So, you’ve decided to open your first business – CONGRATULATIONS! One the most important aspects to get right from the beginning is the legal. Trust me, you’ll want to sleep well at night knowing that your CLO (Chief Legal Officer) role is on point and taken care of.
There are multiple legal considerations to keep in mind when starting a new venture. Let me walk you through the top five (5) most important legal steps to take when opening your first business.
- Choose the Right Business Structure for Your Business
Legally speaking, the first step in starting any business is to choose the right legal structure. This decision will have a significant impact on your tax obligations, personal liability, and overall business operations. The most common business structures are Sole Proprietorship, Partnership, Limited Liability Company (LLC), and Corporation.
A Sole Proprietorship is by far the simplest business structure, but it completely leaves the owner personally liable for all debts and legal issues that arise. There is absolutely NO legal protection when it comes to a Sole Proprietorship. A general partnership (unincorporated) is like a sole proprietorship but involves two or more owners.
An LLC (or in some states a Limited Liability Partnership – LLP) provides legal protection for your personal assets—not only those owned now, but those you may own in the future. An LLC or LLP does require a little more paperwork and fees to be set up, but this cost is almost always outweighed by the benefit.
A Corporation provides the most liability protection, but it is the most complex and expensive to establish. It also requires a lot of paperwork now and in the future. If you are a solo owner, you almost always will want to choose an LLC. - Register Your Business Entity with the State
Once you have chosen the best business structure for your business, you will need to register it with the state and obtain any necessary licenses and permits. This process can vary depending on your type of business and your location. It is important to get this right. Failure to properly register your business can result in fines and legal issues down the road. An attorney can assist you through this process and ensure that your registration is complete. - Lock Down Solid Contracts and Agreements
As you begin conducting business, if you are selling something (your services, goods, products), you must have some type of contract or legal documentation. This can include contracts with your customers, vendors, employees, and/or contractors. You will want to have your initial foundational agreements drafted by an attorney. I am not just saying this cause I’m attorney, but I have seen the consequences of bad and no contracts, and whether it catches up to you now or 5 years from now, it always does. Clearly laying out the terms and conditions of the business relationship, payment terms, delivery schedules, confidentiality agreements, etc., can make or break your business.
You can have an attorney customize an agreement from scratch or, as offered by Bounds Law partner, you can purchase most agreements HERE in the Legalfluence Contract Store as a reduced-price attorney-drafted contract template and have one of our attorneys review the finalized template agreement you made in a 30-minute call. You will do the heavy lifting on writing out the initial terms and such in the template, but this will save the attorney time and save you and your business a lot of money. - Secure Insurance Coverage
What’s the fastest way to file bankruptcy on your small business? Not having some type of insurance coverage for your business in place in case of an accident or just winning the (bad) lottery of serving that unreasonable, sue-happy customer or client. It does not matter how careful you are, accidents and unforeseen events happen in business. Insurance is just one of the costs of choosing to do business. To protect your business and further protect your personal assets, it is crucial to obtain the right insurance coverage. This can include general liability insurance, workers’ compensation insurance, and property insurance, among others. A local insurance agent can really assist on this piece. - Protect Your Intellectual Property—or at the least, Consider, and Understand, Your Intellectual Property
I am probably going to ruffle feathers with this opinion, but you may or may not need to formally protect your intellectual property when first getting started. You see, intellectual property (IP) is any unique creation of the mind, such as a brand name, logo, work of art, or invention. If your business features an invention or piece of art (think children’s book), in that case, yes, it is absolutely imperative you properly file for a patent or copyright so that your idea is protected and cannot be stolen.
As for a Trademark (think name and logo), this will depend on what plans you have for your business in the next 2 to 5 years. If your name and logo is super important to you, you don’t want to risk the chance of having to rebrand your business, you plan to spend A LOT of money in marketing your first 2 years, you plan to sell your company or brand, or you plan to franchise or open numerous locations—if any of these circumstances apply, officially registering your Trademark is urgent. Otherwise, do some due diligence that you are not infringing on another’s mark and, later on, if you run across an infringer on your mark, make sure you send them a cease-and-desist letter to stop. Once you have the funds (think end of the year and you need to find tax deductions), seek a Trademark attorney and officially register your Trademark(s) then.
For more on Trademarks, see our blog post HERE on Trademarks.
Here at Bounds Law we offer our unique Initial Legalfluence Map Out Meeting where we specifically advise you on each of the above steps, as well as map out numerous other major legal considerations your new business will encounter over the next 5 to 10 years. Your business will leave the meeting with a strong legal backbone and knowledge for when you will need legal help in the future. Find more information HERE.
Your house is only as good as your foundation!
