I want to start a business, now what? (legally speaking)

So you (and your team, if you have one) have decided to start a business. You’ve got an idea, you probably have a business plan, have some start-up capital (or have a plan to obtain capital), you may even have customers already lined up. You’ve handled the business issues, and now you’re wondering what else you might need to do to get started with your business? Have you considered the legal aspects of your business?

First and foremost, have you considered legally organizing your business (e.g.: incorporation, or formation of a partnership or limited liability company)? Some of the considerations that go into the decision to legally organize your business include liability protection, management structures, and tax considerations. If your business may incur liability, especially tort liability, forming a corporation, LLP, or LLC may be highly desirable. Otherwise, your personal assets and the personal assets of everyone who may be deemed an owner of the company could be reached to satisfy the liabilities of the company. Of course, liability shields are not perfect, especially for small businesses where owners are often also managers and employees — as a small business owners are often asked to personally guarantee debts and other liabilities of the business, and owners who are managers/employees of the business are of course personally liable for any tortious conduct they perform (and could also be liable for tortious conduct of employees under negligent entrustment/employment theories!)

Because, starting out, business owners are often managers/employees of their businesses, when there are two or more owners it is necessary to have a comprehensive agreement that describes the rights, responsibilities, and authority of each owner in regards to each other and to the business. Not only is it preferable to have the operating structure and procedures spelled out while the business is running, but it is also critical to have everyone’s rights and¬†responsibilities¬†written down if and when things get tough for the business.

There are other legal issues that all businesses face. Does your business need office or commercial space? A commercial loan? Are you negotiating contracts with suppliers and/or larger-scale customers? The party on the other side probably has a legal professional reviewing the terms of the deal, at the very least. Commercial space leases, commercial loans, and vendor/buyer contracts may represent significant and long-term liabilities for your business; it is important to consult with a legal professional on any deal your business does, so as to at least understand the terms of the agreement, such as the extent of warranties in a vendor agreement or the nature and terms of a “go-dark” provision, for example, so as not to be surprised by any costly terms that can represent a significant financial burden to a new or small business.

Before starting up a business, it may be necessary to consult with an attorney to discuss the legal issues of starting up a business. Retaining an attorney to handle your incorporation/business organization and the legal aspects of your business deals can free you and your team up to focus on strategic planning, designing, marketing, and actually selling your products or services to your customers. Of course, not all new businesses have the capital initially to spend on legal services; a good attorney should be able to help you decide whether or not retaining an attorney is within your business’ budget or necessary. Very small businesses with a single owner who is the sole employee may not need to create a legal business organization, or may be organized simply enough that a well-informed entrepreneur may be able do it himself or herself. Even if you decide not to retain an attorney to handle your start-up needs, it doesn’t hurt to make contact with one for future reference.

Thanks for reading, and if you have any questions or topics you would like to see covered in future blog articles, don’t hesitate to leave a comment or head over to the Contact Us page to send us an email!

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