Americans are known for their entrepreneurial spirit. We’re a country of immigrants after all. It’s something that was true then and still is true today. And like any people who are new to a place, one of the biggest challenges to overcome is finding a way to make money and support themselves. For many in this position, the answer comes in finding a niche and filling. But starting a private business isn’t just limited to the newly arrive. Heck, most everyone would probably like to have a company to call their own because let’s face it, working for someone else can really suck. However, even if one possesses all the business know-how in the world to be personally and financially successful in an area, none of it matters if they can’t navigate through the legal logistics that inevitably come with each small business.
The legal hoops of starting and maintaining a business in America can be tough regardless of its size. Every company from the small mom-and-pop coffee shop to the big multi-national pharmaceutical corporation has to deal with business and professions laws. These laws are the great equalizer because though the disparity between different company sizes and wealth may vary, the legal issues they face are inherently the same (albeit the scale and amount of them are likely not). It’s no wonder why LegalMatch’s client statistics perpetually reflect a large number people looking to hire attorneys do so for the purpose of handling or litigating business dealings. There are certain legal things every new business owner should know when it comes to starting a new company. Fortunately, if you’re one of these people looking to figure about what they are, then you’ve come to right place.
Establishing the Type of
Even before a business can get off the ground, the first thing that has to be decided is what type of company it will be. By this, I don’t mean what the business is going to be selling or the consumer base it’ll be targeting (which are still important by the way). Rather, “type” in this case means establishing what form of legal entity the business will take. There are many: sole proprietorship, general partnership, limited liability partnership, limited liability corporation; the list goes on and on. However, in this case what one really needs to do to figure out which corporate form is the right for them is by first looking at who will be owners of the business and how to best protect your assets in case something goes wrong with the business.
Generally the rule of thumb is that if you have partners investing in the venture, then you should always stay away from general partnerships and go for an LLC or LLP. Why? Because you want to protect your finances in case one of your partners screws up. In general partnerships, every partner becomes jointly and severally liable for the other partner’s legal problems. Meaning if one of the partners gets sued for their actions related to the business, every partner is liable and their assets are up for grabs, even those assets that aren’t part of the business. Essentially LLP and LLCs make it so that the only assets that can be taken in case of a lawsuit are related to the business and not the personal assets of a partner. Furthermore, it makes it so each partner or the business itself is solely liable for their own legal problems.
Establish Partner Duties and Rights
Remember how much group work sucked in school because you ended up having to do all the work yourself? Well, this is the same concept here. In order to prevent lazy partners from slacking, leaving you to do all the heavy lifting, be sure to explicitly document each partner’s responsibilities in the partnership agreement, such as how much work each must do, capital investment, etc. Don’t limit it just to duties though. Be sure to include rights, as well, such as how much everyone will be paid, ownership percentage, business dissolution scenarios, and so forth. Remember, a solid written agreement will serve as the backbone of your company’s success.
Know the Law
Both before, during, and after the business ends, having a basic understanding of how the law works is a prerequisite to good business management. Many community colleges offer crash courses on basic laws every business owner should know. If you don’t feel like going back to school, then read up on the following essential areas of law on your own: contract law, employer-employee law (aka employment law), and government and securities laws related to your industry. It’s also a good idea to check out intellectual property laws in case you’re in a business where your idea may be susceptible to theft.
Keep Good Records
Ever try to do your taxes without any receipts or a balanced checkbook? How’d that turn out? Yeah, exactly. Keeping records on your business’ capital, income, etc. will not only keep the IRS off your back, but will also help keep the lawsuits off as well.
If You’re Confused, Get Help
I know that for you business-owning purists out there this suggestion seems to go against the entrepreneurial spirit. But just know that being entrepreneurial requires having an actual business. Laws in this area can be really complex, so if you really don’t understand a legal aspect of it: please, please, please, get a good attorney to help you through it. It can save you from a huge headache and costly mistakes down the line.