How to Start a Business
One of the first questions you should consider when starting a new business is: What kind of legal entity do you wish to be? There are many options you can chose from, but there are several factors that you should take into consideration when choosing your business entity:
- What type of business are you creating?
- How many owners are there?
- Do these owners want to play an active role in the business?
- How much liability will you have with your business operations?
- How do you want the business income taxed? Personally? Or through the business itself?
- In what states will you be operating your business?
Answering these questions will help put you on the right path to determine what sort of business entity best fits your business. For example:
- If its just you working in the business, a sole proprietorship may be the best business to create.
- If you are starting a business that has significant liability, such as a home construction company, transportation company, or even a retail store, an LLC or S-Corporation may be the best bet for you.
The business you start depends on your circumstances and what your goals are, so consider each question carefully. A business lawyer can help you analyze your situation and chose the right entity that best suits your needs.
Choosing a Business Entity
You have a variety of business entities to choose from when you begin a small business. You have the option of creating any of the following enterprises:
- Sole Proprietorship
- General Partnership
- Limited Partnership
- Limited Liability Partnership (LLP)
- Limited Liability Company (LLC)
- Chapter C Corporation
- Chapter S Corporation
Each of these entities has their benefits and drawbacks depending on the type of business you are starting. For example, if you wish to start a business washing windows with a friend, a general partnership may be the best for you. However, if you wish to start a lawn care business where there will be several employees, an LLC may be a better option due to the inherit liability associated with the business. Consider your circumstances are and what protections and structure you wish to have in your business.
Make Sure You Have a Business Succession Plan
When a small business is created most people do not consider how the business will be handled at the retirement or death of the owners. But this part of creating a small business is absolutely critical. You need to form a business succession plan at the outset. Consider the following questions when forming a business succession plan:
- Do you have other owners?
- Who do you want to control your business after you are gone?
- Will the business will be sold to other owners or inherited by your family members?
- How will determine the value of the business at your exit?
After you discuss these questions with a business lawyer, the next step is to think about is what kind of succession plan you want. Some of the ways you can create a business succession plan are to:
- Have a buy-sell agreement
- Leave the business to beneficiaries in your will and estate plan
- Direct your executor to sell your business at your death
- Close the business at your death
- Transfer the business interest to a trust to receive income for your life, then distribution at your death
Create an Business Operating Agreement
If you are starting a new business which will have multiple owners, a well written operating agreement or bylaws is critical to making sure all owners are on the same page and understand how the business legally operates. An operating agreement is essentially the constitution of the business. It sets forth the overall framework of the business and how profits and expenses are shared, the purpose of the business, policies for adding new members, and selling business interests. Do not make the mistake of jumping into a business with other owners without having an agreement in writing. Unfortunately, “handshake” deals are all too common and can have devastating consequences. Speak with an attorney to determine the best way to tailor these agreements to your own enterprise.
Business Contracts and Leases
At the heart of a well-run business are good contracts and agreements. Whenever possible make sure any agreements you have in your business with third parties are in writing. Well written contracts, leases, and other agreements, provide incalculable protection from misunderstandings, ambiguities, and disagreements as to terms.
Non-Competition and Confidentiality Agreements
It is often said that a business' biggest asset is its employees. Employees provide invaluable help in keeping your business operating at its highest abilities. However, problems often arise when employees leave your business. They may have been exposed to certain trade secrets, were the face of your company, or you may have given them specialized training. In cases such as these, it is important to have well written non-competition and confidentiality agreements. These type of agreements protect your interest in case a critical employee leaves your business and works for the competition or start their own business.
Considering Starting a Business? Contact Business Lawyer John Crow Today.
Got a great business idea? Ready to pour your blood, sweat, and tears to your enterprise? We are here to help get your business off the ground. Give us a call today at our Clarksville or Hopkinsville offices to schedule an appointment.