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:

• Arkansas Secretary of State – Business & Commercial Services: provides information on forms, guidelines for compliance, and business formation, including registering a business entity.
• Arkansas Attorney General’s Office – Business & Consumer Division: provides information about Arkansas’ consumer protection laws and business licensing requirements.
• S. Small Business Administration (SBA) – Arkansas District Office: provides counseling and connections to funding programs, federal contracting certifications, and other community groups to help your small business succeed.
• Arkansas Small Business and Technology Development Center (ASBTDC): offers confidential consulting, market research, and educational events to help your business succeed.

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 479-316-3760 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.