Starting a new business is exciting and overwhelming all at the same time. Creating a new business comes with a whole array of decisions that must be made early on to help the business grow properly, but also keep it protected from legal pitfalls. Having worked with startups previously, here are my recommendations for some general legal and business issues that should be addressed at the outset:
Create a Business Plan
A business plan will outline how your company will grow over the first few years of operation. Typically it will address: organization/management, market analysis, service/product descriptions, financial projections, and marketing/sales.
Choosing the right business structure is essential to establishing your business for legal and tax purposes. Business owners typically choose one of the following: sole proprietorship, limited liability company, corporations (and its variations), or partnerships. Each structure has its own advantages and disadvantages which are dependent on various factors such as company size, the number of owners, taxes, and risk or liability for lawsuits.
Depending on what business structure is selected, there is a corresponding document that should be drafted by an attorney which outlines the rights and responsibilities of each owner. Typically, if the company is an LLC then it is called an operating agreement; if a partnership has been formed, an
articles of partnership is needed; a corporation would require by-laws. In each situation, the document allows owners to establish rights and responsibilities, set out how the business will be run and in some cases alter the default state laws to better suit the business.
Meet With a Tax Accountant
Meeting with an accountant at the outset can help determine what type of tax liabilities a business would have (federal, state, and local) and when and how the owner can expect to pay the bill (when your tax year starts, quarterly payments vs. annual). As a new business owner, the last thing you want to worry
about is whether you have made the correct decisions when it comes to taxes so you can avoid penalties and take advantage of deductions.
Make sure to protect your business assets. Depending on the goods or services the business provides, it may be necessary to copyright the work, file a patent, or trademark a logo.
Hiring employees requires you to be compliant with both state and federal laws, which includes various IRS tax requirements.
Determining Whether Someone is an Employee or an Independent Contractor
As a new business owner, you must determine whether those you are working with are employees or independent contractors. Misclassifying an employee as an independent contractor can have serious ramifications because there is a difference between the two, both legally and for tax purposes.
by Devon Landis, Esq.
Disclaimer: This is for informational purposes only and not exhaustive of all aspects of the law on this topic and it is not to be considered legal advice on any particular set of facts or circumstances, you should contact an attorney for advice on specific legal problems.