If you’re an entrepreneur trying to get your small business off the ground, it’s important to meet with a small business attorney to help navigate complex legal issues and minimize future risks. As you prepare to speak with an attorney, here are several important questions to keep in mind.
1. How Do I Limit My Personal Liability as a Business Owner?
The best way to limit your personal exposure to liabilities generated by your small business’s activities is to form a business entity with the Secretary of State. Once formed, your entity provides you protection from liabilities generated by your business. As such, your business’s creditors are limited to the assets held within the business and cannot reach your personal assets.
2. How Should I Structure My Business?
For most small businesses the limited liability company or S-Corporation entity forms will work well. These two entities are called “pass-through entities” as the small business itself does not pay any tax to the IRS. Instead, the income tax generated by business activities are passed through to the owners. This avoids a double taxation situation where the small business pays an income tax and the owners pay a tax on the same earnings when such earnings are distributed out of the company.
3. How Should I Establish Ownership Responsibilities?
The deciding factor here is how active each of the owners will be in the day-to-day operations. The ownership of a corporation is allocated by shares of stock. These shares allow the stockholders to vote for the board of directors. Then the board sets the direction of the corporation and appoints the officers who run the day-to-day operations. This is great for less active owners. For owners who actively run the business, a limited liability company may work better. The LLC is less regimented and allows for owners to directly operate the business.
4. What Should Be Included in the Bylaws or Company Agreement?
A corporation’s bylaws and an LLC’s company agreement set out the internal rules governing the interaction between the owners, officers, and managers. These documents should contain all specific details for the roles, responsibilities, and relationships among the various parties.
5. What Compliance Practices Does My Business Need to Adhere to?
This will depend heavily on what type of business you are running. Some services and products are more regulated than others. Local businesses like liquor stores and barber shops are regulated by the state and require licenses to operate. Also, if you have a physical location you may also be subject to federal regulation under the American’s with Disabilities Act or the Occupational Safety and Health Administration.
6. What Types of Insurance Will My Business Need?
Again, this will depend on the type of business. If you have a physical space or automobiles, you will want to obtain general liability and automotive insurance. This type of coverage may even be required by your lenders or landlords. You may also want to consider business interruption insurance to protect against events that can temporarily depress your revenues – like tornados or weather-related power outages.
7. What Contracts Does My Business Need?
Your business should have a contract with most of the people and businesses it engages with. Examples of the types of contracts include:
- Finance and Loan Agreements with lenders,
- Leases with landlords,
- Employment Agreements with employees,
- Contractor Agreements with temporary contracts, and
- Service Agreements with vendors and customers.
It is important to examine all the touchpoints your business has with others and judge whether that point should have a contract. Generally, it is better to decide in advance (have a contract) on how the relationship should work rather than fight it out after the fact in court.
8. What Haven’t I Considered?
If you are an entrepreneur and it is your first time running a business, it is important to remember that the business is a separate entity of its own. It is this separateness that forms the foundation of the liability protection offered by forming an official company with the Secretary of State. To maintain this protection, you must carry on all the operations of the business under your business’s name, hold all the business’s money in the business’s accounts, hold the business’s assets in the name of the business, etc. When you intermingle personal and business operation, money, and assets you put your personal assets at risk to the liabilities of the business.
Start Your Small Business Journey Today with Hammerle Finley Law Firm
There are a lot of legal variables when setting up a small business. The answers to all the questions above are dependent on the facts and circumstances of your specific business. The attorneys at the Hammerle Finley Law Firm are experienced at identifying and addressing these issues in an efficient and effective manner. Schedule a consultation with one of our experienced business law attorneys today.
