So you decided to start a small business. Congratulations! So many of my clients have taken this plunge and would never look back. Entrepreneurship offers so many benefits and can be so much fun. Hopefully it is something you are passionate about and makes you excited to jump out of bed in the morning. However, I am guessing certain issues in running your business – entity formation, management, accounting, finances, legal risks, etc. aren’t the things that you get excited about. Yet dealing with these issues on the front end, being aware of your obligations and risks, and managing these appropriately can make the difference for your passion project in the long run. Here at Kinetic, we help our clients work through a lot of these issues both on the front end and when an issue arises during the course of your business. I can tell you preparing on the front end is a lot less stressful and cost effective than trying to deal with issues when they arise – as the age old adage going: “An ounce of prevention is worth a pound of cure.”
A lot of our clients have been asking for a checklist to follow as they start business, so we decided to put one together that you can follow as you get your business going, or even after you have started your business and can make sure you have not missed any crucial step along the way. While this list is not all encompassing, as each business is different, and has its own set of priorities and needs, these are some of the major issues most small business owners encounter on their journey to entrepreneurship. This legal checklist also includes our recommendations as to whether the particular issue is something that can be managed with or without an attorney.
- Decide on a name: This seems straightforward but is important. You want to make sure you can use the name, no one else has rights to the name, and the name conveys who you are and what you want your business to represent. Some of the best names have come from brainstorming with your network – people you trust and respect. Once you identify a few names you like, run a google search – see if anyone has your name. Then look on the secretary of state for similar business names at Colorado Secretary of State’s Office and the USPTO website. Once you know whether you can use your name, logo and brand, protect it! Register it with the USPTO and your local state authorities. An attorney can be helpful with this process and likely should be utilized if there is any question whether you can register it.
- Find a domain name: If someone owns the one you want but is not using it, you may able to buy it from them. Fair warning, some people track searches on providers like GoDaddy to see what names have been searched most often and then buy those names
- Incorporate and determine a legal structure: Setting up your legal structure is vital in protecting you and your personal assets. Determining what structure is best for you (corporation, s-corp (tax election), LLC, LP, etc.) is best done with the advice of an attorney and accountant. Check out our blog on this issue: http://kineticlegalllc.com/entity-formation-whats-best-business/. Most small businesses we work with decide on the LLC structure due to its flexibility and straightforward structure.
- Draft good governing documents (and respect them): Depending on the legal form that you choose, you will have different governing documents. But whichever entity you choose for your business, having clear, thoughtful governing documents is essential. The important of these documents is magnified 100-fold if you have any partners in your business. You need to be able to clearly understand the allocation of ownership, rights, purposes of the business and even what happens when/if you and your partner go separate ways. Following the formal procedures set forth in your governing documents is important to maintaining the integrity of your entity and protecting your personal assets from business liabilities. Working with any attorney to develop these is recommended.
- Apply for an EIN: An Employer Identification Number (EIN) helps you separate yourself from your business. You’ll need it if you plan to incorporate your business or open a business bank account. Plus, with it you can avoid giving out your social security number (an opening to identity theft). To apply, go here: IRS
- Investigate and apply for business licenses: Depending on your business, you may need one, if not multiple licenses for your business, depending on your industry and where you are located. Most licenses are issued at the state or local level. The SBA provides many helpful tools to determine what you need/need to do to obtain a business license in your jurisdiction. Visit them here.
- Find a good accountant: Especially if you don’t have a strong business background, a good accountant can set you up to properly manage your money and avoid possible large tax consequences. For example, an accountant can work with you to determine whether to file an S-Corp election with the IRS and help you understand what types of expenses, depreciation and amortization you can take advantage of with your business. We have found that when our clients work with good accountants, they encounter a lot less stress in the long run in managing their finances.
- Open a bank account: It is vital you keep your personal and business assets separate. By doing this, you shield your personal assets from possible liability of the business. To open a bank account, you will likely need your business organizational documents and EIN, but call your bank of choice and ask what documents they require.
- Get insurance: Depending on the type of business you have, getting insurance is vital. Talk to a few brokers, get a few quotes, ask questions about coverage, and make an informed decision. It may be helpful to talk to other business owners in your industry as they may have good contacts in the insurance industry.
- Location: If your business requires a brick and mortar location, and you intend to lease space, it is highly recommended you work with an attorney on the lease. For many businesses, your location and the space you occupy and offer your customers is the most vital (and often most expensive) asset you have. Make sure you understand your lease and your rights and obligations, so there are no surprises that may compromise your ability to use the space.
- Identify Other Necessary Next Steps for Your Business: Depending on your business, you may need to hire people immediately, draft key contracts for vendors or clients like waivers or services agreements, or protect additional intellectual property of the business with copyright or patent protection. Working with an attorney on these issues, especially intellectual property issues and key contracts with a high dollar value, is recommended.
Hopefully this initial list gives you an idea of what you need to get done or gives you confirmation that you are doing things right. If you have any questions, feel free to reach out to us at [email protected]
The information on this blog is provided for general informational purposed only and does not constitute legal advice. The law is constantly changing, and varies from state to state, jurisdiction to jurisdiction, so any information given here may or may not be applicable to your situation or circumstances. Any opinions expressed on this website are solely those of the author and do not reflect the views of Kinetic Legal, LLC or any other author or contributor to the website. By reading this website, you understand and agree that there is no attorney-client relationship between you and any of the website’s authors or contributors, or any of their affiliates and agree to the terms and conditions of Kinetic Legal, LLC. If you require legal advice, please contact us or consult with a competent attorney licensed to practice in your jurisdiction.