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6 Legal Considerations for Startups and Solopreneurs

There are several steps to starting a business in Arkansas with legal and compliance considerations being among the most important. Even a minor oversight can result in serious legal consequences that could jeopardize your business before it gets off the ground.

Here are six key legal considerations to think about when starting a business.

1. Choosing the Right Entity

A fundamental part of starting a business is deciding how it should be structured. Whether you choose a corporation, limited liability company (LLC), partnership, or other type of structure, your decision will impact several aspects of your business, including:

  • Liability Protection — Entities like sole proprietorships may let you reap more of your business’s profits, but they could also open you up to personal liability if you are sued or you incur debt. By way of contrast, corporations and LLCs create a legal separation between you and the business, offering more protection for your personal assets.
  • Management and Operations — Do you envision a complex or flat management structure? You will need to decide how much ownership and control of the business you want to keep or whether to hand over a portion of ownership and control to others.
  • Tax Implications* — Businesses are mainly taxed in one of two ways; taxes are either “pass-through” entities or C corporations. Sole Proprietors and LLCs do not pay income tax, and the business’s profits “pass through” to the owner(s) who must file profits as income on their personal tax returns. C-corporations, on the other hand, are taxed on both the business’ profits and dividends the owners receive.

2: Licensing and Permits

You will need to ensure that you have all the proper licenses and permits required by Arkansas law before officially opening your business. Not only does this help you avoid penalties and forced shutdowns, but it also helps you build credibility and trust in your community among prospective customers.

The Arkansas Department of Finance and Administration has a useful online resource that provides more information about permits and licenses for different types of new businesses.

3. Tax Obligations*

Taxes directly impact your business’ bottom line. It’s critical to understand your obligations and how they are levied based on your chosen business structure. Understanding Arkansas’s state tax rates and consulting with your accountant may help you find tax deductions and credits to reduce your liability.

4. Employment and Labor Laws

Employment and labor laws govern your relationship with your employees and dictate things like:

  • Wages and hours, including overtime pay requirements,
  • Hiring practices and anti-discrimination policies,
  • Workplace safety standards,
  • Recordkeeping compliance, and
  • Employee benefits and termination procedures.

Failing to adhere to state and federal regulations can lead to unhappy employees as well as compliance issues that can result in regulatory fines, lawsuits, and even potential business closures. Working with an Arkansas employment law attorney will help you comply with applicable laws and create a safe and healthy environment for your business.

5. Data Protection and Privacy Compliance

You will also be required to take steps to safeguard sensitive information, respect individuals’ privacy rights, and mitigate the risk of data breaches. In Arkansas, businesses are subject to state and federal laws governing data privacy and security, including laws like the Arkansas Personal Information Protection Act (APIPA) and federal regulations like the Health Insurance Portability and Accountability Act (HIPAA) for certain industries.

Compliance with these laws means implementing protection data measures such as encryption and training employees on privacy best practices. The penalties for failing to comply with data privacy regulations can result in financial penalties, reputational damage, and loss of consumer trust.

6: Clear Contracts and Agreements

Legally binding contracts and agreements are often a foundational part of conducting business. Whether governing business relationships, managing transactions, or establishing the obligations of all parties involved, a clear contract eliminates ambiguity and protects both you and your clients or customers. Contracts and agreements reduce the risk of misunderstandings, disputes, and legal conflicts down the line.  Additionally, a well-drafted contract can also help protect intellectual property, allocate liabilities, and outline how disputes will be resolved if a breach or other conflict arises. Even hand-written agreements in Arkansas can be binding, so having an experienced, knowledgeable business lawyer will ultimately help you and your business.

Useful Resources for New Business Owners in Arkansas

Below are some helpful resources for starting a business in Arkansas new business owners will want to take a look at:

Call TLGNWA for Business Law Help Today

Starting a new business can be an exciting venture, but you don’t have to handle all of the decision-making and regulatory requirements on your own. The Law Group of Northwest Arkansas PLLC is here to answer your questions, help you navigate the legal landscape, and get your business up and running as smoothly as possible.

Call IFBYPHONE today or contact us to discuss how we can help.

* The Law Group of Northwest Arkansas PLLC cannot not offer tax advice, but will work with your tax professional to follow their guidance on the best tax election for your business.

Disclaimer: The Law Group of Northwest Arkansas PLLC (TLGNWA) provides general information about a variety of legal issues on this website as a public service. Information contained herein should not be considered legal advice on any specific matter. The use of information and reference links contained in this website do not constitute contractual, de facto, implied or any other form of attorney-client privilege or relationship. TLGNWA is not responsible for the use of information, forms, links, or documents contained in this website.

Due to the frequency and speed of changing laws, no guarantee is made as to the current validity or applicability of the information contained herein. Though we try to update information often, we recommend that readers with questions investigate current law or contact TLGNWA directly through our contact form or by calling (479) 334-3411.