What to Ask: Incorporation and Startup Tips | Desarie Green, Esq.
Starting a new business? UpCounsel attorney Desarie Green explains what every startup should be asking their legal team about incorporation and startup tips4 min read
What type of business entity should I choose?
This question is important because individuals creating a business where there are no other partners or employees think that they cannot create an LLC or incorporate. It is important to understand why you would create an entity as opposed to operating as sole proprietorship is to protect assets and tax purposes.
What am I forgetting?
I know that seems like such a broad question, but you can't think of everything. That is the reason that you seek counsel to help you think of all of those things. Am I compliant with all federal, state, and local laws in operating my business? Am I compliant with licensing or industry specific laws or regulations? What types of insurance do I need? There are so many things that business owners may or may not think of, and if you do, do you know how to handle it properly? This is why it's best to ensure you speak with an attorney from the beginning so that they can help you build a checklist and formulate a plan to ensure you are addressing all concerns that may affect your business.
How can I protect trademarks, copyrights, or other intellectual property that I own?
This is an important question because many times clients are not even aware they have intellectual property. An attorney can help you identify what, if any, intellectual property you may have and how to protect it so that your copyright or trademark or other work is not infringed upon.
Are there issues that I need to be concerned about when dealing with possible investors?
Many people watch shows like Shark Tank and think that getting a big investor is the answer to all of their prayers. However, there are issues that small business owners should be concerned with if deciding to take on an investor. You need to understand how taking on an investor or multiple investors will change your business, what does it mean for your ownership in the company, is it better to give an investor equity or take a loan, and many other questions that business owners don't think about when taking money from an investor. It is best to speak with an attorney so that you understand all the implications of bringing on investors.
What types of contracts/agreements do I need for my business?
Clients sometimes are not aware of all of the types of agreements that are necessary for the operation of their business from employee agreements, confidentiality agreements to possibly terms of service or terms and conditions for a website. Speaking with an attorney can help you determine the types of documents that will be necessary to ensure you are operating legally, successfully, and making sure that you protect yourself.
What is the best way a small business owner can protect personal wealth and assets from business risks?
The best way a small business owner can protect personal wealth and assets from business risks is to ensure you create an entity to operate your business as opposed to a sole proprietorship and never commingle funds.
What specifically are small business owners most confused about when you first meet with them?
Many clients think about basic concepts of starting a business, but I have had many clients that do not think of the specific issues that may arise based on the specific industry their business operates within. For instance, if you are opening a restaurant, you have to be familiar with legal issues and licensing that may arise from getting a liquor license, if selling alcohol, food handling license, and other issues with running a business. It's more than establishing an entity and getting a business license. Each industry has its own unique issues, and you need to familiarize yourself with the requirements for your industry. It is also helpful to find counsel who may be familiar with that industry.
How can quality legal services help a small business grow?
Quality legal services help a small business grow because they allow a small business to keep moving forward as opposed to backward because you didn't take care of something that you didn't when you established the business.
How can quality legal services help small businesses save money?
Quality legal services help small businesses save money because if you pay for legal services in the beginning it saves you from having to pay to correct a mistake in the future, which could cost a lot more money down the road. It can also provide guidance and advice when necessary that help you make the right choice for your business.
How can small businesses maximize the value of their legal team’s services?
Since you are a start-up as you're building your monthly, yearly, or quarterly budget make sure that you include a line item for legal services. Either try to enter into an agreement with an attorney where you can have a flat rate that allots you so many hours of their time on a monthly basis or arrange some other plan, but make sure that you have a way to have your legal needs met if the need arises.
Should business partners have the same amount of equity in a company? Why or why not?
Whether business partners should have the same amount of equity in a company depends on what they are both bringing to the table. If you both are bringing nothing to the table, then each having 50% equity is fine. However, if one partner is bringing capital to the table and the other is not, it may be in the best interest of the partner bringing the capital to have more equity. He has more to lose. You could always allow a provision in the operating agreement for the other partner to earn more equity based on meeting certain conditions.
What are the top three things a small business owner should be aware of when purchasing an existing business?
Due diligence reviewing customer lists, sale records, advertising materials, and employee contracts, Determine why the business is for sale., How long have the employees been there? Are there any key employees who would be hard to replace?
Do you have any other essential legal guidance for startups that you haven't already included in this survey?
My advice would be to ensure that no matter what you do to consult an attorney to make sure you have at least covered the basics so that you save yourself some heartache and money in the long run.