7 Legal Terms That Small Business Owners Need to Know

[This article was written by Jason O’Leary.]

One important part of being an entrepreneur is knowing the law that surrounds small business ownership. Of course, having a lawyer on your side is always a good idea (and sometimes essential)—but the more you know about the basics of business law, the better prepared you’ll be to handle challenges that might arise.

These seven terms cover several key concepts of small business ownership. Some are employment laws you’ll need to follow and some are legal procedures you’ll want to be familiar with. What they all have in common is that they’re required knowledge for owning a successful small business that always fulfills its legal obligations.

1. Articles of Incorporation

If you’re creating your business as a corporation or LLC, filing articles of incorporation with state and federal business authorities is one of the first steps to making your business a reality. The AoI provide the legal foundation for how your business is organized, regulated and managed.

Every state has slightly different laws regarding what you need to include in AoI. Most, however, will need the following, among others:

  • The name and/or DBA of your business.
  • Registered agent’s name and address.
  • The type of corporate structure (such as a for-profit, non-profit, professional, etc.).
  • Board of directors’ names and addresses.
  • What type of shares are being issued, and how many.

If you’re establishing other kinds of businesses, such as a sole proprietorship, your paperwork will be much simpler—but you’ll still be required to file it, so make sure to check with the Office of the Secretary of State in your state.

2. Fair Labor Standards Act (FLSA)

The FLSA, first enacted in 1938, is one of America’s first and most important labor laws. You’re probably familiar with many of its key provisions, such as:

  • Establishing a minimum wage.
  • Prohibiting child labor.
  • Requiring time and a half pay for overtime.

The U.S. Department of Labor has plenty of resources available to help business owners ensure that they’re complying with the FLSA. Remember also that your state and municipality probably have additional labor laws that you’ll have to follow as well, such as a higher minimum wage.

3. Surety Bonds

 Surety bonds are a term you might not have heard before if it’s your first time owning a business. They’re a type of bond that business owners buy to guarantee that they will comply with all relevant legal and ethical standards.

Common types of surety bonds include:

  • Construction contractor license bonds.
  • Motor vehicle dealership bonds.
  • Mortgage broker bonds.
  • Business bonds.

Surety bonds are available online, and rates are usually determined by the buyer’s credit score. If you’re unsure whether your business needs a surety bond to operate, check with your state’s Department of Labor or Secretary of State.

4. Family and Medical Leave Act (FMLA)

 Businesses need to make sure that their employees are able to care for their families and take time off when difficult medical circumstances arise. That’s why the U.S. has the FMLA, which requires that you provide 12 weeks of paid family and medical leave per year for most full-time employees who have worked for you for at least a year.

Not all businesses are covered under the FMLA. If your business has fewer than 50 employees, as many new businesses do, you may not have to follow all of its provisions. However, again, it’s important to check state and local regulations, as well as to consider the substantial benefits of paid medical leave for employee performance and well-being.

5. Americans with Disabilities Act (ADA)

 The ADA is one of the most important laws regulating all kinds of businesses in the U.S., and it’s one of the most frequently litigated. It protects people with disabilities from discrimination in many aspects of life, including employment. That means that, among other provisions, employers have a duty to provide what the law calls “reasonable accommodation” for people with disabilities in hiring and employment, and that job candidates don’t have to disclose medical information about their disabilities during the hiring process.

ADA compliance can be tricky because the law rests on highly subjective terms like “undue hardship” and “reasonable accommodation.” Start with the Equal Employment Opportunity Commission’s guide to ADA basics, and make sure to seek advice from an employment law expert any time you’re in doubt.

6. Alternative Dispute Resolution (ADR)

 ADR is a collection of methods and legal practices that can help save time and money by resolving a dispute outside of a traditional courtroom trial. Some are legally binding, while others leave the option open for a later trial if a conclusion can’t be reached. Major types of ADR include:

  • Arbitration: Both parties take their case before a neutral arbitrator, who makes a decision. Arbitration can be binding or non-binding.
  • Mediation: A non-binding type of ADR in which a trained professional mediator helps guide the parties to a solution.
  • Early Neutral Resolution: Both parties present their cases before a neutral evaluator who advises them on their relative strengths and weaknesses, as well as how a judge or jury would likely rule.

7. Harassment Policy

Workplace sexual harassment has gotten a lot of attention recently, and it’s more essential than ever that you keep it out of your small business. That’s why it’s critical to have a harassment policy in place and to enforce it rigorously.

Writing a sexual harassment policy for your workplace should be done with the aid of a lawyer, and the policy should include:

  • Declarations of purpose and the rights of employees to work without being harassed.
  • Procedures for filing and investigating sexual harassment complaints.
  • Types of behavior that are defined as sexual harassment.
  • Disciplinary procedures for employees who engage in harassment, up to and including termination.

 By learning the basics of small business law, you’ll empower yourself to make better decisions for your business. That doesn’t mean that you should go it alone, without a lawyer. But part of entrepreneurship is accepting the responsibilities of being the captain of the ship, and you’ll be better prepared to navigate the legal rocks and shoals if you know where they are!

Author Bio:

Jason brings 15 years of deep technology, product development, and marketing experience to SuretyBondsDirect.com. He has been leveraging Agile practices for well over a decade and is versed in various Lean practices as well. A veteran of the San Francisco / Silicon Valley technology scene, Jason now makes his home in Charleston, South Carolina with his wife and 3 children.



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