Business Structure and Formation discussed below should at all times be determined at the time of incorporation. Partnership and Shareholder agreements should also be determined at the time of incorporation in order to qualify the value and distribution of shares or other company interests.
September 4, 2017
You’re ready to launch your business. Before you unlock your door, make sure your legal house is in order. Enlist a lawyer for help on these four key items as your company gets off the ground.
Business Structure and Formation
“One of the first considerations for all small business owners should be entity formation and organizational structure. This will have significant impact on the company’s taxation, how it raises capital or otherwise obtains funding, and corporate governance,” says Aaron Messing, partner with A.Y. Strauss.
An attorney can help you decide which structure—sole proprietorship, partnership, corporation, S corporation, or limited liability company—is most advantageous. An attorney will ensure that you’re properly registering your company and obtaining necessary licenses and permits, says Morgan Crapps, special counsel with Nexsen Pruet.
Additionally, an attorney can help you set up partnership or shareholder agreements:
“After you set up an entity, make sure you have an agreement in writing that lays out the details about the responsibilities of all partners or founders, how the equity is divided, how the profits are divided, what the voting rights are, what happens if you need additional capital, and so on,” says Dmitriy Ishimbayev, owner of Ishimbayev Law Firm. Spell out what would happen when two partners disagree, or if one partner dies or becomes unable to work, he adds.
A stack of contracts comes with the territory as a new business owner. These could include employment contracts, independent contractor agreements, nondisclosure and noncompete agreements, service agreements, leases, distributor or customer agreements, vendor or supplier agreements, insurance contracts, and so on.
Have your contracts drafted by an attorney who has taken the time to understand your business’ individual needs and circumstances. Your attorney can make sure your rights and obligations and the rights and obligations of your business partners, and shareholders are clearly defined, says Charles Vethan, CEO of Vethan Law Firm.
An attorney should also review the contracts you’re expected to sign, help you understand the terms, or negotiate if necessary.
“Keep in mind that landlords, vendors, insurance companies, and so on have attorneys writing these contracts to be in their client’s best interest,” says Kevin Vandenboss, owner of Vandenboss Commercial. “It’s always wise to have somebody representing you and your best interests as well.”
One of the first things a new business owner should look at is their risk and how much it will cost if the venture doesn’t work out, says R. Shawn McBride, managing member of R. Shawn McBride Law Firm.
“Talk to a lawyer early to understand what your risk profile is and then come up with a plan to manage it,” McBride says. “This could involve a number of things, from proper structure and record keeping to entity formation and insurance.”
If the nature of your business creates liability—such as selling products or professional services—Leo Welder, founder of startup guide ChooseWhat.com, recommends hiring an attorney to create customer agreements that help protect you from unnecessary liability in conjunction with general and professional liability insurance.
Finally, it’s beneficial to consult with an attorney prior to hiring employees to ensure compliance with employment and labor laws, Crapps says. An attorney can review position descriptions and employment contracts to help prevent claims or disputes in the future, and they can counsel you on state and federal laws to consider, such as those from OSHA or FLSA.
By: Katie Truesdell