There’s a lot of press and chatter around start-ups these days, particularly tech start-ups. Often the conversation revolves around the seed money – sometimes to the tune of millions of dollars – that angel investors are pouring into these companies. But for most entrepreneurs starting a new business, their “seed money” is their personal credit card. They have to do things on a dime to get the company off the ground, and unfortunately, a lawyer is often not in their budget. Legal matters end up relegated to second thought (or third, or fourth).
To get those legal matters back to the forefront of the new business owner’s mind (where they belong), here’s a quick-and-dirty, though not exhaustive, list of some basic legal steps critical to launching your company out into the world.
- Form the business. It’s almost always better to form a business entity (a corporation, limited liability company, partnership, etc.) than to operate as an individual proprietor. What kind of entity you choose is a long discussion, and one that your accountant needs to play a role in as well. For now, you can read our prior post about formation, name reservations, and the misconceptions around “DBAs”.
- Get yourself licensed. If your business is operating in a regulated profession or industry, you’ll need a special license from the state. In addition, every company needs a general business license. These are usually issued by the city in which your business is located. Even “virtual” businesses – i.e., the ones you run from your dining room table – need a business license. Although running a business from home is easier in many ways, you may need to complete a special zoning form to get a business license for your home address.
- Square away your taxes. You’ll need to get a federal Employer Identification Number, even if you won’t have employees at first. You may also need to register your business with the state for tax purposes. If you’re selling products or services that are subject to sales tax, you’ll need to register with the state for that, too. And if you are hiring employees, you’ll have federal and state employer registrations to make. Every state is different, but most states have good online resources for new businesses that will outline the requirements.
- Think insurance. This is another expense that new business owners may want to defer until the cash starts flowing, but even brand-new companies can be subject to liability. A general liability insurance policy is a good idea for most companies. Depending on the type of business you have, product liability insurance, professional errors and omissions (aka malpractice) insurance, and even cyber liability insurance (protecting against data breaches) may make sense. A good insurance broker can help you wade through the options.
- Cross your Ts and Cs. Terms and conditions, that is. Chances are, you’ll be signing some contracts during the early stage of your business – for vendors or suppliers or customers. If you’re an online business, you’ll need terms and conditions and policies for your website. Getting a lawyer involved to review these contracts and terms is a good idea, but at a minimum, you should read every word yourself; if you don’t understand it, don’t sign it or use it. Just because somebody else’s lawyer has reviewed a document doesn’t mean it’s a good document for you or your business.
- Protect your work. After you finish the all-important process of developing your products and branding your business, consider taking steps to protect that hard work. Patents, copyrights, and trademarks exist for that purpose.
- Call in the troops. After all that, the best advice for new business owners is to get advice from the pros. A few hours of a lawyer’s time are worth the investment to make sure you start off on the right foot. Proactive legal advice will always be cheaper than reacting to legal problems after they arise.