Essential Legal Checklist for Natural Product & Functional Food Companies

Essential Legal Checklist for Natural Product & Functional Food Companies

Wondering how to legally protect your natural product or functional food company?  The legal system can seem overwhelming when creating a new product or launching a brand.  Legal obligations and fees vary depending on business structure and location.  Consult a business attorney prior to sales to determine which requirements apply.  Use our natural product legal decision checklist to make informed choices and find resources.

1. Choose a business structure

This decision needs to be made before the others on this checklist.  Your business structure impacts your business registration, tax obligations and personal asset liability.  So choose carefully.  Future structure changes may be limited by your location and cause tax penalties and other negative consequences.

Also choose a structure that offers the benefits and legal protections that are right for your business.  There are nine business structure choices with various considerations .  The most popular for new businesses are:  sole proprietorship, partnership and Limited Liability Corporation (LLC).

• Sole proprietorship

Set up the most simple business structure if you’re a company of one (for now).  One person assumes liability for company profits and debts.

• Partnership

Choose this for businesses owned by two or more people.  This structure allows partners to share profits, losses and decisions.

• LLC

Consider this for small businesses seeking legal protection but simple formality.  The LLC structure shields owners from personal liability.

2. Register your company name

You put a lot of time and effort into choosing the perfect name for your business.  Protect it by registering it with the right agencies.  Each name registration is legally independent.

• Entity name

This is how a state recognizes your business.  It also protects your name at the state level.  Name requirements vary, but may include distinguishability (name must be different from other similar names).  For example, if the business name “Healthy Vitamins” is registered you may not choose “The Healthy Vitamins”.   Another common name protection is purpose-related.  For instance if your business is registered as “Henry’s Healthy Hub” then “Henry’s Healthy Properties” would likely be denied registration.  Consult your state’s government website for business name requirements.

• Trademark

Trademarks protect your business name at a federal level.  Visit the U.S. Patent and Trademark Office’s website for trademark searches and registration.  Trademark applications must meet legal requirements prior to registration.  To make this easy, consult an experienced trademark attorney.  Or apply yourself.  For help visit the U.S. Patent and Trademark Office’s step-by-step trademark filing tutorial.

• Domain name

This protects your business website address.  A domain name is the name used for your website, like “www.vitawater.com” or “www.gingergells.com”.  Domain registrars, like GoDaddy or Domain.com, register domains through the Internet Corporation for Assigned Names and Numbers (ICANN).

• Doing Business As (DBA)

Use this when the operating name of your company differs from the legal name.  For instance, if you’re “Joan Doe” conducting business as “Natural Vegan Products” you may need a DBA.  Some states require filing of this name to protect consumers.  So consult your state’s government website for DBA requirements.

3. Obtain an Employer Identification Number (EIN)

Businesses located in the USA or a U.S. territory need to apply for an EIN.  The IRS uses this free service to identify your business for tax purposes.  Don’t fall for scammers charging for this service.

You can easily apply online.  This requires a valid Taxpayer ID (SSN, ITIN, EIN) and the ability complete the application in one session.  You can’t save the application and return to it later so keep this in mind.  Also inactive sessions expire after 15 minutes.  Apply online now.  The system validates the information upon submission and an EIN is issued immediately.

You can also apply by fax, telephone and mail.

4.  Obtain business permits and licenses

Avoid one of the most common mistakes made by new business owners:  failing to obtain necessary permits and licenses. Make sure your business stays open by obtaining the required legal items.

• Business license

Contact your city to obtain a business license.  This grants you the right to do business in your city.  Other permits business permits vary.  Check if you need fire department, air and water pollution control, sign usage, and county permits.  Visit your local government website for more information.

• Sales tax license  

Companies selling taxable goods and services must obtain a sales tax license.  Requirements vary by state so check with yours.

• State licenses, certifications, and occupational permits 

Most states require people working in select professions to meet legal requirements.  So contact your state government office for a list of these professions.

• Federal business license

Some companies, like those selling meat products and fruits and vegetables, require this license.  Consult the SBA’s licenses and permits site for more information.

• Health department permit

Companies selling food to customers or wholesalers need this.  The Health Department will inspect your facility prior to issuing the permit.

5.  Draft legal documents for hiring contract workers

Do you plan to hire contract workers:  individuals providing goods or services to a company who aren’t a company employee?  For artists, web designers or other contract workers, make sure to obtain legal documents before work begins.  Contractors may be difficult to track down later.

• Nondisclosure / Confidentiality Agreement (NDA)

Protect sensitive company information by requiring contract workers to sign an NDA.  Click here for a sample Natural Product NDA / Confidentiality Agreement you can modify.  Have an attorney review your NDA to ensure validity.

• Proof of qualifications

Keep a copy of the contract workers application, resume, and other proof that they quality for your job.  Also make sure contractors realize they are filling out a contract worker application and not an employee application.

Verify their Tax ID, and contact references to make sure the worker’s qualifications are valid.  Also, conduct a background check if the contractor is working with sensitive information or providing in-person services to customers.

• W-9 Form  

Independent contractors paid $600 or more per year need this form.  You will need the contractor’s taxpayer identification number, name, and address.  The W-9 prevents your company from having to withhold payroll taxes for contract workers.  It also provides the information needed to create a 1099-MISC Form for contractors for the tax year.  The 1099 replaces the W-2 form for company employees.

• Written contract

Prepare a contract for each contract worker.  This protects your business if a dispute arises.  Make sure a contract includes the scope of the work, who owns the work, payment information, and an independent contractor statement.  Have both parties sign the contract.

Even though it might seem tedious, take the time to meet your legal requirements.  Remember business laws and regulations vary by industry and state.  Understand which requirements apply to your business, and consult an attorney for necessary guidance when needed.  If your company doesn’t have a legal team don’t skip legal steps.  Type “free legal help” into your browser to find free or inexpensive help.  My browser returned over 2 billion hits on this search term.  Sleep easy at night knowing you and your company are legally protected.

 

Kendeyl Johansen has a Behavioral Science and Health B.S.  She’s an award-winning journalist with 200+ published articles.  She’s fiery about writing health articles, and helping people boost happiness and stress less.

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