Starting a business can sound like a pretty daunting task. It's true, there are many things to consider such as how your business is structured, contracts, and insurance. Below is a quick breakdown of specifics you will need to start a business. For this example, we have consulted with a Pennsylvania business attorney with regards to starting a business in the commonwealth state.
First and foremost you need to:
Choose the right business structure
Selecting the appropriate legal structure for your business is crucial for minimizing risk and liability. In Pennsylvania, common business structures include sole proprietorships, partnerships, limited liability companies (LLCs), and corporations. We've gone more in depth on those structure in our Legal Handbook for Starting and Running a Small Business.
Essentially, each structure has its own advantages and disadvantages, so choosing the correct structure is paramount. If you're still not sure, consult with a business attorney.
Develop sound contracts
Written contracts are essential to protecting your business interests and minimizing legal disputes. Whether you're entering into an agreement with a supplier, vendor, customer, or employee, it's important to have a clear, comprehensive contract that outlines the terms of the agreement, including payment terms, delivery dates, and dispute resolution mechanisms.
Here are 3 of the more important contracts to consider:
Partnership Agreement: If you are starting a business with one or more partners, you may need a partnership agreement that outlines each partner's roles and responsibilities, profit-sharing arrangements, and how decisions will be made.
Operating Agreement: If you are forming a limited liability company (LLC), you may need an operating agreement that outlines how the company will be run, including how profits and losses will be shared, how decisions will be made, and what happens if a member leaves the company.
Exit Strategy: A business exit strategy outlines how a business owner or investor intends to exit or sell their ownership stake in a business. It’s essentially a roadmap that lays out the steps and actions necessary to leave a company and realize the maximum possible value of the business. We have a whole chapter dedicated to it in our handbook.
Protect your intellectual property
If your business relies on products or services that are distinct to your operation, such as trademarks, patents, or copyrights, it's important to take steps to protect that property.
And with the advent of AI technology, it's appropriate to wonder whether certain intellectual property laws pertain to ideas that may have been discovered using it. Below is a quick breakdown:
Can I trademark or copyright ideas that came from ChatGPT or Open AI?
You may think that ChatGPT just gave you a one in a million business idea, but think again. ChatGPT or a similar open AI platform is not capable of inventing new ideas or concepts on its own.
Why is that?
Open AI was created to process and generate responses based on the input provided by the user. Therefore, any "original ideas or concepts" that may be expressed through AI responses are ultimately the property of the person that provided the input.
If you, as the AI user, have created an original idea or concept that you would like to protect, you may be able to obtain intellectual property protection through a trademark, or copyright, depending on the nature of the idea or concept. However, it's important to note that obtaining intellectual property protection can be a complex process and requires meeting certain legal requirements. We would recommend consulting with an IP attorney who is experienced in intellectual property law to determine the best course of action for protecting your idea or concept.
Comply with regulations
As a business owner, you must comply with a wide range of federal, state, and local regulations, including tax laws, employment laws, environmental laws, and more. Noncompliance can result in costly fines and legal penalties, so it's important to understand your obligations and take steps to ensure compliance.
What are the most important regulations to consider when starting or running a business in Pennsylvania?
The best advice would be to consider every business regulation as important, but of course, some could be considered more important than others. For example:
Businesses need to obtain various tax IDs, such as an Employer Identification Number (EIN) or a sales tax license. Business owners should consult with a tax professional to ensure compliance with tax laws and to minimize tax liability.
If your business has employees, you must comply with Pennsylvania-specific employment laws such as the Pennsylvania Minimum Wage Act and the Pennsylvania Human Relations Act. Federal laws that PA business owners need to adhere to include the Americans with Disabilities Act (ADA), Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA). We've included links to each act above.
Business licensing and registration
Depending on the nature of the business, Pennsylvania may require business owners to obtain certain licenses or permits, such as a local business license or a professional license.
What are the specific business licenses and/or permits I need to get to start or run a business in PA?
It all depends on the nature of your business, your location, and other factors. However, here are some common licenses and permits that many businesses in Pennsylvania may need to obtain:
Pennsylvania Business License: This is all dependent on your business structure. You can read more on the specific structure best suited for your business here.
Local Business License: Some cities or counties in Pennsylvania may require businesses to obtain a local business license. Check with your local government to determine whether this is required for your business.
Below are a few cities in Pennsylvania that require a local business license:
Philadelphia: All businesses operating in Philadelphia must obtain a Commercial Activity License (CAL).
Pittsburgh, Allentown, Erie, Reading: Businesses operating within these cities must obtain a Business Privilege License (BPL).
Professional or Occupational License: Some professions or occupations in Pennsylvania may require this license. These may include doctors, lawyers, accountants, and others.
Data privacy laws
With the increasing prevalence of data breaches and cyber attacks, Pennsylvania businesses must comply with data privacy laws to protect sensitive customer information. The Pennsylvania Data Breach Notification Act requires businesses to notify customers in the event of a data breach.
There have been several businesses in Pennsylvania that have experienced data breaches and had to notify their customers. One of the most egregious examples came from a 2014 breach at the University of Pittsburgh Medical Center.
Essentially, UPMC experienced a data breach in which the personal information of approximately 62,000 employees, including names, birth dates, Social Security numbers, and tax information, was stolen. UPMC notified affected employees of the breach and offered free credit monitoring and identity theft protection.
In late 2018, the Pennsylvania Supreme Court decided that employees may sue employers for the release of stolen confidential employee data. The Court’s decision in the Dittman vs. University of Pittsburgh Medical Center, allowed UPMC employees to bring a class action lawsuit for negligence. Read more about the fallout and impact written by attorney Thomas D. Rees here.
Talk with a business attorney who can give you the right answers
It's important to note that this is not an exhaustive list of regulations that may apply to your business. Depending on the nature of your business, there may be additional regulations that you must comply with. Working with an experienced business attorney and other professionals can help ensure that you are aware of and compliant with all relevant regulations.
The above information is not to be taken as legal advice.