What to Ask: Incorporation and Business Operations | James Jones, Esq.
UpCounsel attorney James Jones explains what every startup should be asking their legal team about incorporation and business operations2 min read
When should we file for IP protections?
This is important because too many businesses fall on one of two wrong sides. They either file immediately for trademarks or copyright protection and the business goes nowhere fast – so they end up wasting thousands of dollars. Or, they wait too late to file and lose protections they should have had. Not enough try to find the sweet spot.
What type of entity should I create?
There are certain types of entities that work best for types of businesses. Startups are usually corporations in Delaware because investors like that. Mom & pop restaurants are usually S corps. filed at their state level. RE investment groups are usually filed as LLC's with an LLC as owner of each property for liability protection.
Why or when to create a partner/founder agreement?
This is important because having one from the beginning could prevent major problems and misunderstandings down the road. It's too late to sign an agreement when the company is profitable and people start having faulty memories.
What is the best way a small business owner can protect personal wealth and assets from business risks?
File for a legal entity and operate all business through that entity – including bank accounts, transfer of income, etc.
What specifically are small business owners most confused about when you first meet with them?
The difference between a dba and a corporate legal entity. They think they offer the same protections and don't know why one is expensive and the other isn't.
How can quality legal services help a small business grow?
It can provide de facto structure that carries over into other business decisions and behavior as a founder.
How can quality legal services help small businesses save money?
If incorporated properly, they can save a business money in taxes. They can also prevent penalties from state departments for failure to file unemployment taxes, tax withholding, medical insurance, etc.
How can small businesses maximize the value of their legal team’s services?
Collect all their questions together in advance of each meeting and go in with the goal of being informed about the processes vs. just having someone do all the work for them. They should know why things are being done.
Should business partners have the same amount of equity in a company? Why or why not?
Like most legal answers, it depends. As a rule of thumb, it's a good idea. However, there are times where one partner contributes more to the development of the business or offers more to its growth. This should be decided on a case by case basis most times.
What are the top three things a small business owner should be aware of when purchasing an existing business?
Accurately determine the value, Due diligence reviewing customer lists, sale records, advertising materials, and employee contracts, Find out if there are any human resources issues or outstanding lawsuits pending against the company.
Do you have any other essential legal guidance for startups that you haven't already included in this survey?
Put everything in writing from day 1 to avoid problems later. It can't hurt, but it might help.