Serving small businesses and entrepreneurs is one of the cornerstones of our firm. I am continually impressed by the innovation, hard work, and calculated risks our clients take when starting and operating their small business ventures. As a full-service law firm, we often advise clients regarding the various legal issues they may experience in operating their existing businesses, but just as important is the advice we give when they start a new business.
One of the unanticipated side effects of the COVID-19 pandemic has been what’s called The Great Resignation, an unprecedented number of people quitting their jobs. According to a recent survey, roughly one-third of those quitters plan to start their own businesses.
For those people, and all the other entrepreneurs out there, I’ve compiled a short list of topics to consider when you’re starting a new business venture. As each industry presents its own unique circumstances, this is not meant to be an exhaustive list, but merely a starting point for discussions with your first set of advisors (which hopefully includes a lawyer):
Assemble your initial team
This is the most important consideration, and the step that should be taken before all others. I fully understand the appearance of bias in this recommendation, but your team should always include an attorney who is knowledgeable in business formation and entity structures so that your business commences operation in the entity form best suited to your needs.
From the outset, you should also have a CPA on your team to offer input regarding structuring your entity from a tax perspective as well as to advise you regarding proper bookkeeping procedures and other income tax and employment tax matters.
Entity formation
Your attorney and CPA will advise you as to the best entity structure for your new business and your attorney will draft and file your entity formation documents. But they’re not going to do all the work. Be prepared to discuss with them in detail many aspects of your new business, including whether you will hire employees, whether you plan on taking a salary, and whether you will have outside investors or business partners (and how they will be compensated).
Also, be prepared to propose an entity name for your new business so that your attorney can check the availability of that name with the Secretary of State (I usually ask my clients to propose several to choose from, just in case). Keep in mind that your entity name doesn’t need to be the same as your trade name, or the name your business uses with the public. Which brings me to the next consideration….
Trade names, trademarks, and other intellectual property
You should also consider ways to protect your “brand” and the name you plan on using with the public. By taking the proper steps, you can give yourself a leg up when others try to misappropriate your name and other intellectual property. At the same time, before investing your resources in the use of a particular trade name, you should research whether others are already using or have already registered the same or similar trade name.
Seeking the advice of a qualified trademark attorney to help with these matters at the outset can protect your name and goodwill through the life of your business and save you much grief later.
EIN and bank account
Once your entity is formed, you can apply for your entity’s Employer Identification Number (EIN) yourself on the IRS.gov website. Even if you don’t plan on hiring any employees, most banks will require a valid EIN as a condition to opening a bank account in the name of the entity. And you’ll want a new bank account for your new entity, separate and apart from any existing personal or business bank accounts you may have.
Regulations and licensing
Depending on what type of new business you’re operating and your jurisdiction, you may need to get specific business licenses and permits. For example, if you’re opening a bar or a restaurant that serves alcohol, you’ll likely need to obtain a liquor license. Or, if you’re planning on selling used vehicles, you may need to get a special license from the state department of motor vehicles. If you’re not already familiar with the licensing requirements of your new business, you should ask your attorney to advise.
Insurance
You should consider whether your entity, its place of business, and its assets should be insured through general liability and casualty insurance policies. A common misconception I’ve heard is that a home-based business is covered under a standard homeowner’s policy, but this is almost never the case.
If your business will employ others, it may be a requirement in your jurisdiction that it carry workers’ compensation insurance (and it may be a good idea to carry this type of insurance even if it’s not required). Additionally, special types of insurance are available to certain industries, such as professional liability, builders’ risk, and errors and omissions insurance. You should discuss the availability and necessity of insurance with a trusted insurance agent.
Employee matters
If your new entity is going to employ individuals other than ownership, then at the very least you need to understand the mechanics of payroll, withholding, and employee benefits. As you hire more employees, you may also need to consider an employee handbook, compliance issues, and more complicated human resource issues. At some point, having an employment law attorney or human resources professional on your team to answer questions as they arise may be necessary.
And more attorneys
Aside from forming your entity and advising on intellectual property and employment law issues, it may also be helpful to your particular business to seek the advice of other attorneys. For example, if you’re starting a new construction business, you may want to have an attorney draft or suggest a set of contract forms to use with subcontractors or material suppliers, or a set of documents to use when protecting your mechanics’ lien rights. Or if your business will purchase or lease real property, you should have an attorney review and advise you regarding your transaction documents or lease agreement.
I cannot stress enough the importance of getting professional advice in starting a new business. I realize that the potential costs of these professionals can seem daunting in the context of a business that hasn’t yet begun to generate any income, but by minimizing the potential for mistakes, some well-placed advice can save you money in the long run.
And luckily, most full-service law firms (such as ours) can provide advice on multiple aspects of your business, so you won’t have to hire and retain an army of attorneys. Please contact us if we can be of assistance.
