There are several legal ramifications of starting a business. It can lead to issues related to liability, copyright, employee rights and everything in between. So one of the first steps you should take as you work to get your business off the ground is speak with an experienced business attorney.
Ben De Leon is the President of De Leon Washburn & Ward, P.C., where he has served as general counsel to some of the fastest growing companies in Texas. As an experienced business lawyer, he recently spoke with Small Business Trends about some of the most important legal issues that new entrepreneurs should discuss when getting started. Here are some of the top things to consider.
Questions to Ask an Attorney Before Starting a Business
Structuring Your Business
There are several different business structures that you can choose when you’re forming your company, including LLCs, S corporations, C corporations, partnerships and sole-proprietorships. So speak with an attorney who can explain each option for you and then listen to your vision for your company so they can guide you in the right direction for your specific situation.
Protecting Your Personal Assets
No matter what specific structure turns out to be the best choice for your business, it’s essential that you structure it in a way that limits your personal liability and protects your non-business assets.
De Leon said in an email to Small Business Trends, “Establishing a limited liability company or other corporate entity with the applicable government agency (e.g., filing a Certificate of Formation with the Texas Secretary of State) and securing an EIN number from the IRS are vital steps to ensuring small business owners’ personal assets are protected from any exposure in connection with their business operations. Many small business owners file assumed business certificates with the County Clerk in which their business is located instead, thinking their personal assets are shielded from exposure in this regard. This is not the case. Only by establishing a corporate entity and following the necessary corporate laws and regulations do small business owners enjoy what’s commonly known as a “corporate shield” that protects their personal assets and ensures only their business assets are at play.”
Choosing a Name
Another part of getting your business officially up and running is choosing a name. Each state has its own processes for officially selecting a name. And you also need to be sure that you’re not infringing on any existing copyrights or trademarks with your name choice. So a business attorney can help you make sure your name of choice is available and walk you through the necessary paperwork.
Small Business Deals
If your business has any outside investors, it could impact the type of corporate entity you’re able to establish for your business. Specifically, you need to be sure that the structure provides a corporate shield for your investors as well as yourself.
Establishing Ownership Responsibilities
If your business has multiple partners or owners, you also need to have clear agreements about what is expected of each person and what the responsibilities are in terms of purchasing property or equipment. It’s best to have contracts or signed agreements in place when you’re just getting started so that all parties involved understand what is expected of them and what they are entitled to in any given situation. This can help you avoid contentious disagreements that could lead to legal battles down the road.
De Leon says, “I’ve seen time and time again where business owners have oral agreements with each other or third parties; then an issue arises and there’s nothing in writing to address it. When in doubt, get it reduced to writing!”
Creating Internal Bylaws
Then you also need to create some bylaws for your company as a whole. These should outline all of the rules that owners and management should follow over the course of running the business.
De Leon says, “Owners must understand that establishing a corporate entity and securing an EIN number is but the first step; internal governing documents (e.g., Company Agreements/Bylaws/Agreements of Limited Partnership), ownership agreements (membership interest/shareholder agreements) and corporate resolutions to memorialize certain actions of one’s business (awarding of bonuses to employees, purchase of real property or business equipment, securing business loans, etc.) are extremely important for the sake of following corporate formalities, but also in case a regulatory agency decides to drop by and audit owners’ records.”
Adhering to Compliance Practices
The federal government and each individual state have requirements for record keeping, safety practices and a number of other business related processes. So your business needs to know exactly what is required in order to comply with all of those rules and regulations. Your lawyer can walk you through some of those issues and make sure you know exactly what records must be kept on hand and for how long.
Making Sure You’re Covered with Insurance
Insurance can help you avoid costly issues down the road. Speak to your legal representative to discuss what types of coverage you might need or at least benefit from, including coverage for workplace injuries, data breaches, or non-injury claims made by employees or customers.
Creating Vendor Contracts
Once your business starts working with vendors, suppliers, clients, or any other third parties, you’ll need written agreements in place to ensure that all parties involved know what to expect. A lawyer can help you draft specifics or at least walk you through the creation of some templates that you can use in common situations.
Navigating Tax Issues
Your legal representation probably isn’t going to do your taxes for you or manage your books. But there are some tax ramifications of choosing different corporate entities or making some of the other decisions listed above. So it is important that you also have a good CPA in your corner, and your lawyer might be able to refer you to one so they can work in tandem on some of those important issues.
De Leon says, “Not only do business owners need to seek good legal representation, they also need to secure a good CPA to talk them through the tax ramifications of the corporate structure they choose, business purchases, applicable taxes owners must file once established, and the like. Having good coordination between business owners’ legal counsel and their CPA makes the process go even smoother, allowing owners to focus on continuing to grow their business.”
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