Top Five Legal Challenges Faced by Small Businesses in Georgia

Sadly, there’s no handbook out there for a new business, but that doesn’t mean we can’t get you a handOUT! In all seriousness, though, I’ve been taking care of businesses for 14 years now, and I’ve seen some things–below are the top 5 tips I’d give to new business owners!

Choosing the Right Business Structure (and Setting It Up Correctly!)

Most new businesses will want to be limited liability companies, or “LLCs,” since this gives you all the perks in a nice tidy package: 

• Limited Liability: If something goes wrong with your company, the liability for that issue (lawsuit) ends with your company. Importantly, it does NOT creep into your personal bank accounts or take your house (at least, it won’t as long as you set the business up correctly, but we’ll get into that later). 
• Healthy Tax Treatment: By default, LLCs have what is called “pass-through taxation,” meaning that the owner(s) is taxed only once on the profits of the business. This is quite different from suffering from “double taxation,” where a corporation is taxed on its own profits, and then when it distributes those profits to the owner(s), the owner(s) gets taxed as well–a second time! There are circumstances where this double taxation results in less overall taxes that need to be paid, but those are the exceptions to the rule. 

Set your business up correctly! Every state has different laws and requirements, and if you miss any of those requirements (which non-attorneys tend to do) then you risk losing your company altogether, and even losing your other property (house, car, other investments, etc.). The risks are real, and you can’t “go back” and fix them later–they have to be handled correctly from the jump, so it’s worth it to hire a professional to get it done. 

Protecting Intellectual Property 

If your company owns any unique Intellectual Property (IP) then you have to lay claim to that property, legally! Let me tell you what that means: 

• Trademarks and Brands: If your company has a brand name (such as Delta or Nike) your company is not the de facto owner of that brand unless you have an attorney register it with the USPTO. Perhaps more importantly, a professional will analyze everything that’s out there–all the brands that are the same or similar to yours–and get you a report on whether it’s available to you or  not. If, sadly, someone else is using that brand name and the attorney believes it’s too similar of an industry as yours, you may have to adjust the brand name or go back to the drawing board altogether. Your business needs to be efficient with every dollar it spends. It’s one of my most dreaded phone calls when I have to call a client that has already spent tens of thousands of dollars on marketing (websites, handouts, tee-shirts, product labels) to tell them it’s been for a brand that is not available. Please, please, please hire an attorney first, before you spend money on marketing! 
• Software and IP that you develop (such as Copyrights): If your company is selling books, video, or software, that IP needs to be protected, as well. The IP that you (and your partners, if any) created needs to be transferred to the company, so that there’s no argument later about who owns what. These small points cost partners millions down the road if they don’t handle it up front. Further, if you have designers or developers that worked on your company’s IP at all, you have to have a contract with them that appropriately grants that IP to your company. Without it, those employees/contractors can take the legal position that they still own it, and essentially sue to make you pay far more than what you originally paid them, for what you should have owned in the first place. 

Employee Classification: Are They Partners?

One of the most common startup land mines I see is when workers are told that they will own some of the company (or even if it’s just implied). As you can see here, taking on business partners is a big deal and it’s rife with problems. If it is not your intention to give ownership to workers (which is fine, of course) you need to put this in writing and they need to sign it. 

Another big issue is employee misclassification. Are they being paid as gig workers when in fact they’re working like full time employees? I’ve seen hundreds of well-intended startups crash and burn from just neglecting to classify their workers correctly. Attorneys can help you with this, but it’s a murky and vague “factor based test,” to figure out how you should compensate employees. 

When in doubt, call an attorney that has experience in this realm!

Taxes 

In our recent article on choosing the right business structure, we get into the different tax treatments for different types of companies. Another issue, though, is how much you and your business partners (if any) will be expected to pay, and when. Run through some scenarios and contingencies with your CPA early on and loop your lawyer in, so that everyone’s on the same page! It’s a huge leap from getting paid as a W2 (where your tax payments are automatically withheld and you expect a tax refund) to being taxed as a business owner (when you have to PAY taxes on everything you’ve scraped together in your business’s first year, even though you probably haven’t been making tax withholdings!). Be prepared!

Workers’ Compensation

This can be a very expensive problem–if one of your employees gets injured on the job, but it’s an easy fix if you get in front of it. Call up a commercial insurance broker, if you need one we’d be happy to send you some! They’ll be happy to walk you through the insurance, how to get it bound, and what all you need (or don’t need) at the various stages of your business’s growth. 

Schedule a Consultation with a Seasoned Georgia Small Business Attorney

Starting a business comes with enough unknowns—your legal and financial foundation shouldn’t be one of them. The good news? You don’t have to figure it all out alone. Whether you’re just getting started or trying to clean things up before they become costly problems, having the right team in your corner makes all the difference. If you want to build your business the right way from day one (and avoid those painful “I wish I knew that earlier” moments), reach out to Sparks Law today and schedule a consultation—we’d be happy to help you get set up for long-term success!