Starting a business is an exciting time of your life, and just like any other part of your life, you need to take the right steps or you’ll be far more likely to fail. Or worse, you could find yourself in a heap of legal trouble that could have been avoided if you’d taken the rights steps from day one.
Use the following 10-point legal checklist to start your business the right way. Go through this list and make sure you’ve got every item covered or the excitement you feel now as you’re starting your business could derail very quickly.
1. Choose and trademark your business name and brand name.
Imagine that you’ve been in business for several years. Things are going smoothly and profits are growing. Suddenly, you receive a cease and desist letter in the mail telling you that your name is infringing on someone else’s trademark, and you’re required to stop using it immediately.
Your name is one of your most valuable intellectual assets, so before you do anything else, conduct a comprehensive trademark search through an intellectual property attorney to make sure it’s clear for you to use. Next, register the name as a trademark so you can protect and enforce it. Follow the link to learn the critical difference between trade names and trademarks.
2. Select the best business structure.
The structure you pick today will influence your business for its entire lifetime. Most people have trouble understanding the pros and cons of doing business as a sole proprietor, partnership, limited liability corporation (LLC), S-corp or C-corp. Consult with a business attorney who takes the time to truly understand you, your business, your family, and your goals before you make this critical decision!
3. Get the right documents, contracts and agreements.
As you form your company and start doing business, you need a lot of legal documents to make sure you’re protected from a long list of risks.
For example, if you incorporate your business, you need Articles of Incorporation, Bylaws, and more. If you become a limited liability company, you need an Operating Agreement, and more. If you have employees, you need employee agreements. If you work with third party vendors, you need contracts for each of those relationships. And if you work with consultants or independent contractors, you might need non-disclosure agreements and work-made-for-hire agreements. The list goes on and on!
Avoid using template documents that you can download for free online. These documents are unlikely to offer you the full protection and peace-of-mind that you’ll need if things go wrong one day.
4. Get the right website policies and documents.
Don’t copy policies from other websites and use them on your own site. You could be accused of copyright infringement! And don’t use free template documents, because they offer a false sense of protection but in reality, are likely to provide little or no protection.
5. Get your financials in order.
When you start a business, you not only need to set up your accounts payable and receivable, but you also need to set up online and offline merchant services, payroll, budgets, and more. You need to open bank accounts using your company’s federal tax ID issued by the IRS and keep your business and personal finances totally separate from each other. You also need to establish your business’ credit, and you might need to secure funding.
Be sure to work with an attorney and financial expert who can guide you through these confusing but vital strategic business and legal requirements along the way. It’s critical that you set up your finances correctly at the very beginning because fixing them later can be very expensive and legally problematic.
6. Set up your business tax structure and payments.
Choose your business’ tax structure and complete the necessary IRS forms to be sure you can benefit from that structure. Visit eftps.gov to set up electronic filing and payment. Also, register to pay state and local taxes and obtain the necessary employee tax forms (W4, I9).
This is another area where you’ll need help. Work with a financial expert and tax attorney to ensure your business is set up in the best possible way to minimize your tax burden and to ensure your business and personal taxes are separated.
7. Identify and protect your intellectual property.
In addition to trademarking your name (see #1 above), you also need to identify and protect all of your intellectual property. This includes registering additional trademarks, registering copyrights for your original, creative work; obtaining patents for your new inventions; and developing a trade secret protection program.
Don’t put your valuable intellectual property at risk. Work with an intellectual property attorney to make sure you can protect and enforce your legal rights to that property.
8. Obtain business, employer and personal insurance.
At some point during your business’ lifetime, something will go wrong. Trust me when I say you don’t want to be caught without adequate insurance when it happens.
There are a wide variety of insurance programs for business owners, their employees, and their families, so work with an insurance expert to get the right processes and policies in place.
9. Follow employment laws and get employee policies in place.
If you’re hiring employees, you need to know and follow relevant employment laws. For example, you might have to hang specific signage in your building, store or office. You might have to offer medical insurance, obtain employee visas, and create a code of conduct.
Today, every business should have an employee social media use policy, and everyone who works for you should have either an employee agreement or an independent contractor agreement. If you’re using independent contractors, make sure you’re following the laws regarding independent contractor employment status or they might actually be considered employees.
10. Review Your Estate Plan
When you start a business, you’re entire personal life and family are affected. You might be leaving behind a comfortable salary, 401K and medical benefits. While leaving the security of full-time employment can be scary, the rewards of owning a successful business are worth it for many people.
Make sure your family and your future are financially secure by reviewing your estate plan with an estate planning attorney at the very beginning of your entrepreneurial journey. You should meet with your estate planner at least once per year, because your business and your family needs will undoubtedly change as your business progresses through its lifecycle.
At the same time, you should put a succession plan in place. You never know when you’ll need to step down from your role as business owner, and you don’t want to be caught by surprise. Create the plan now so you have peace-of-mind that when the time comes, you can step away.
Don’t put off until tomorrow what you should be doing today, and be sure to get the help you need so you start your business the right way. Your future really does depend on it.