Starting an Online Business in the Era of COVID-19

While the COVID-19 pandemic has wreaked havoc on many existing businesses, it has also created new opportunities for budding entrepreneurs...

While the COVID-19 pandemic has wreaked havoc on many existing businesses, it has also created new opportunities for budding entrepreneurs. As social distancing, remote learning, and telecommuting have become the new normal, many online businesses are thriving. New businesses are also forming to meet our changing needs, which range from online fitness classes to remote working platforms.

The pandemic may also make it more affordable to launch a new business, particularly one that is exclusively online. It’s now the norm to work remotely, which means you can not only operate your business from the safety of your home but also avoid costly lease payments for office space. Many of the expenses associated with a home office are also tax-deductible.

All of these benefits can make it extremely tempting to launch an online business in the throes of the pandemic. However, before starting your new business, you should be clear on some key questions: 

• Do you have a written business plan? Starting a business requires more than a good idea. Key questions to address in your business plan include what will your product or service accomplish; how is it different from what is already on the market; how will your market/sell it; and who are your competitors.
• How will you secure funding? It’s imperative to determine how you will fund the business; that means preparing a budget and making sure you have or can get the needed funds. Key questions to consider include how much money you will need to get off the ground, where you plan to get it (bank loans, venture capital funds, angel investing, crowdfunding, etc.), and your timeline for profitability.
• What types of documents do you need to get up and running? All businesses must register on the state and local level. Registration with the States of New York and New Jersey may be completed online. Businesses should register their trade names at the county level and may not select a name that is already in use in that county.
• What type of entity will your business be? There are a number of legal structures available to entrepreneurs, all of which have distinct advantages and disadvantages. While a sole proprietorship or partnership involves less paperwork, it fails to shield the founders from personal liability for the debts and obligations of the business. While more costly and complex, a business corporation or a limited liability corporation is generally a safer choice.
• What are your tax obligations? Internal Revenue Service (IRS) regulations allow a sole proprietorship or a single member LLC with no employees to use the owner’s social security number for federal tax purposes. However, all other business entities must obtain a Federal Employee Identification Number (FEIN) from the IRS. In addition, businesses that provide a product or service that is subject to sales tax must register with the New York State Department of Taxation and Finance or the New Jersey Department of Treasury.
• If you have a partner, what documentation is needed? When forming a New York or New Jersey partnership, you don’t need a written partnership agreement but it’s certainly a good idea. Clearly outlining the rights and obligations of both parties is one of the best ways to resolve disputes and avoid costly business litigation. 
• Who will run the company? It is important to honestly assess whether you have the time, resources, and experience to successfully run your business. If not, will you hire employees? Once your startup is ready to hire employees, it is important to do it right. A written employment contract establishes and structures the legal relationship when you hire an employee. Issues to consider include the duties, wage/hours, equity grants, benefits, non-disclosure of confidential information, termination, and non-compete/non-solicitation.
• How will you handle intellectual property concerns? Nearly all startups have (or are developing) intellectual property of value (trademark, copyright, trade secrets, etc.). If you fail to obtain the proper IP protection, you may have no legal recourse should a competitor try to use them. In addition, without the proper non-disclosure agreements in place, your business partners or employees might try to walk out the door with your million-dollar idea.  At the same time, it is also important to verify that you are not potentially using someone else’s intellectual property and thereby infringing, i.e. is your brand or business name already registered to someone else?

Finally, many entrepreneurs make the mistake of trying to do everything on their own and don’t hire professionals to advise them on tax, accounting, human resources, or legal issues, even the sale of the business. Missteps in these crucial areas can be disastrous, costing your start-up both time and money in the long run.

If you have questions, please contact us

If you have any questions or if you would like to discuss these issues further,
please contact Dan Brecher or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.