What Legal Considerations Do I Need To Think About As A Start-Up?
Disclaimer: This article is for informational purposes only and not for the purpose of providing legal advice. Applicability of any legal principles discussed have not been verified for compliance with the law of any particular state and may differ substantially in individual situations. If you have a specific legal problem or concern, you should consult an attorney.
Community Q: I’m thinking about starting my own business but I don’t know all of the legalities that go into starting one. What are some things I should consider as I start my own business?
Barry Heyman serves as an outsourced “general counsel” to individual entrepreneurs, startups, small and mid-size businesses. As general counsel, Barry provides legal advice and counseling on an array of issues which typically confront growing businesses, such as entity choice and formation, business contracts, intellectual property, and commercial leases. To learn more visit heylaw.com
1. Choose the right business structure.
You, the individual, can run your business, but without an entity, the liabilities can be unlimited, and all sorts of compliance matters (discussed below) like employing people and charging sales tax become difficult or impossible. So, for most businesses, you want to form an entity. The four most common forms of business structures are:
- sole proprietorship
- general partnerships (general or limited)
- corporations (s-corp or c-corp); and
- limited liability companies (“LLC”)
When considering your business structure, the following are important areas of concern: assessing potential liability, knowing the cost to establish and maintain the business entity, understanding your income tax liability, and determining the investment needs of the startup. Some types of entities must have more than one owner. Some cannot include non-US-taxable persons as owners.
Each structure has its advantages and disadvantages. For example, while sole proprietorships (a one-person business) and general partnerships (a business owned by two or more persons) happen if you do nothing else and consequently have low startup costs, they may not adequately protect your personal assets from the debts of your business. On the other hand, while setting up a more formal entity such as a limited partnership, corporation or LLC may limit your personal liability and be more suitable for seeking investors, they are more expensive to form and maintain and often involve more maintenance (such as holding mandatory meetings, documenting major decisions, maintaining records, etc.). Before making a decision, it is advisable to consult with both a corporate attorney as well as an accountant to discuss the various tax implications and filing requirements. Most states and the federal government have guides for starting a small business. Reviewing these free resources prior to talking to your accountant and attorney can save time and money. For example: http://www.nyfirst.ny.gov/ResourceCenter/SmallBizMenu.html and https://www.sba.gov/