If you’re starting up a new business, either by yourself or with a group of colleagues, it can be an exciting and intimidating process all at the same time. Starting a new business can give you opportunities to bring a new product into the market or develop a new service that your local customers will appreciate. Perhaps most importantly, it gives you the chance to participate in your local economy and community while supporting yourself financially.
If you feel apprehensive about forming a new business on your own, this is completely normal. One of the most important steps is to think about some fundamental aspects of your business before really getting started. While we encourage you to come speak to our legal team in person, here is a quick look at some basic questions you may want to address:
- What type of structure will your company have?
It’s important to determine the structure of your company for legal reasons. For example, if you own and operate the business by yourself, without any employees, you might be running a sole proprietorship. If a group of individuals choose to own and operate the company together, you may need to decide if you’re operating as an LLC (limited liability company), a corporation, a cooperative, or a partnership. The structure of your business will determine things like insurance regulations, taxes, and liability restrictions.
- What paperwork will you need to submit?
You’ll likely need to submit several legal documents in your local, state, or federal government offices. For small businesses that intend to hire employees, you’ll need to acquire an employer identification number (EIN) for tax purposes. If you have investors, you may need to fill out additional forms that inform these parties about the profits and losses of your business. Any business with multiple owners may also benefit from having written contracts among the owners, and any business providing an ongoing product or service to customers may want to draw up various contracts for these transactions.
- What types of liability issues could your business face, and how will you deal with them?
Depending on the type of business you have, you could be held liable for damages if a customer or employee is injured. If a customer is injured while using your product, or if an employee slips and falls in your office building, your business could be held legally responsible. Liability insurance and workers’ compensation insurance may be options if your business faces a high risk of liability issues.
- If you’re starting up a business with a group of people, what will happen if/when a founder wants to leave?
There may come a time when a founder decides that he or she no longer wants to be a part of the company. Before this time comes, it’s a good idea to determine what relationship — if any — this individual will have with the business after leaving. Some businesses allow founders to own an equity stake in the business, while others redistribute or sell this individual’s stake upon their exit. Regardless of what you decide, it is beneficial to have the plan written out ahead of time to avoid needless drama or potential lawsuits.
- If the company needs to be dissolved, how will it happen?
Unfortunately, not all businesses are successful. If you decide to close your business, it’s essential to know how to dissolve your company the right way, as a business law or business litigation lawyer Memphis TN trusts can attest. Some businesses can simply stop offering their product/service, but others may need to formally notify their state that they are closing. This may be important for reasons related to taxes and any fees the business owes.
If you’re wondering how to start up your own business, these five questions are only the beginning. It’s perfectly okay — and perhaps advisable — if you want to speak with a Memphis TN business attorney about starting up your business before opening your doors. Even as your business continues to grow and evolve over time, it can be invaluable to have a concrete business plan to rely on when complicated situations arise.
Thanks to our friends and contributors from Patterson Bray for their insight into business formation.