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Shape Up Your Start-Up
By Jason Brocks

Starting a business is an exciting time, but it is also demanding and sometimes frustrating. Just when you want to focus on getting your business moving, you have to think about a lot of administrative and legal issues. This article discusses some of those issues and provides a basic checklist to use as you begin your journey into the world of business ownership.

You can choose a business name at any point in this process, but you are not usually guaranteed the right to use the name until you have reserved it or filed your forms with the appropriate office in your state. Many states have web sites where you can search for the names of businesses and reserve your name if it is not taken by another business. If your chosen name already exists or if a very similar name already exists, take the time to think about other names and pick something that distinguishes your business from others. Also, be aware that if you want to provide a service that requires a license or approval by an agency in your state, you may need to get the license or approval before you can mention that service in the business’s name.

One major decision is deciding between a corporation and a limited liability company (LLC). Both of these forms enable you to protect yourself personally from legal liability. Both the corporation and the LLC provide protection against legal liability for the people who invest their money in the business. In general, by becoming a corporation or an LLC, the business is given a legal life of its own and is considered as separate and apart from the people who own it. This means that the business, and not its individual owners, will be held legally responsible for the business’s obligations.

There are significant differences between corporations and LLC’s. A corporation must hold regular board meetings and shareholder meetings, keep minutes of those meetings, prepare board and shareholder resolutions documenting important decisions, and issue stock certificates. In contrast, the LLC offers more flexibility and less hassle because its management is governed largely by a written agreement between the owners that reflects the needs of the business. Corporations generally allow shareholders to transfer their shares to anyone who wants to buy them (except for corporations providing professional services, where shareholders may sell their shares only to other professionals), while LLC’s usually require the members to approve the sale of an individual’s interest before the sale is allowed to go forward.

Tax and financial issues are a vital part of your decision about which type of entity you should choose for your business. A corporation generally must distribute profits and losses to its shareholders based on their percentage interest in the business, while an LLC may distribute them to its owners in a manner that is not directly proportionate to its owners’ interest. Consult an attorney or an accountant in order to understand the tax and financial implications of running your business as a corporation or an LLC, and to make sure that you are selecting the form that will provide more tax savings and financial benefits.

Once you have picked a name and decided whether your business will be a corporation or an LLC, you will need to prepare and file all of the necessary paperwork with the appropriate office in your state. (In most cases, banks and other lenders will ask for certified copies of these forms before you can open a bank account for the business and apply for loans or other financing.) The requirements for corporations and LLC’s vary and so do the filing fees. Many states provide sample forms and fee schedules on their web sites, but you can also get assistance from an attorney in your state. In fact, an attorney can be invaluable at this phase because by filing the documents in the most expeditious manner and make it less likely that you will have excessive follow-up, which costs money and can delay the opening of your business.

Most businesses need to obtain a Federal Employer Identification Number (EIN). The IRS requires a business to have an EIN if the business has employees, operates as a corporation or partnership, and in a few other circumstances. To obtain an EIN, file an IRS Form SS-4, which can be found on the IRS website.

Well-written agreements are the foundation upon which you will build and grow your business. After you file all of your business’s forms, have an attorney draft the contracts and other written documents that you will be using. Among the agreements you may need are partnership or shareholder agreements, employment agreements, leases, and contracts with vendors, suppliers, customers and clients. Each business is unique and every agreement that the business uses needs to be tailored to its particular purpose. An attorney can also review agreements other businesses present to you and either advise you on the terms or negotiate the terms on your behalf.

Following the suggestions in this article will get your business off to a good start. As the business progresses, resolving issues that arise will be much easier and less costly if these fundamental administrative and legal tasks are done right.

Essentials for Starting a Business
Check List

- Name it. Research existing names and pick something that differentiates your business from others.

- Choose a business form. Speak to an attorney and an accountant about the legal and financial advantages and disadvantages of being a corporation or LLC and how to choose between them.

- Make it legal. File the appropriate documents and fees in order to formally incorporate or organize the business in your state. Also, make sure to file any necessary forms with your state’s tax department and the IRS.

- Put it in writing. Hire an attorney to draft the agreements and other documents that will form the basis for your business relationships with partners, employees, landlords, service providers, vendors, customers and clients.

THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY. IT IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE USED AS A SUBSTITUTE FOR THE ADVICE OF AN ATTORNEY.

Jason M. Brocks, Esq. is an attorney in New York City. He provides advice and solutions to businesses in matters ranging from incorporation and organization of corporations and LLCs to drafting and negotiation of shareholder agreements, employment agreements and purchase and sale agreements. Mr. Brocks is admitted to practice in New York. He can be reached at 212-223-4996 or online at www.jasonbrocks.com

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