Starting your own small business can be exciting, but at the same time it can be very nerve-racking; you are taking a huge risk. The benefits can be huge but the potential risks will hang over your head more than ever. It’s important to get your business started the right way and limit your risks at every opportunity as you move forward. Here is a list of common questions that small business owners will face as they get started and move forward.
Sole Proprietorship, Partnership, LLC, or Corporation?
You need to be some sort of business entity. Generally speaking you should rule out a sole proprietorship and a standard partnership (of course there are some exceptions) because they don’t limit your personal liability. The whole idea here is to limit your potential personal risk, so think about using a limited liability company (LLC) or a corporation. That way, on the off chance something goes wrong you aren’t going to be on the hook personally for the commitments of the business. Most states require the filing of paperwork to establish an LLC or corporation, but it’s well worth the time and, usually minimal filing fee, to protect yourself. Make sure to carefully consider how you’re going to have your business entity set up, which option you choose will have management, ownership and tax implications for your company.
What type of corporate documents do I need?
First, you need some type of corporate documents or agreements regardless of whether your business is set up as an LLC, corporation or a partnership; in an LLC it’s an operating agreement, a corporation has bylaws and partnerships have partnership agreements. There are several important reasons to use governing documents. For starters, it helps limit your liability, if anyone ever questions whether you have any personal liability, having your governing documents in place will help show you’ve taken the necessary steps to establish a business and remove yourself personally. This is true whether you are a solo owner, or their are multiple owners involved. The other major reason for these documents is that they provide the guidelines for how the business in managed, how decisions will be made, how to handle ownership changes or potential disputes, and what happens if your business is coming to an end. These documents should be crafted specifically for your particular business and situation.
Do I need a business license?
Maybe. Business licensing varies from state to state and locality to locality; so depending on where you are located and operating you may or may not need a business license. The good news is it shouldn’t be difficult to figure out if you need one and what the requirements might be. Check with the Secretary of State or Corporation Commission and your local business development office or city/county government office. You can either call, or look online, the information is usually posted there.
Can I use my personal assets to run my business?
You can, but you shouldn’t. It’s going to open you up to personal liability even if you have set up all the proper corporate formalities and documents. This is one of the biggest issues that small business owners have: they commingle their personal and business assets, meaning they buy things for the business from personal accounts or personal items from the business accounts. It’s common for coming up with capital to be an issue for small businesses when they are starting out and there are ways that you can use personal money to provide capital to your business, namely in the form of a capital contribution or loan to the business. Make sure you properly document any decision to make a capital contribution or loan in your corporate records, and you still need to stick to the rule of buying for the business only out of a business account.
What compliance issues do I have?
This depends on what type of business you are running, but you’ll want to make sure you check into any compliance issues before you get started and then regularly monitor for any changes or updates that will impact your business. For example, if you making and selling cookies, you will have to comply with some sort of food safety regulation. You’re going to need to check for federal, state and location regulations that apply to your specific business or industry. Often times small business ignore this step because they view it as an unnecessary expense, but failing to be compliant can quickly put you out of business.
Do I need contracts?
Yes, for every relationship you have in your business, both internal and external, you need a contract. Contracts are one of the best ways to protect your business and can reduce the number of disputes for your company. Use contracts to dictate what happens if one party doesn’t perform, and to make sure you get paid for any services or products you provide - two major issues commonly faced by small businesses.
Do I have intellectual property and how do I protect it?
Every business has some sort of intellectual property and you need to take steps to protect it. If you’re looking to protect products, you may want to apply for a patent. Trademarks can be used to protect your company name, logos, slogans and other things. You can use copyrights to protect “original works of authorship” which can mean your website copy, your advertising copy, blogs, guides, manuals or best practices created by your company and other written works, many of which can be extremely valuable assets to your business. One other thing that every business has is trade secrets. These can be your marketing or business plans, sales process, client list, R&D plans, customer service strategy - basically anything that uniquely created for your business and you wouldn’t want anyone outside the company to get their hands on. Trade secrets can be some of your most important assets so you’ll want to protect them with policies about who can access that information and how to protect it along with the use of non-disclosure or confidentiality agreements.
Getting business advice and legal help from a small business lawyer is a smart way to start a business off on the right foot. But, often there are ongoing issues and risks that can be managed or addressed proactively, so don’t lose touch with your lawyer once your business is up and running. Make it a habit to seek business legal advice on a regular basis to ensure that you are protecting yourself as your business grows and changes.
A small business attorney can help you navigate these questions and more, if you need help contact Launch to set up a free consultation.