The prospect of starting a business is an exciting one, but it also comes with an inherent amount of risk.
Identifying these risks and working specifically with an attorney from the moment you establish your company can make it easier to address problems as they arise. What follows are several of the most important things you need to keep in mind about entrepreneurship and its intersection with the law when starting a business.
The Right Type of Formation Has a Significant Impact On Your Business
Starting a business means that you must decide on the type of legal formation necessary. This is a critical decision that will influence not just your future structure, but also how the company is managed and taxed. There are several different types of formations that are quite common, including sole proprietorship, non-profit partnership, corporation to limited liability company. If you have not yet legally formed the business, you will want to consider issues such as:
The types of legal formations available within your state
Each individual’s personal investment situation
The risk level of the business
Your personal liability for legal actions and debts
Determining the costs linked to each type of formation
Planning for business and personal income tax issues
Your Exit Plan
It might seem too early at the outset of your business venture to think about leaving the company in the future. However, this is something that you cannot afford to neglect. Important documents may need to be drafted during the formation stage of the business, such as a buy/sell agreement, which will articulate what other individuals are able to do in the event that you become incapacitated or pass away. This enables others to step into management or ownership role of the company if you are no longer able to do it. Failing to have a business succession plan in place could prove catastrophic for your company and this why it is strongly recommended that you have a plan prepared.
You Need the Right Types and Amount of Insurance
As is mentioned above, running a business is all about managing risk. You need to be aware of all the potential risks that your company might face and the appropriate ways to minimize these. One of the most important ways to do this is with insurance. There are many different types of insurance policies including umbrella policies that have numerous different types of claims that may fall under them. Common types of insurance for businesses include errors and omissions insurance, general liability insurance and others. Having this in place can make things much easier in the event that a claim arises. Sudden changes in the business that were unexpected could lead to financial costs and aggravation for the owners.
Understanding Your Intellectual Property Rights
Every business has intellectual property that has the potential to become very valuable. Some of the issues may include how patents can drive revenue from your inventions, how copywriters can ensure that only you profit from the original work and how trademarks can increase your business’ profits as well as your brand value. It is essential to protect the inherent value in your intellectual property as soon as possible. As you evolve and have new business relationships this is vital as well.
Contracts Are Key
The standard form of agreement across the business world is contracts. It matters not just that you have a document in place, but that you have a document that works specifically for you. Your contract needs to consider all potential risks and protect you as much as possible.
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