Legal Limitations to Consider When Starting a Business
Every business is essentially a legal entity, with certain rights and obligations that correspond to the type and size of business, its legal business structure, its location, and other distinctions. Some of the more common types of legal restrictions on businesses include professional licensing, permits, zoning ordinances, and surety bonds. It is important that you do your research into these particular restrictions before starting any new business, since a seemingly innocent oversight can result in serious legal troubles.
This article focuses on these legal restrictions. See FindLaw's Starting a Business section for additional articles and resources.
Legal Restrictions on Professionals
Many states permit practitioners of licensed professions (such as law, accountancy, medicine, chiropractic, psychology, dentistry, architecture, and engineering) to elect to practice under any one of three forms of liability-limiting entity: corporations, limited liability companies, and limited liability partnerships.
In states where it is permitted, the professional's interest in practicing through a liability-limiting entity is legislatively balanced against the client's right to redress for professional malpractice. The legislation generally does not affect the professional's liability for malpractice but permits the professional to have limited liability for other debts or obligations of the business. Professional entities incorporated under such laws are governed by the law under which the entity was formed as well as the requirements of the applicable licensing board.
Professionals who wish to practice through a liability-limiting entity should consult a business law attorney who will ensure that they obtain limited liability to the extent possible while meeting the stringent requirements of the professional licensing board.
Special Licensing and Permit Considerations
A new or expanded existing business may be required to obtain business, occupational or environmental licenses or permits. Such licenses and permits are required by federal, state, and/or local laws to serve the following purposes:
- Ensuring the competency of practitioners of a profession or trade.
- Ensuring the safety or effectiveness of a product or service.
- Preventing fraud or ensuring the financial capabilities of the parties to a transaction.
- Controlling the development and implementation of new technologies.
- Ensuring the conservation of natural resources and preventing pollution.
- Controlling access to certain markets or promoting or restricting competition in certain industries.
- Authorizing a business to serve as the state's agent for collection of sales and excise taxes
Many states have a bureau of business licenses which serves as a clearinghouse of information about federal, state and local licenses and permits. Many of these bureaus publish a free directory of licenses and permits which contains a complete list of regulated activities and names and addresses of regulating agencies. In addition to the licensing requirements imposed by the federal government and states, some local governments also require that certain kinds of business activities be licensed on a local level. Local licensure ranges from the filing of a registration form and payment of a small fee to compliance with ordinances specific to the type of business. The licensing department of the municipality where the business is located or intends to conduct business can provide the details.
Local zoning boards or planning commissions should also be contacted early in your business planning to ascertain whether there are any restrictions on business activities at the location where you intend to conduct your business. This is especially true if you intend to operate your business out of your home or are entering a heavily regulated business, such as a medical marijuana dispensary.
State and local governments often require that licensed businesses obtain surety bonds. A surety bond is similar to an insurance policy, guaranteeing the performance of obligations assumed by contract or imposed by law. Businesses that contract with governmental agencies generally must be bonded. Private firms, particularly in the construction industry, commonly require bonding as well.
Get Professional Help From a Business Attorney
The best way to ensure compliance with the various professional, zoning, and other legal limitations on businesses is to work with a qualified attorney. If you need help determining which licenses you need in order to do business, consider meeting with a business and commercial law attorney in your area.