Thinking of starting your own business? Here are a few things to consider
August 26, 2022
It is estimated that more than 22 million Americans lost their jobs as a result of the COVID-19 pandemic. Subsequently, record numbers of Americans chose to forgo searching for a new job in favor of starting their own business. In 2021, the U.S. Census Bureau reported 5.4 million new business applications were filed. Those numbers have continued to grow in 2022.
We work closely with many business owners to help them navigate the complex challenges of owning and operating a business. Many new entrepreneurs have a very specific skill set or expertise, but if you do not properly form your small business and ensure you are in full compliance with all state and federal requirements, you could jeopardize your business before you even begin.
Rules vary from state to state, and industry to industry, but broadly speaking, there are several key legal items to tackle if you are considering the leap into starting your own business. These are items that cross over many different legal practices including tax law, intellectual property law, banking and finance, and cross-border law. They include:
Forming a business entity
For most small business owners starting out, a Limited Liability Corporation (LLC) is the wise choice. LLCs offer entrepreneurs ease of operation, limited liability protection, and certain tax advantages. Other formation options include a sole proprietorship, corporation, or partnerships. We work with clients to evaluate which option makes the most sense for them based on their business plan and goals.
Choose Your Name
Selecting a name for your new business is an important marketing tool, but it is also a legal process. Just because you like a name, or think you came up with a unique name, does not necessarily give you the legal right to use it. You can find yourself in hot water if you select a name that is the same, or even similar to an existing name. If your name is too similar to an existing business, that business can file a lawsuit claiming trademark infringement or unfair competition, and you could not only be forced to change your business name, but you could incur a crippling amount of expenses along the way. One of the most famous cases of trademark infringement came when the World Wrestling Federation (WWF) was sued by the World Wildlife Fund (WWF) for infringement. The lawsuit was successful and the wrestling company was forced to rebrand itself World Wrestling Entertainment (WWE).
Set up your business accounts
One of the more common ways small business owners (especially new ones) run into issues is through messy accounting practices. Having separate business accounts and credit cards helps ensure proper accounting for all income and expenses, no comingling of company funds and personal funds, and meeting required tax obligations when the time comes.
Operating agreements; shareholder agreements
When a business is first forming, there is typically excitement and optimism. No one is discussing what might happen if the business fails, and if it does, they are unprepared. What happens two years later when one partner in a 50/50 partnership is doing 90 percent of the work, or another partner wants out? A properly drafted agreement signed at the outset, can be fairly simple and address issues that may arise. Without one, it can turn into a costly, contentious battle that threatens to ruin the very business being fought over. Having a few less-than-fun conversations on the front end can save time, money and a lot of headaches on the back end if things go south.
These are just a few of the important hurdles to clear when making the decision to start your own business. There are also issues such as securing funding, drafting operating agreements, employee handbooks, and more. We work with our business clients to ensure a smooth process that allows them to focus on what they do best – running their new business.
Nicholas J. Ingrassia is an attorney and shareholder of Gross Shuman P.C. He concentrates his law practice in the areas of Real Estate & Development, Banking & Finance, and Business & Corporate Law. Mr. Ingrassia also has extensive experience assisting clients with Estate Planning & Administration, and Canada-U. S. Cross Border legal issues. He is admitted to practice in New York State and as a Foreign Legal Consultant in Ontario, Canada. He can be reached at 716.854.4300 ext. 285 or [email protected].
