Introduction
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[1].
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[2].
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[3].
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[4].
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.
Business
name
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[5].
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[6].
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.
Employment
decisions
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[7].
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[8].
Legal provisions can also be applied in regulating activities such as marketing
and management of supplier relationships.
Conclusion
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.
Bibliography
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)
[1]
Tom Harris, Start-up: a practical guide
and running a new business (New York: Springer Berlin Heidelberg, 2006),
89.
[2]
Ibid, 90; Charles L.
Martin, Starting your new business: a
guide for entrepreneurs (Menlo Park, CA: Course Technology/Cengage
Learning), 81.
[3]
Charles L. Martin, Starting your new
business: a guide for entrepreneurs (Menlo Park, CA: Course
Technology/Cengage Learning), 1
[4]
Ibid, 10.
[5]
F. Clifford Gibbons and Rebecca A. DeSimone, How to start a business in new Jersey (Naperville, IL: Sphinx
Publishing), 50.
[6]
Anthony C Fletcher and Phillip E Bourne, ‘Ten Simple Rules for Starting a
company’ PLos Couputational Biology, 8.3
(2012), 2.
[7]
F. Clifford Gibbons and Rebecca A. DeSimone, How to start a business in new Jersey (Naperville, IL: Sphinx
Publishing), 43.
[8]
Ibid, 45.
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