My grandparents came to this country with a desire to give their families a better life. In fact, they managed to not only heroically escape the civil war that engulfed their home country of Lebanon, but also to instill empower an entrepreneurial spirit in their children that many immigrants to the US share. Like many in the immigrant and first generation of American community, my family proudly comes from a tradition of small businesses founded on service, honesty, and hard work.
People from all backgrounds and experiences have entered the small business arena. Though small businesses are the cornerstone of the American dream, the reality is that people don’t always see success in their ventures. One out of every five small businesses fail in their first year and about half fail by their fifth year, according to the Bureau of Labor Statistics. Another study by Bloomberg, shows that 8 out of 10 entrepreneurs who start businesses fail within their first 18 months.
So we should be asking ourselves not just how to start a business but rather how to start a business effectively. The key to answer this question is by covering all your bases. Effective business lawyers serve as counsel to ensure that you get just that. Believe it or not, you need a business lawyer for your successful startup. Here are the top reasons why.
1) Business Formation.
As a new business startup you have to choose the right entity that makes sense for your enterprise and industry. Is a limited liability company the right choice for you or are best suited for a corporation? Should you just operate under a sole proprietorship, which is the default form of a single person owned business, or should you form a partnership? Do you have a charitable cause of some sort, and would you possibly qualify to operate as a nonprofit corporation or organization? Even if you did, is that the best fit for you? The form your business takes will dictate your legal and fiscal responsibilities in your endeavor, and this is vitally important when other people are involved.
Businesses enter into contracts and agreements of all sorts. Such agreements are entered between individuals, such as partners and investors, within the organization as well as entities external to the organization. Having the right contracts in place to protect your interests and fully understand your obligations and the legal implications at hand is no easy task. Avoid finding yourself in court one day by ensuring that you have the right legal contracts in place.
One of the purposes of organizing a business is to limit one’s personal liability when it comes to the operations of the business. When business grows, liability for its endeavors grows with it. Depending on the type and form of the business, owners and investors have different liabilities given the particular protections and risks involved. Without knowing how you are individually liable to the business you are operating, or involved in, you can be met with devastating surprises in the future.
Not all businesses are taxed equally. The form of your business will affect the way you are taxed. In addition, the industry you are in and the type of business you operate may involve additional forms of taxation that you are responsible for. The last place you want to fall short in is your obligations before the IRS (the Internal Revenue Service).
5) Registration and Licensing.
Not all businesses can just set up shop and start operating. They have responsibilities and obligations before their municipalities and state governments. Many states require business to register their entity with their state agencies. Even if state registration is not necessarily required, licensing could be required (be it for the retail, wholesaling, specialized services, etc.) under state or local laws.
6) Business Across State Lines.
If you are operating a business across state lines, which is often the case in many e-commerce based businesses, you may not be offered the same protections from state to state. Though your home state or the state you organized or registered your business in may offer you certain protections and allowances, it does not mean the same will be done for you in other states you are conducting business in. For some multi-state businesses, it is essential to be registered or licensed in every state they conduct business in to mitigate liabilities and ensure protections to their enterprise.
7) Online and E-Commerce.
8) Trademarks and Intellectual Property.
In starting your business, you may have been inspired to form a brand that is unique and stands out in your market. Before waiting for competitors or free-loaders to use your brand (or something close to it) and potential take from your market-share, it is wise to protect your intellectual property like you would protect any other property you own. You don’t need to be 10 years into your business to think about trademarking your names, logos, and slogans that are so vital to the success and growth of your business. You should be thinking about it now, before you find yourself needing to pursue legal action against infringers or even before finding yourself actually infringing on others’ intellectual property inadvertently.
If you do not put the proper legal documents in place and decide for yourself how you want your organization and business entity to run, some matters will essentially be decided for you. If your charter, operating agreement, by-laws do not speak to certain areas of your business the Uniform Laws adopted by many states will basically fill in the gaps. Thus, you will be governed by a set of laws that you know nothing about. Setting up your internal governance documents is essential so that you are not surprised with being governed by laws that may not be in your best interest.
10) Capital and Finances.
Different forms of business entities have different considerations for raising capital and how their finances are distributed. Nonprofit corporations function differently and have unique capital considerations when compared to limited liability companies and other corporations. Nonetheless, capital always reigns significantly and wise investments at the startup of a business are essential. This includes building into the infrastructure of the organization but investing in experienced and creative legal counsel that will help you reach your goals by giving you the foundation you need.