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10 Legal Myths About Starting a Small Business

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A majority of people who intend to start a new commercial venture have misconceptions about the related legal aspects which results in creating problems for them in the future. It is vital to have correct information regarding these matters in order to prevent costly mistakes. Some common legal myths about starting a business have been listed here along with the right information for the benefit of every entrepreneur. You need to think first that what business should be the right choice for you.

Myths About Starting a Small Business

1. No Registration Is Needed For A Small Business

This statement is true for sole proprietorship which do not need to register themselves with state authorities but it does not mean that they do not require any other compliance. Licenses, permits or zoning clearances may be needed to be obtained according to the nature of the business in order to formalize its operations. Any other type of organization like a corporation needs to get the selected format authorized at the appropriate local agency.

2. Small Enterprises Get Automatic Tax Breaks

Small businesses have been provided a number of convenient deductions related to travel, home office, office supplies etc. but an owner needs to prove the veracity of all the claims to the authorities while filing the returns. It is mandatory to prove to the tax administrators that the enterprise is a business organization and its size qualifies it for the tax breaks

3. Personal Assets Are Completely Safe After Registration

Most people when starting a business choose the Limited Liability Corporation type for their entity as the format provides for safety for personal property in case of an eventuality like payment of debts. There are certain situations, though when this protection cannot be enjoyed like when the owner has co-signed or personally guaranteed a debt. Similarly if a personally owned asset like estate has been pledged as collateral for a loan, then the property can be seized for settling the outstanding amount.

4. No IP Protection Is Necessary

One of the biggest legal myths about starting a business relates to Intellectual Property (IP) rights and most owners do not understand the financial implications of not knowing about them. It is necessary to protect the logos and other signs through trademark registration and any creation or process developed at the enterprise by patent or copyright incorporation as not doing so will result in their unauthorized use and loss of money.

5. Contracts Are Needless Between Friends

A lot of people set up a business with friends or acquaintances without doing the required paperwork and find themselves in trouble afterwards, in case the relationship sours. It is essential to draft a formal contract containing all the key points of the general agreement you have decided upon so that there is no scope left for any conflict in future.

6. It Is Mandatory To Provide Insurance To Employees

Government rules require that an employer hiring more than 50 people has to pay for their group and health insurance but smaller organizations, which have less than 50 members on their payroll, need not do so. This is a big relief for low scale enterprise owners as the measures though beneficial to the employees would have eaten into their already meagre profits.

7. Bankruptcy Gives Immunity From All Debt Payments

The bankruptcy law does ensure that a person is free from a number of payment obligations but there are still some debts that he/she has to pay in one from or the other. There are conditions laid out for each type of bankruptcy and there are specific limitations to the protection enjoyed by an individual. Tax obligations need to be fulfilled and it cannot stop a secured creditor from repossessing a property that the person cannot afford.

8. Social Media Policy Is For Large Corporations

Big commercial organizations have a detailed policy for their employees about what they can post and share on official social channels. Many startups feel that there is no need for them to formulate such documents as they are small in size but an irresponsible comment can do irreparable harm to the firm and may lead to a legal issue therefore making it necessary to have one in place.

9. Online Enterprises Do Not Need To Pay Taxes

As long as an entity is indulging in a commercial activity aimed at generating profits, taxes will be charged on it and internet based businesses are no different. Income and employment tax besides the sales tax (wherever specified) collected from various transactions needs to be paid.

10. Any Legal Or Other Professional Advice Is Unnecessary

The earlier this notion is discarded the better as without the requisite professional help, chances of landing in trouble increase which will always be detrimental for a new entity. Hire competent legal and accounting professional before starting the venture to get good advice on all the issues and then devise a suitable business plan accordingly.


Starting a new business can be an enriching and fulfilling experience leading towards economic prosperity but it needs an informed mind to make a good start and these legal myths about starting a business have been exposed so that an entrepreneur gets the right information for beginning a small business.

Author Bio

George Dille is a Business Expert by profession who provides registration of a private limited company at BusinessVenturesIndia Ltd. He has a passion of creative and technical writing and always lookout for learning something new.

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