Whether you are the owner of a new startup or just have a great vision for a new business, you can benefit from legal advice from a business attorney. Read on for some tips for startup companies from an attorney with more than 20 years of experience in business law.
1) Structure
Firstly, determine the structure of the business. Hopefully you already have a business plan so you will have a good idea of the requirements for your entity structure. A business lawyer can advise on the benefits and disadvantages of each entity type, as well as the jurisdiction where it will be formed, and can help you choose the best option for your specific needs. The various choices can affect taxes, loans, liability, and more. The main business structures are:
a. Sole Proprietorship – A business owned and run by only one person in which personal taxes are paid for any income the business earns. Thus, there is no legal distinction between the person and the business. This is one of the most simple ways to start a business, but the owner is personally responsible for the company’s debts or obligations.
b. Partnership – A legal relationship between two or more people which allows them to own a business together. Partners share both profits and responsibilities. Inadequate legal agreements can lead to disagreements or inefficient management.
c. Limited Liability Company (LLC) – A business structure that protects its owners from personal liability for the company’s debts and liabilities. LLCs are legally separate entities from their owners, so the owners are not usually personally responsible for the company’s debts. This means that personal assets like cars, houses, and bank accounts can’t be seized to pay business debts. Also, Profits are “passed-through” each member’s tax return.
d. Corporation – A legal entity created by individuals, stockholders, or shareholders, with the purpose of operating for profit. It is distinct from all owners and shareholders pay taxes on its own profits and assets. Though this type of business often provides protection for personal assets, it also can be more expensive to establish and maintain than other businesses. Corporations are required to have a board of directors, shareholder meetings, and bylaws and may be created by an individual or a group of people.
Regulations for each business type may vary by state, so ensure that your business attorney has experience in the state in which you are starting your business.
2) Financing
Financing is a key component of a startup as there is often a certain amount of capital that will be required to start the business. Will the new business be funded by your savings, or a loan from a bank, family member, the Government, or an investor? A business attorney can assist with these important questions and also help with Small Business Administration (SBA) loan closings, which might be an option to help fund your small business.
3) Employees
Will you hire employees or independent contractors to work at your business? Independent contractors are individuals who are generally self-employed and in business for themselves, so they work on a project basis; you are not responsible for the employee’s employment taxes, their business expenses, or withholding their taxes. If you choose to have employees, who may receive benefits, pensions, or paid-time-off, insurance, how will they be classified (full-time, part-time, etc.)? Be cautious not to misclassify an employee as an independent contractor, or your company may be held liable.
4) Formation Documents and Business Contracts
There is a ton of legal paperwork related to starting a new business, such as operating agreements between owners, employment agreements, service contracts, privacy policies and investor agreements. A lawyer who has experience with startups specifically will ensure that nothing important is missed and that any challenges you encounter along the way are navigated with care. This is especially key when your own personal assets are at risk along with your business.
5) Regulatory Compliance
All businesses are regulated to some degree at the federal, state and local level. It’s important to remain in compliance; otherwise, your business may incur fines, penalties, and even lawsuits. There are various areas that are regulated for business use:
a. Advertising – Commercial advertisements can’t be deemed as “deceptive” or “untruthful.”
b. Employment – There are regulations regarding employee wages, hours, leave, and rights in the workplace.
c. Environmental – Businesses must comply with laws surrounding pollution, hazardous waste, and conservation.
d. Data security – This includes physical, administrative, technical protections for customer information.
e. Safety and health – Laws regarding workplace safety and health include requiring employers to provide a work environment free from hazards, employee training, personal protection equipment, first aid, and operation procedures.
Forming a new business entity includes many moving parts, but working to ensure that you have a strong foundation for your company – whether you are mainly working for yourself or have a more complex business structure – is key to long-term success.
For more information about how Cona Law, established as a top business law firm in Florida, can help get your startup off the ground, contact our office by clicking the button below.