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There are many legal considerations when starting a business. As attorneys, we are fortunate to help business owners start and operate businesses. Unfortunately, we also see all the mistakes made by business owners. Hopefully, the below outline provides guidance that can direct and protect business owners.
Determining the appropriate business entity – sole proprietor, LLC or corporation?
Every potential business owner should consider forming a business entity to limit his/her individual liability for the debts and other obligations of the business. Without such a business entity, you are a sole proprietor or partnership and can be individually liable for business debts.
However, having a separate business organization, such as a corporation or limited liability company, may allow you to separate your personal assets from those of your business — and thus protect your personal assets from certain claims against your business.
Management and governance of entity
If you are going into business with one or more other people, it is essential that you determine the management of the entity through written documentation. An LLC should have an operating agreement; a corporate should have a shareholders agreement, etc.
These documents outline the management and governance of the business entity. They look forward to anticipating and, hopefully, avoiding disputes. If you are in business with others, it is imperative to have strong governing documents. If you don’t, you could experience disputes that could destroy the business.
Name and trademark rights
When you start a business, the name of your business can be important in attracting customers. But thinking of a great name is only the first step. The entity cannot have the same name as another business in the state in which it is organized. If the business uses a trade name, that also much be registered.
Finally, registration of the business name or trade name does not provide federal trademark rights. So, it is important to consider registering the name with the U.S. Patent and Trademark Office (www.uspto.gov). For more information, read this article, What’s in a Business Name.
Registering where business is “doing business”
When you start a business, you must register your business in every state in which it “does business.” If your business has employees in a state other than the state in which the business entity is organized — even if it’s an employee who frequently travels into the state on sales calls — or if your business does more than occasional business in another state, then the business entity may need to register as a “foreign entity” in that other state.
Choosing a registered agent
A business must appoint an official agent in every state in which it is registered and/or doing business. In all states, when a business entity is sued, the legal papers for the lawsuit may be served on its registered agent. Although business owners can serve as their registered agent, as discussed in this article, it is not recommended.
Employees, contracts, and other registrations
In addition to properly registering your business, the business has many other hurdles to consider. It needs to register with the IRS and state taxation authorities. Depending on the business, it may need to register with state professional regulators/licensing authority to conduct business. If you plan on hiring employees, you need to determine whether salaried, hourly, and how to properly pay. And, for almost any business, you need contracts that will protect your business.
Starting a business is exciting, but it is important to do it properly. Since 2004, the attorneys of General Counsel, P.C. have helped thousands of business clients with all of these issues. If you need assistance, contact us at firstname.lastname@example.org or 703-556-0411. Information on General Counsel, P.C. can be obtained at our website.