What Do Small Businesses and Startups Need to Know about the Law?

This page is part of our Guide to the Law for Entrepreneurs and Business Owners.

What is considered a small business?

There is no strict definition of the term “small business.” A business is generally “sized up” in terms of a few factors: number of owners, number of employees, and revenue/profit.

When most people think of a small business, it’s usually a company owned by one person or a few people, with maybe a few employees. However, the U.S. Small Business Administration defines small business in a very counterintuitive way. Depending on the industry, the SBA’s definition of small business can include companies with up to 1,500 employees or $40 million in revenue!

One of the SBA’s goals is to make sure smaller businesses have a chance at government contracts, and that the biggest fish don’t swallow up everything. So, when the SBA defines small business, it basically means NOT the Amazons or Walmarts, which have billions in revenue and millions of employees.

That said, for most legal purposes, the size of a business isn’t that important. Most business laws and principles apply just the same to small business and very large corporations. So, yes, when you are “getting down to business,” size matters, but it’s not as important as some think it is.

What is a microbusiness or microenterprise?

The terms microbusiness or microenterprise are generally used for businesses with one or two owners, and perhaps five or fewer employees. However, certain local, state, and federal laws have specific definitions of the terms microbusiness or microenterprise. For example, California law says a “microenterprise home kitchen operation” may have no more than one full-time employee. Be sure to check the laws and regulations relevant to your business, or check with a lawyer.

What is considered a startup?

There is also no strict definition of the term “startup.” But in the popular discourse, the term “startup” has come to refer to a business that is just starting out, but expects to “scale up” and grow quite fast to become a large company.

If you consider your business a “startup” in this sense, and want to grow very quickly, you will probably take some different legal steps than with a traditional small business. In particular, if you are hoping to get major investment, such as from a venture capital (VC) fund, this would affect what type of legal structure makes the most sense.

Do different laws apply to small businesses and startups vs large businesses?

Most laws apply to small businesses and startups the same as to large businesses. One exception is employment laws, many of which only apply to businesses with a certain number of employees. Other areas are industry specific, such as more regulations that apply to large banks but not small banks.

Other than that, most laws, rules and regulations are essentially the same for small and large companies alike, such as business structures, business names, intellectual property, consumer rights, and more.

Further Resources

Photo credit: by Dan Burton on Unsplash

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