LEGAL CONSIDERATIONS FOR STARTING A NEW BUSINESS
Starting a new business is exciting, but can be both a challenge and gamble. It all begins with an idea, but the motivation to step out in faith must be present before it becomes a reality. For most, the focus of founding a new business is on getting new customers or clients and generating revenue. As most know, the early period of a new business requires a great deal of sacrifice: Financial sacrifice, time sacrifice, and family sacrifice. Most new business owners must take a substantial loan to cover all the "up front" expenses, like new furniture, computer, office space, employees, etc. With all the time spent setting up new accounts, finding the rights things to purchase, and fighting for new clients, it's easy to overlook a critical piece of the new business start-up: Getting all the legal matters straight! That's the focus of this article, and I hope to impart considerations for new business owners which will save time, money, and possibly legal expenses down the road.
The first consideration before beginning any of the actual business of a new company is the incorporation of the business. The SC Secretary of State website allows for incorporation over the web and takes credit card payment for a modest fee. It can be done immediately, and only requires picking the type of corporation (recommendation for most is to consider an LLC, but more on that in another article) and ensuring the name for the corporation is not already taken. This creates the new legal entity for the business and allows the new owner to separate personally from the business both legally and financially. Liability within the business can now be with the incorporated entity and not the owner personally. The business can be kept under separate accounts, and with single-member LLCs (and other such corporate structures) taxes flow through creating no additional tax burden. If finances go south, the corporation can fall under corporate bankruptcy procedures. All of this shields the owner from liability within the business.
Another consideration is in setting up the business accounts separate from the owner's personal finances. The business accounts should be kept to the penny, and it is recommended to have an accountant assist with the business payroll and taxes and tax deductions. One of the worst things a new business owner can do is to mix his personal accounts and assets with business accounts and assets. Not only does this put his personal assets at risk of business liability, but can prevent good record keeping of the business expenses. Keeping things business related within the business allows for legitimate business write-offs for tax purposes, saving the owner a great deal of money.
Depending on the type of business, the owner should consider purchasing insurance before doing anything business related. Insurance starts with the start of the policy, and any liability previous to that is not covered. If the business hires four or more employees, the owner should purchase workers compensation regardless of the type of business. Failure to do so can bring not only liability but fines. Accountants can help with the business expenses for things like unemployment. Again, not only does this prevent direct payment issues, but prevents fines or worse.
I recommend considering hiring a law firm to draft any necessary operating agreements for businesses which involve multiple partners (or members for LLCs, which are de facto partners!). Operating agreements help maintain friendships and help with the ease of separation when that becomes necessary. Attempting to work off verbal agreements becomes a recipe for misunderstandings and potential problems between former partners down the road.
Lastly, I would also recommend considering retaining a firm to answer legal questions as they arise in the course of business. What I do for small business clients is keep a modest amount of funds in a trust account for the business. The Bill Connor Law Firm only charge the business if I am contacted about a legal question, and only charge for that specific time with the issue. This can save a great deal of money and time by ensuring legal matters are straight. For example, I had a business call me about a potential employee who required the use of a service dog. In that case, the business almost unknowingly violated the Americans with Disabilities Act. However, in calling me, we were able to handle a unique issue without breaking the law. This saved the business a great deal, with little spent for our help.
Having started my own business (The Bill Connor law Firm), I understand the challenges new business owners face. My advice is to stick with it and, like Winston Churchill admonished: "Never quit." You will make it, but start the business the right way by getting legal matters straight first. God's Speed!