As a business attorney, as well as small business owner, I have experience in forming and running businesses. Here are some of the things that I’ve learned almost every business must do in order to sell services or manufacture goods while in compliance with State and federal law.
- Choose an entity type – This can be very complicated and the entity type you chose has ramifications, which mainly deal with taxes and recordkeeping. Depending on the type of operations and ownership structure the company will have it can form a business as a partnership, limited liability company (LLC), limited liability partnership, corporation, s-corporation, of even a nonprofit corporation.
- After choosing the proper entity type, the corresponding incorporation documents (articles of incorporation for a nonprofit or corporation, or articles of organization for an LLC) must be filed/registered with the Secretary of State or a department thereof. Partnerships do not file corporate documents, but they do file election documents with the IRS.
- The owners of the business should then adopt appropriate governing documents which will dictate the rules by which the business will operate; these documents contain many different terms but include items such as notice, voting rights, management decisions, tax allocations, share structure, and much more. Hiring a business lawyer to draft your business’ governing documents is better than being subject to your State’s default set of governing rules.
- After the business receives its incorporation documents from the Secretary of State, it must make resolutions to file for a federal tax identification number, open bank accounts, apply with the appropriate state tax entities, apply for appropriate municipal business licenses, and more.
- The business will also have to obtain rent, which typically involves entering into a commercial lease for a period of time which can vary from as little as one month to several years.
- The business will need to obtain insurance; obtaining proper insurance coverage is essential in that it protects the business owners should uncontrollable events occur that make the business liable. If the business has employees it will need workers compensation insurance.
Although each of these items is presented briefly, each could be an article in itself. Completing this process can also take lots of time; for example it can take several weeks to receive filed incorporation documents from the Secretary of State. Business attorneys can help with large portions of this process and leave the business owner time to actually run the business itself; lawyers are also useful because a mistake in the incorporation documents can delay a business for weeks and even months.
Being registered with the Secretary of State along with having a bank account, a tax identification number, insurance, and proper licenses is what a business needs to operate. From that point on it requires the actual implementation of business itself (setting up equipment, or purchasing inventory, or whatever else the business does). And then of course, pay the taxes.
The business formation process can be an very challenging, and one may find regulations, permits and contracts totally confusing. However, all of these are not illogical obstacles towards establishing your company as they are just part of the many requirements that allow authorities to monitor or keep track of every business formation occurring in one place while informing the government that has jurisdiction.
It is greatly important for any business to have its contracts undergo contract review. Contract review is important and is basically done to ensure that each contract is detailed, well-crafted and skillfully negotiated as the contracts protect the business and prevent legal battles and potential lawsuits. Few things must be considered when undergoing contract review.
- Ask – Do not hesitate to ask rather than simply signing off a contract. This is a good way for you to understand the risks or get a better deal.
- Read – Take time to read the entire contract before signing to avoid unanticipated issues. Always remember that once you have signed, you will be legally bound to all the terms in your contract, whether or not you have read and understood them; the law imposes upon individuals a duty to read the contracts they sign.
- Discuss – Address potential problems that may arise. It would be best if you have discussed possible problems along with negotiated resolutions before you sign the contract.
- Define – Every word in the contract counts and the best contracts are the least confusing ones. Specify each detail and discuss. Every detail tackled and orally agreed upon by both parties should be put in writing; failure to do so can be detrimental should a legal conflict arise.
- Innovate – Contract negotiations don’t have to involve money at all times. Parties involved may include services, a side service, co-promotion, small project partnership or possible contracts to perform in the future.
These particular business dealings often include the services of a business attorney who could stand as a part of the business team dedicated to legal matters. A business law attorney has expertise that enables him to explain the legalities and limitations of the different business practices of a company. The attorney will also be aware of standard contract provisions that can be included into a contract to protect the parties.
If you are after a smooth start in your business endeavors, dealing with the legalities first would be the best thing to do. It would be more favorable if you have already settled all these legal issues prior to officially opening and running your business. That will most likely help you face less legal battles in the future, if any. Often times, people start a business together and the terms are not clear from the outset; it usually is not until the business is turning a profit that the owners decide to determine what the terms should be; Do not let this happen to you, contact an attorney before you get the business going,