legal responsibilities

Legal Responsibilities Business Owners Often Overlook

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Owning a business naturally incurs some legal responsibilities on your part. Moreover, the potential breadth of issues can make it a complex matter.

Learn about the most common ways that business owners get into trouble with the law. Then find out here how you can take steps to protect yourself and your company from penalties and other legal action.

You Have a Legal Responsibility to Satisfy All Compliance Requirements

All businesses must maintain compliance with federal agencies such as the IRS, the SEC, and the FTC. There will always be various filings and disclosures, regardless of the size of your company or the industry you’re in.

If your company operates in certain industries you may also have additional considerations. For example, you might need to comply with environmental regulations or deal with U.S. Customs declarations.

Keep in mind that there are also various state and local agencies that you will have to file taxes with. You might need to collect and pay sales (or VAT) taxes depending upon your location.

You might have a legal responsibility to apply for licenses and other permits in order to keep your business in good standing. These cautions apply to the home state where your business is registered. They also apply to any additional states where the company operates.

Therefore, exhaustively research your specific federal, state, and local compliance issues for your industry. Seek professional help when you need to. Always ensure that you stay ahead of any issues.

It’s simple and easy to use a service to, say, form a corporation in California. It’s just as easy to use that service to make sure you maintain all your annual filings. Defaulting on these can cause you to lose your liability protection.

Enact a Proactive IP Strategy

Intellectual property (IP) can sometimes seems like a nebulous legal area. However, there are two main areas of concern when it comes to your legal responsibilities. That is, you must:

  1. Refrain from infringing on the property of others
  2. Take steps to protect your own assets to the greatest possible extent

There is one important thing you can do to refrain from infringing on others’ property. That is, have all employees who come on board sign an agreement indicating they are not bringing any IP belonging to a previous employer into the company.

Include such IP disclaimers in your pre-hiring package. You’re presumably already conducting a background check and perhaps even a health check.

Naturally, extend this to the protection of your own IP. In other words, protect any of your IP they may be involved with during their employment with you. For this purpose, use non-disclose and non-compete agreements.

You have a crucial legal responsibility to check for existing trademarks, logos, and patents. Moreover, it will be critical for you to conduct these searches before you invest too much of your resources in a new idea. Additionally, as you develop your own valuable IP, you need to act diligently and continuously to protect it.


File for trademarks and apply for patents as appropriate and as soon as possible. This will give you the best legal standing. When you hire contractors, secure in writing that they relinquish all claims to the work they have been paid for.

Especially for startups with partners, be aware that the initial brainstorming among friendly colleagues may turn into lawsuits years later. Take this legal responsibility seriously. Consider that those ideas could make profits for you, but not for those early collaborators who may not be sharing in them. Therefore, secure those IP rights to your company as early in the game as possible.

Exhaust All Avenues to Limit Personal Liability

Owning a business always involves some inherent personal risk. But there are many choices you can make that will ultimately help you limit your liability. The first step is to select a type of business entity that limits your personal liability in the event of financial difficulties. However, keep in mind that you also need a structure that will allow you to retain the ability to operate the organization most effectively.

Whether you choose an LLC, C-Corporation, or other type of entity will depend on the particular aspects of your company and your tax liability. However, you must also ensure that the personal asset protections afforded by your business structure remain valid.

Personal liability protection only goes so far. A court can choose to pierce the veil of this protection if they find evidence of certain illegal or unethical behaviors on the part of company officers.

Some of the basic ways to avoid risking your personal assets as a company owner include maintaining a strict separation between your personal and business lives. Importantly, refrain from sharing assets or commingling funds.

Additionally, make sure that company officers are adhering to their prescribed roles within the organization. They must also observe a sufficient separation of duties.

Other issues you need to be aware of include the appearance of undercapitalization. This can take the form keeping assets off the company books in an effort to avoid seizure due to a lawsuit. Also, be careful never to provide fraudulent information on loan applications or SEC filings.

Understand Your Legal Responsibilities as a Business Owner

Each of the preceding sections addresses some of your legal responsibilities as a business owner. But there are many other ways for you to run afoul of the law and get into a bad situation.

The best thing you can do for you, your family, and your company is to understand all of your legal responsibilities in detail. Then create a dedicated plan for staying on the right side of the law.

No one can be expected to know everything about business law on their own. Therefore, seek out advice from professional services providers such as accountants and attorneys as necessary.

Make sure you have a clear and robust understanding of what you are required to do in order for your company to operate without fear of legal reprisal. Then create and continually revise a strategy to keep you there.