Starting a new business, whether you’re a brand new entrepreneur or a seasoned business veteran, is both exciting and challenging. It involves planning, financial decisions and of course legal steps. If a new business is in your future, it’s important to educate yourself about the business process so that you can set yourself up for success. We’ve outlined several of the key steps that new and soon-to-be business owners should take.
Have A Business Plan
Determine guidelines for your business, including financing and flexibility. The business plan is your company’s roadmap and if well thought out, it will provide helpful guidance as your business grows. Make reasonable projections of business growth for years 1, 3 and 5.
Form A Business Entity
Determine the type of entity you want to form. You want to consider whether you will have individual liability for business debts and whether you can obtain favorable tax treatment in order to reduce the taxes you will pay. You should seek the advice of an experienced business attorney when considering the type of entity that you will conduct your business under. There are four types of business entities:
Sole Proprietorship: If you decide not to form a business entity you are a sole proprietor. By doing so you are exposing yourself to individual liability. It is therefore not the recommended option.
Partnership: When there are 2 or more individuals seeking to open a business, forming a partnership is an option. Generally speaking, under a partnership the individuals are sharing in the profits and losses of the business. A business attorney should be retained to draft a written agreement specifying the partners’ responsibilities and obligations to each other and the business.
Corporation: “C” Corporation or Subchapter “S” Corporation: Corporations provide a “shield” from individual liability and are governed by its By-Laws. Corporations are taxed differently depending on the choices made at the outset. A Subchapter “S” Corporation is taxed as a partnership providing for favorable tax treatment. A “C” Corporation is taxed at the corporate tax rate with all income or distributions to shareholders also being taxed.
Limited Liability Company (“LLC”): Similar in form to a Subchapter “S” corporation but with less restrictive ownership criteria, the LLC provides all Members with a shield against individual liability and partnership tax benefits. The Operating Agreement is the document that sets forth the responsibilities and obligations of all Members and should be drafted by an experienced business attorney.
Give Your Business Its Own Identity
Once the legal form of your business has been created, it’s time to obtain a Federal tax ID number, open a business bank account, and obtain the necessary licenses/permits for business operation.
Assess The Business Location
Make sure you assess the geographic location, traffic pattern, and convenience of the business location. Additionally, an attorney should review any lease agreements you plan to enter into, as a lease agreement is a complicated legal document that governs more than just the number of years of the lease and price. Other terms of a lease that should be considered are Common Area Maintenance (“CAM”) charges, CAM definitions, and personal guarantees.
Maintain All Internal Documents
Ensure that you use proper contracts and agreements between members or employees of the business that assist in forming ideas at the start of the business. If an idea of the business becomes hugely successful proper contracts can make a big difference.
Register Your Trademarks And Service Marks
Ensure that any trademark or service mark you develop is properly protected by contacting a trademark attorney who can run a search for availability and then register your proposed marks if cleared.
Recognize That Dates Of Use Are Important
Make sure you keep records of the dates of creation and use for any of your products, taglines/slogans, trademarks, or service marks. This will be important when you are asserting your intellectual property rights and/or defending an infringement accusation.
Know The Source Of The Intellectual Property You Use
When creating promotional materials for your business, including a website, be careful of the works you use that you did not create yourself, including photographs, videos and music. To avoid infringement, make sure you are not using the legally protected work of others.
Protect Your Trade Secrets
Like patents, trade secrets can protect your recipes for success and also your products (think Coca-Cola ®). To ensure you are properly protected, contact an attorney who can assist you in preparing and negotiating non-disclosure and confidentiality agreements.
Protect Your Copyrights
Make sure you register and protect your materials that are copyrightable, including photographs, songs, and videos. Add the copyright symbol ©, your name and the creation date.
If you’re planning to start a business or have questions before you do, contact us and let our experienced business attorneys guide you.