You have an awesome business idea. You believe it will take off and prosper. You are energetic and excited about the future. You are ready to make your move.

Not so fast. Before you expose your new product or service to the world, it is best to chart a careful course on a legal roadmap showing entrepreneurs the way. Why? Because the importance of compliance – and the consequences of noncompliance – can make or break you.

“Keep your business compliant with state and federal business laws,” the U.S. Small Business Administration (SBA) says. “Your legal responsibilities will depend on your business and location. To stay legally compliant, you’ll need to meet external and internal business compliance requirements. Most external requirements involve filing paperwork or paying taxes with state or federal governments. Internal business requirements are for your own record keeping. You should document your compliance with internal requirements closely with company records. You might need them when you decide to sell your business or if a legal action is taken against your business.”

In this blog post, key areas that will be covered are:

  • Business formation and structure
  • Essential legal contracts and agreements
  • Intellectual property protection
  • Regulatory compliance and licenses
  • Employment law and human resources
  • Risk management and dispute resolution

Business Formation and Structure

Several types of business entities exist to help you succeed and thrive. The most common are limited liability companies (LLCs) and C corporations. How do they differ, and what are the pros and cons?

“Corporations have the strictest internal requirements,” the SBA says. “Corporations should hold initial and annual director and shareholder meetings, record their meeting minutes, adopt and maintain bylaws, issue stock to shareholders, and record all stock transfers. LLCs have less strict internal requirements. However, they are generally advised to maintain an updated operating agreement, issue membership shares, record all membership interest transfers, and hold annual meetings.”

LLCs are entities that are separate from their owners. The entities, not the owners, are responsible for liabilities such as debt. That means creditors are barred from going after owners’ assets if money is owed. Costs are involved, however. Initial filing fees vary by state, and annual fee are charged as well.

One of the pros of a C corporation is that there are no limits on the number of shareholders, and they do not have to be U.S. citizens. One of the cons is that both the shareholders and the corporations are subject to taxes.  However, by electing to be treated as a subchapter S corporation (tax treatment elected by timely submitting IRS Form 2553), the owners of the corporation can elect for the entity to be disregarded for tax purposes thereby avoiding potential double taxation as is commonly the case with C corporations.  Both LLCs and C corporations can elect to be treated as a subchapter S corporation for tax purposes.

A sole proprietorship is another choice. It is an unincorporated entity that is solely owned.

“A sole proprietorship is the default choice for anyone who runs a business but hasn’t set up another formal business structure like an LLC,” according to Forbes. “As a sole proprietor, there’s no separation between your personal and business assets and expenses. You are personally responsible for all your business’s debts and obligations. If you take on a business partner, your unincorporated business will become a general partnership. Individuals that do a lot of contractual work, such as freelancers, consultants and personal trainers often choose to file their taxes as sole proprietors. This is the easiest way to go if you’re just starting out or you’re not yet making enough profit to justify the costs of an LLC. However, even if you’ve been in business for decades, a sole proprietorship may still be the best option, depending on the type of business you run. It’s all going to depend on your income, business type and your personal management preferences.”

Essential Legal Contracts and Agreements

The steps involved in forming a business include submitting proper paperwork, obtaining necessary licenses and, in some cases, appointing officers to a board. Non-Disclosure Agreements (NDAs), founder’s agreements, client / customer contracts and independent contractor agreements are to be written for protection’s sake. An NDA protects confidential information by forbidding parties involved from discussing trade secrets or the like. A founder’s agreement hashes out details regarding ownership percentages, vesting schedules, decision-making and dispute resolution among shareholders. A client contract spells out in black and white your business policies so everyone you serve knows what to – and not to – expect. A customer contract is similar in that it sets expectations, but it additionally provides guidance for customer dissatisfaction. Then there is the independent contractor agreement.

“There are many situations in which a business will want to engage the services of an independent contractor instead of hiring an employee,” a post on the Ironclad website states. “In these situations, both parties must sign an independent contractor agreement. Independent contractor agreements can receive increased scrutiny from government agencies, so you must draft them carefully to obtain the full advantages of the agreement. You need an independent contractor agreement when you want to hire a contractor to perform work for your business. Many important services can be obtained by hiring a contractor instead of an employee.”

Intellectual Property Protection

Copyrights, patents and trademarks ensure that intellectual property, whose monetary value knows no bounds, is safe.

“Intellectual property is a broad categorical description for the set of intangible assets owned and legally protected by a company or individual from outside use or implementation without consent,” according to Investopedia. “An intangible asset is a non-physical asset that a company or person owns. The concept of intellectual property relates to the fact that certain products of human intellect should be afforded the same protective rights that apply to physical property, which are called tangible assets.”

To register for a copyright, go to the U.S. Copyright Office at To register for a patent or a trademark, go to the United States Patent and Trademark Office at

Other Important Considerations

The last three key areas – regulatory compliance and licenses, employment law and human resources and risk management, and dispute resolution – can be complicated and cumbersome. No matter, they are important aspects of business law compliance that must be followed and adhered to in order to stay above board. Here are some examples:

  • Industry-specific regulations: Different industries, e.g., healthcare, finance and technology, have different regulations. It rarely is a “one-size-is-applicable-to-all” scenario when it comes to protocols.
  • Business licenses and permits: Entrepreneurs must learn how to navigate through the process of obtaining business licenses and permits to legally operate their establishments.
  • Environmental regulations: In an era of green initiatives, environmental regulations await behind every corner – and for good reason.
  • Hiring and onboarding: Antidiscrimination laws, background checks and I-9 verification – a process that aims to allow immigrants to work in United States – should be followed and carried out meticulously.
  • Insurance: It is imperative that you have insurance for your business including but not limited to general liability and professional liability.

The goal of everything covered in this blog post is to stop legal issues from cropping up when they can, instead, by avoiding them altogether. Rodriguez-Albizu Law is here to guide you.

“The firm offers small and mid-size companies affordable legal counsel to those organizations who do not have the resources for an in-house legal team,” the team’s website states. “Many challenges come from starting and growing a business, it can be difficult to get everything right all of the time.”