Small business owners have their hands full making plans, developing products and services, and lining up financing. But meeting with a lawyer before starting a business can be one of the smartest moves you can make. Your lawyer can explain how to start a business and answer your legal questions. But more importantly, a lawyer can identify the risks you face and help you minimize them.
When you meet with your lawyer for the first time, it’s a good idea to have some questions in mind. But as a new business owner, you may not even know where to start. Here are some things to ask.
1. WHAT BUSINESS STRUCTURE SHOULD I CHOOSE? Before starting a small business, you must decide how your business will be structured. If you do not form a formal business entity, your business will either be a sole proprietorship (with one owner) or a partnership (with more than one owner). Legally, you and your business will be the same “person,” so if your business has debts or is sued, you are personally liable for those obligations. To limit this liability, you can form a business entity such as a corporation, limited liability company, or limited liability partnership. Owners of these business entities do not risk all their personal assets if the business cannot meet its financial obligations. Their losses are limited to the amount they have invested in the company. It’s important to weigh your options and choose carefully because your choice will affect the way your business is owned, managed and taxed.
2. WHAT DO I NEED TO KNOW ABOUT CHOOSING A NAME FOR MY BUSINESS? You probably already have ideas about the name you’d like for your new business. But you need to consider legal issues before you start ordering signs and business cards. Every state has rules about the names that new business entities can use, and in general, you can’t choose a name that another business is already using. In addition, it’s risky to choose a name that might infringe on another business’s registered trademark. And if you think you’ll want to trademark a business name, you’ll want to choose a name that meets the criteria for trademark protection.
3. HOW DO I MINIMIZE MY RISKS AS AN EMPLOYER? A variety of employment laws may apply to your business, and you risk fines, penalties and/or employment-related litigation if you don’t know the laws you must follow and the steps you need to take to stay in compliance. Laws range from anti-discrimination laws to health and safety regulations to wage and hour laws. You may need policies and procedures, handbooks, and training to ensure that you don’t inadvertently violate them. You must also comply with laws relating to such things as the minimum wage. And if you employ people who are not U.S. citizens, you may face immigration issues.
4. WHAT SHOULD BE IN MY OPERATING AGREEMENT OR BYLAWS? Bylaws and LLC operating agreements provide important guidelines for operating your business. These documents explain such things as how decisions will be made, when and how shareholder meetings are held, how to handle LLC ownership changes, and how shares of stock are issued.
5. HOW CAN I PROTECT MY INTELLECTUAL PROPERTY? All businesses potentially have trademarks that they use to identify the business and distinguish it from others. Your business name, logo, labels, slogans and packaging can all be trademarks, but you must take steps to protect them. You may decide to register a trademark with the U.S. Patent and Trademark Office. Businesses also may have copyrights in any original works of authorship, including such things as photographs, brochures, and websites. Copyright protection is particularly important if you are in a creative field, and if you have an invention, you may need to apply for a patent.
6. WHAT CONTRACTS DOES MY BUSINESS NEED? Contracts protect your business by describing the rights and responsibilities of the parties to the agreement. A well-written contract can reduce the number of disputes that arise, ensure that you get paid for the work you do, and provide a clear remedy if one party doesn’t hold up its end of the deal. Your business might need contracts for routine transactions, to protect confidential information, to describe employment relationships, or for leases and other major transactions.
7. WHAT OTHER RISKS SHOULD I BE GUARDING AGAINST? Every business faces a unique set of risks. While some can be minimized with contracts, entity formation, and other proactive steps, others require insurance. Always ask your lawyer to assess your risks and identify ways to alleviate them.
Getting business advice and legal help from a lawyer is a smart way to start a business off on the right foot. But don’t lose touch with your lawyer once your business is up and running. Make it a habit to seek business legal advice on a regular basis to ensure that you are protecting yourself as your business grows and changes. If you're a small business owner and need legal help, give us a call at 253.858.5434.