The legal considerations to be made when starting a business include the type of financing (whether loan or equity), structure of business (company, partnership, or sole proprietorship), business naming process, registration, licensing, and employment decisions. These have been elaborated at length in the sections below.
Type of financing
Before a business is started, the first consideration that ought to be made regards the nature of capital obtained for the business. Capital sources for business can come in form of equity or in form of loans. Where funds come in as equity, the provider of the funds becomes a shareholder in the venture entitled to profits and losses as they arise in the course of the business. Loans are funds that are given to be returned later with the specified amount of interest. Loans can vary depending on the sources. Obtaining a loan does not affect the ownership of the business. The loaners obtain full reward by obtaining interest upon repayment. An entrepreneur wishing to retain full ownership of the organisation should choose loans over equity and lean towards less risky forms of loans to avoid the risk of assets being attached.
Structure of the business
Once the funds have been obtained, the next decision is on the structure of the business. The common structures of businesses are sole proprietorship, partnership, and Limited Liability Company. A sole proprietorship is the simplest form of business and is also the easiest to register. One of the considerations to be made when making this choice is on the source of capital. For instance, if capital was obtained from an investor interested in equity, then a sole proprietorship is ruled out. Partnerships are more complex than sole proprietorships. Business regulations stipulate that 2-20 people can come together as partners in a business. In partnerships, liability of the business is shared. The common feature between sole proprietorship and partnership is that they have unlimited liability. This means that the business owners can be help personally liable for the liabilities of the business. In other words, the owners’ assets can be attached to meet the obligations of the business. The company is a complex business structure. The company has a distinct status as a legal person with the ability to hold assets and transact like a natural person. With companies, liability is limited meaning that the business owners can only be liable to the extent of shares invested or pledges made to the company. This implies that in case of insolvency, creditors can only attach assets possessed by the company but cannot extend to go after the shareholders.
The act of naming a business is as legal as it is strategic. Apart from the business logic attached to naming to enable a business be easily identified with in the market, business naming is a legal process. The law prohibits anyone from using a business name that is already in use. Business names are supposed to be unique to ensure that there is no conflict of interest and that customers are not misled. It is also crucial for purposes of identification. To ensure that the business name selected is available, the business owners must conduct a search with the registrar of businesses to ensure that the prospective names are available for use.
Licensing and registration requirements
After a business name has been picked, the registration process is commenced. This culminates into the issuance of registration certificates and the licences needed for operation. The range of licences required are stipulated by law depending on the nature of business that is to be engaged in. Apart from the nature of business, the complexity of the registration process is determined by the business structure. For instance, the requirements are minimal for the sole proprietor who only needs to submit the business name, personal identification and location of the business. Such businesses are registered within a few hours due to their simplicity. Companies on the other hand must provide details of the shareholders, the nominal value of the shares, the shareholding, the list of directors, the memorandum of association and the articles of association. These legal instruments are then scrutinised before registration is done and requisite certificates issued.
Licensing requirements can be different from the normal registration procedures. This depends on the nature of business activity that is to be undertaken. For instance, a minerals’ prospecting company would in addition to being registered obtain licenses from the relevant mining authority to conduct research in designated areas. Similarly, a health facility would require additional licenses from the ministry of health to be able to operate its business. This creates the distinction between registration and licensing. Registration affirms the legal existence of the entity while licensing grants permission to engage in the requisite business activities. Before one opts to start a business, they must consider the rigours of registration and licensing and where possible alter their plans to engage in businesses where licensing is not restricted.
Upon the registration and licensing, the next step is to start operations. The employees are a crucial part of any operations. Knowledge of the legal provisions regarding minimum wage levels, protection from discrimination, provision of good working environment and other aspects of the labour laws ought to be noted and adhered to. Noncompliance could result in penalties that could render the new business bankrupt. Besides, it is important to evaluate the different types of employment that are legally allowed. The choice between contracts, casual labour, and permanent employment terms should be weighed before a final decision is made. Legal provisions can also be applied in regulating activities such as marketing and management of supplier relationships.
Understanding the legal provisions that are applicable in any business is crucial for success. That is why a legal analysis of the entire process of starting a business starting from the obtaining of capital to the actual commencement of operations should be done to ensure that there is full compliance.
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Fletcher Anthony C and Bourne Phillip E, ‘Ten Simple Rules for Starting a company’ PLos Couputational Biology, 8.3 (2012), 1-3
Gibbons F. Clifford and DeSimone Rebecca A., How to start a business in new Jersey (Naperville, IL: Sphinx Publishing)
Harris Tom, Start-up: a practical guide and running a new business (New York: Springer Berlin Heidelberg, 2006)
Martin Charles L., Starting your new business: a guide for entrepreneurs (Menlo Park, CA: Course Technology/Cengage Learning)
Sharma N.K., Modern Business Law (Jaipur, IND: Global Media, 2008)
 Tom Harris, Start-up: a practical guide and running a new business (New York: Springer Berlin Heidelberg, 2006), 89.
 Ibid, 90; Charles L. Martin, Starting your new business: a guide for entrepreneurs (Menlo Park, CA: Course Technology/Cengage Learning), 81.
 Charles L. Martin, Starting your new business: a guide for entrepreneurs (Menlo Park, CA: Course Technology/Cengage Learning), 1
 Ibid, 10.
 F. Clifford Gibbons and Rebecca A. DeSimone, How to start a business in new Jersey (Naperville, IL: Sphinx Publishing), 50.
 Anthony C Fletcher and Phillip E Bourne, ‘Ten Simple Rules for Starting a company’ PLos Couputational Biology, 8.3 (2012), 2.
 F. Clifford Gibbons and Rebecca A. DeSimone, How to start a business in new Jersey (Naperville, IL: Sphinx Publishing), 43.
 Ibid, 45.