5 Laws All New Black Entrepreneurs Should Know

black entrepreneurs

Small businesses drive the American economy.  Despite their importance, the number of Americans starting businesses has declined over the past thirty years.   Though fewer Americans are starting businesses overall, people of color are opening businesses at a record-breaking pace.  The United States Black Chambers of Commerce states, “In 2012, there were 1.9 million Black businesses. In Fall 2015, there were over 2.6 million.”   Because August is Black Business Month, this post will cover the laws that new black entrepreneurs should know before taking the plunge into self-employment.

A new business must comply with many laws before opening.  This post will primarily focus on federal regulations.  However, budding entrepreneurs should note that their businesses may also be governed by state and local laws.

Getting Started

While this may seem like a no-brainer, it must be said:  Before opening a business, ensure that you have any licenses necessary before providing services to the public.  Even if you think you know what you are doing, you may be cited or fined for plying your trade without a license.  For instance, some states require cosmetology licenses for hair braiders.  Though many experts agree that braiding and other forms of hair styling are radically different, many states still require new and experienced braiders to get cosmetology licenses.  Before opening a business, make sure that you have the proper qualifications.

The initial license is only the first step.  Most states require businesses to register with the appropriate agency.   Moreover, certain business activities – such as serving alcohol or providing transportation – may require additional licenses.  There are also laws about where business permits, registrations, and licenses must be displayed on the premises.  As you make your opening day checklist, make sure your business is properly registered.  You will also need to decide what type of business you want to operate.  If you decide to incorporate or start a limited liability company, you will need to file additional paperwork with the appropriate office.

Hiring Employees

Most businesses require multiple employees to function.  Perhaps for this reason, no area of the law is more complex for new businesses than employment law.  Several federal laws govern relations between employers and employees.

Federal laws govern employees from the beginning.  First, laws dictate who can be hired.  According to the federal Immigration and Nationality Act, all persons employed by American businesses must be eligible to work in America.  Small businesses must comply with this law as well.  Moreover, most businesses with multiple employees must comply with federal non-discrimination laws.  Though most small family-owned businesses are exempt, businesses with more than fifteen employees must hire and fire without regard to race, gender, religion, and other characteristics.

After employees are hired, they must be paid.  Federal wage and hour laws set the minimum wage for all employees.  These laws also specify when employees are entitled to overtime pay.  Beyond paying your employees, you must provide them with safe working conditions as required by the Occupational Health and Safety Act.  Moreover, once your business grows to a certain size, you may be required to provide them with health insurance or health leave as required by the Family and Medical Leave Act and the Affordable Care Act.  Before hiring your first employee, you should become familiar with all federal and local laws regarding the hiring, pay, hours, and treatment of employees.

Paying Taxes

If completing your 1040-A gives you a headache, you may want to keep a bottle of Excedrin handy during the first few years of your business.  While personal taxes can be frustrating, the IRS code for business owners is even more complex.  In addition to reporting income, businesses have multiple reporting and filing requirements.

Businesses with employees must withhold federal income taxes from their employees’ wages.  Businesses must also deduct taxes for Social Security and Medicare.  Employers must also pay Federal Unemployment (FUTA) Tax.  While solo entrepreneurs may have fewer reporting obligations, they are expected to pay self-employment taxes.  Again, these federal taxes do not include any taxes that may be imposed by state or local authorities.

Advertising and Marketing

No business can succeed without promotion.  But before you advertise, you should consider the federal laws that govern business marketing.  While the federal Truth in Advertising laws should be easy enough to follow, other laws concerning marketing may not be as obvious.

Federal law governs most of the ways businesses communicate with customers.  If you send direct mailers to your customers, you must comply with the Deceptive Mail Prevention and Enforcement Act (DMPEA).  The DMPEA primarily governs sweepstakes and marketing that mimics official government documents or attempts to convince a recipient that they “may already have won” a prize.  If you e-mail your customers, the CAN-SPAN Act governs what the e-mails can say and how promptly unsubscribe requests must be granted.  If you prefer the traditional route, the Telemarketing Sales Rule outlines the practices you must follow when calling potential customers.  Make sure you consult these and local laws as you develop a marketing plan.

Intellectual Property

Your business will likely need a logo to stand out from the crowd.  If your food truck is bland, customers won’t remember the experience.  Also, as your business grows, you may want a motto or a jingle for ads.  While all of these can grow your business, they are also intellectual property that must be protected.  If you want to keep another food truck from stealing your mascot and artwork, you’ll need to take the appropriate steps to obtain trademarks and copyrights for your designs.  For this reason, you should also make sure that if you hire an artist to create your logo, you purchase all rights to the art once created.   Moreover, if your business creates products, you will need to secure patents for your work as well.

Opening a business can be rewarding, but complying with all of the legal requirements can also be overwhelming.  If you have opened or are planning to open a business, you should consult an attorney to guide you through the maze of legal requirements.  Use The African American Attorney Network to find an attorney near you who is committed to helping black entrepreneurs succeed.