5 Legal Things to Consider When Starting a Business
Entrepreneurs often like to move fast. But when it comes to starting a business, you will be best served taking these initial steps a bit slower to help you avoid larger (and more expensive) problems later on.
Organize your governing documents
Like we discuss in our Startup guide, there are several steps to follow to actually create your new business. First, you need to file organizational documents with Missouri’s Secretary of State. In most situations you can file online. Second, you need to draft governing documents for your business (such as an Operating Agreement for LLC), which will contain the key rules that govern your company and its owners. You should also include a list of your businesses’ owners and their relative ownership percentages in your company’s governing documents. And last, you should obtain an Employer Identification Number (EIN) from the IRS.
Pick a smart business name
You should strive to pick a business name that (a) you can protect; and (b) won’t infringe other people’s rights. In terms of what you can protect, go for something unique. That’s because it is much easier to protect arbitrary names using trademark law. (In fact, you can’t protect generic names at all.) In terms of avoiding infringement, always run a trademark search. You can search on your own (via Google, Facebook, the U.S. Patent and Trademark Office, etc.) or you can hire a lawyer or other trademark search company.
Consider insurance to reduce your risk
Although LLCs and Corporations provide limited liability to the owners, you still have some risk (and your company will still be on the hook for liabilities). For this reason, it is wise to meet with an insurance broker early on to assess your risk and determine if insurance would be a smart purchase for you. It often is, which is why it is commonly referred to as your first line of defense.
Use contracts when appropriate
Most oral contracts (but not all) are enforceable. However, it is almost always a good idea to use written contracts. This is especially true when hiring vendors, hiring independent contractors and when clients hire you. At a minimum, you should include provisions regarding payment, service or delivery of goods, confidentiality and assignments of intellectual property. There’s a lot to consider here, which is why it is often smart to hire a lawyer to draft templates for you.
Be smart about banking and accounting
This isn’t necessarily a “legal” topic, but it’s important nonetheless. First, select a good bank. This means a bank that works the way you work. For example, if digital tools are important to you, then evaluate the bank’s digital stack before opening an account there. Second, set up your accounting using a cloud-based accounting platform and create a good chart of accounts that matches the way you earn and spend money. From there, make sure you reconcile your bank feeds on a regular basis.
What to do next
Although many entrepreneurs try to do as much on their own as possible, it’s usually a good idea to meet with a business lawyer when you are starting your business. Even if you just meet with them for an hour, that will be better than trying to learn all this on your own. If that isn’t an option, you can learn a lot about legal issues for entrepreneurs online.
Call us at 866-870-6500 and talk to real folks who can help you with your next steps. Or you can message us and we’ll send you a personal action plan helping you with the next steps to take (for free).