Too often, entrepreneurs take a reactive approach to reviewing the legal aspects of their business. But that can lead to avoidable liability risks, missed opportunities, and a less-than-ideal tax scenario. When business owners adopt a “don’t fix it unless it’s broken” mindset, they may not recognize ways they can improve their business.
On the other hand, entrepreneurs who do a midyear legal checkup gain the insights they need to make informed decisions about their business entity type, tax election, and more. In this post, I’ll share some legal considerations worth looking at—and asking an attorney for guidance about—to ensure your business stays on the most successful path.
1. Is your business structure still the right choice for your company?
Many businesses begin as one type of business entity type, and then as they grow and become more complex, they discover a different structure will better suit their needs. For example, often one-person businesses begin as sole proprietorships to keep administration simple and compliance responsibilities minimal, but as they hire employees, expand services, and gain more customers, they opt to form an LLC or incorporate to obtain liability protection, tax flexibility (e.g., S Corp election), and more funding opportunities (e.g., attracting investors or being able to sell stock).
2. Does it make sense to broaden your horizons into another state (or states)?
Perhaps your business has proven itself in your current market and you find you will need to expand to grow. Maybe extending your products or services to another state (or multiple states) is the answer to building upon your success. Before acting, it’s critical to research which state(s) will offer you the most opportunities. It’s also essential to consider whether establishing a new entity or foreign qualifying your existing entity in the new state will benefit you the most.
3. Is the time right for expanding your portfolio of products and services?
If adding a new line of business has been on your wish list, but the regulatory climate or other factors were keeping you from taking the plunge, reassess your situation. If the barriers to entry have gone away, now may be the time to pursue your vision.
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4. Do you need more hands on deck to get the job done?
Honestly assess your staffing situation. If you and any existing employees or contractors are overworked and overwhelmed, maybe you should consider adding more staff or hiring additional vendors to keep up. If insufficient human resources are causing you to miss out on opportunities, preventing you from providing exceptional customer service and support, or otherwise detracting from your company’s success, you will want to address the issue sooner rather than later. Likewise, evaluate the team you have in place and identify where professional development is needed to bring lackluster performers up to speed.
If this will be your first time hiring employees, make sure you understand the laws regarding job applications, interviews, drug testing, etc. There are federal and state laws that you will need to abide by during the hiring process and beyond.
5. Are you on top of all your business compliance responsibilities?
Running a business comes with ongoing legal obligations. The specific responsibilities and when they must be taken care of will vary according to where a company is located and its business structure. Many states require LLCs and corporations to submit annual reports, and corporations (even some LLCs) must hold annual meetings. If any changes have occurred concerning the company name, business address, board of directors membership, management format, type of stock issued, or other significant modifications, a business must report them to the state.
Also, many licenses and permits (such as local business licenses, sales tax permits, health permits, professional licenses, etc.) must be renewed. And, of course, it’s critical to file and pay taxes on time. Midyear is an ideal time to verify that you’re caught up on anything that was due earlier in the year and prepared for anything that you must do in the near future to stay compliant and in good standing.
Where to turn for advice
As you work through this checklist, consider asking an attorney and accountant for guidance to help ensure you’re making the best decisions for your company and doing what you must to keep your company legally intact. The more expert insight you have, the better you’ll be positioned to move your business forward.
RELATED: Why Every Small Business Needs an Attorney
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