Starting a business is a big deal, and it’s expected that you’ll feel excited and nervous. It doesn’t matter if you have plans to build the next Facebook or to work from your kitchen table making artisanal foods; being an entrepreneur is a daunting task. Many new business owners have great ideas but are unprepared for the legal or operational challenges that always come with the territory. For example, it’s essential to create a legal separation between your personal finances and those of your company. Also, founders are not likely to be experts in such matters as taxes and human resources—and they shouldn’t and don’t have to be. Instead set yourself up to win – and to avoid fatal traps—by checking these five items off your to-do list:
1. Consult a lawyer on business formation. When you’re getting started, it’s important to create an LLC or form a corporation to separate any business liabilities from your personal financial circumstance. Many startup owners will try to cut corners by continuing to use their personal funds to pay company bills, but you risk jeopardizing the legitimacy and security of your business. You also put your family at risk. It’s okay to admit that you don’t know the difference between an S corporation and a C corporation! Or a B-corporation. The reality is, many people don’t. Online research helps, but nothing offers peace of mind like speaking to a true professional, a lawyer trained in business formation, and asking questions. Something that can be very helpful and lead to a productive discussion is to actually write down the questions and the topics that you are most concerned about so that you have so it can help you organize the conversation. Are you worried about liability protection, protecting your intellectual property, minimizing your taxes or something else. If you are going into business with a partner, make sure that you discuss the roles and responsibilities of each and what the expecations are before starting the business.
One way to go: Launch by LegalShield, costs as little as $145 and allows business owners to speak with their own lawyer and set up their new company the right way.
2. Make sure that you follow corporate formalities to ensure that you are able to ensure that no one can peirce the corporate veil. There are different corporate formalties depending on the entity type that you choose but some of the common ones that you should follow regardless of entity are as follows
- Get an FEIN (Federal Tax Identification Number) for your business, which will serve as your business’s security number. If you have more than one owner for your LLC or are forming a corporation or are going to hire employees, then you will have to get and EIN
- Keep personal funds separate from company funds by creating a business bank account
- Keep expenses separate by getting a business credit card
- Ensure that you properly capitalize the company by ensuring that you have enough money in the business bank account and pay yourself an appropriate salary
- Make sure that you have an accountant or use software that will make it easy to calculate you business’s Profit and loss statement.
3. Do your research and create an IP protection strategy. Without question, your company’s most valuable assets are its intellectual property, whether this is in the form of a service, software, or a new product, even a recipe. Many companies and individuals fail to understand that there is no one-size-fits-all approach for protecting intellectual property. This is why it is essential to consult an attorney. Further, these days, most of our business assets are online, which requires additional protections against hackers and thieves. Business owners must have clear policies in place for employees and contractors regarding data, trade secrets and passwords. Another common mistake is to infringe on another company’s trademark. It’s up to a founder to thoroughly research companies, patents and trademarks to ensure that you avoid legal repercussions. The help of a trademark attorney can be a huge relief.
4. Invest in a good website. Starting a business can be exhilarating, and it’s normal to feel impatient because you’re in a hurry to get started. Regardless of your field, everyone will look you up online. A company website is a fundamental branding tool and provides the first look at your logo and proprietary information and products. It’s essential for the website to have all relevant information listed and organized neatly, and no typos. If the website requires more sophisticated features and plug-ins, consider hiring a professional who can also assist in designing your site for optimized viewing on mobile devices. This can cost less than you might think.
5. Consult an attorney and make sure that you have set up formal legal contracts. Talking with your attorney should not end after you form your business. There are a lot of decisions that you make, such as signing a lease, hiring an employee, terms of service for your website, notices that you need to provide customers if you are looking to take recurring payment and many others that come up as the business grows. Maybe you’ve heard the story about the two guys who made a deal on a handshake, or the inventor who drew his design on a napkin. How about the one about the small business founders who forgot to have their web designer pal sign a confidentiality agreement? While many startups thrive with an informal atmosphere, the habits that abound in these fun settings can create costly problems if specific, necessary requirements are not met. Companies need to set legal agreements in place among founders, employees and third-party vendors. While this may certainly cause some hurt feelings among friends, it ultimately protects all parties from unwanted lawsuits, legal issues and future heartbreak. With Launch you get access to the Legalshield Family Plan plus the Home Business Rider for 3 months with the opportunity to continue being on the plan after that.