Enforcement Mortgage Licensing Act.

The Federal Trade Commission (FTC) enforces various consumer protection laws which may apply to activities carried out in connection with outsourcing agreements, including the Fair Credit Reporting Act and section 5 of the Federal Trade Commission Act.”[12]

There is generally not extensive regulation of outsourcing contracts in the US. However, some sectors of the economy, in particular financial services and healthcare, are subject to significant requirements regarding the:

• Safety and soundness of their operations.
• Protection of sensitive personal information of consumers, customers, and patients.

As a general rule, the more sensitive the data involved in an outsourcing transaction, the more closely the parties should examine potential state and federal regulations concerning the protection of such data from unauthorized access and use. Such sensitive information may include data financial accounts and records, healthcare data and healthcare payment data, or data involving protected areas such as race, gender, ethnicity and/or sexual orientation.

Other Laws include:

1. 15 USC Code, Chapter 2A – Securities,
2. 15 USC Code, Chapter 2B – Securities Exchanges,
3. Code of Federal Regulations:
4. 12 C.F.R. – Banks and Banking,
5. 13 C.F.R. – Business Credit and Assistance,
6. 17 C.F.R., Chapter II, Securities Act 1993.

You can find more information on laws mentioned in this article @laymanlitigation.com. The article does not provide legal advice. We encourage or readers to contact us directly to enquire on any further questions.  

[1] https://www.freshbooks.com/hub/startup/starting-small-business-legal-requirements

[2] Ibid.

[3] https://www.forbes.com/advisor/business/small-business-legal-requirements/

[4] https://www.usa-corporate.com/start-us-company-non-resident/state-vs-federal-laws/?cn-reloaded=1

[5] Ibid.

[6] https://smallbusiness.chron.com/us-business-law-17183.html

[7] https://www.briggslawcorp.com/blog/legal-requirements-for-starting-a-small-business/

[8] Ibid.

[9] https://www.hg.org/outsourcing-law.html

[10] https://uk.practicallaw.thomsonreuters.com/3-501-5071?transitionType=Default&contextData=(sc.Default)&firstPage=true

[11] https://nnroad.com/blog/hr-outsourcing-usa/

[12] https://uk.practicallaw.thomsonreuters.com/3-501-5071?transitionType=Default&contextData=(sc.Default)&firstPage=true