Forming a business may allow an individual or a group of individuals to take greater control over their careers. It may also allow them to bring a product or service to market that could change the world. However, there are many issues that a prospective business owner or group of owners may need to think about before beginning operations. Here are five things to consider when forming a business. You can consult a business lawyer to answer your questions.
- What Is the Legal Structure of the Company?
The first issue that needs to be settled is what type of structure that the company will take. For instance, it may be possible to operate as a sole proprietorship if there is only one person running the company.
- What Legal Paperwork Should You Submit?
There are a variety of legal documents that need to be completed and filed with the state or federal government. You may need to fill out articles of incorporation with the state, or get an employer identification number (EIN) if you plan to hire employees or organize as a corporation.The EIN is what separates your company from its owner or owners, and you don’t need such a number if you are a sole proprietor with no employees. Other forms include a Schedule C profit and loss sole proprietor business tax return, as well as K-1 forms that investors receive that tells them how much they made or lost from being a member of your corporation.
- How Do You Deal With Liability Issues?
There are many ways in which your business could be liable for damages if a customer or employee got hurt. If someone gets hurt while using your product, or slips and falls while on company property, the injured victim could sue for compensation related to his or her injuries. Therefore, you should have business liability insurance, as well as personal liability insurance to help you pay for any judgments made against you.
- What Happens If 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. At that time, will the person who leaves still own an equity stake in the business? If not, what happens to that equity? In some cases, it could be absorbed by others in the company or sold to another outside individual or entity that wants to invest. Regardless of what you decide, it is beneficial to have the plan written out ahead of time to avoid needless drama or potential lawsuits.
- How Do You Dissolve the Company?
Unfortunately for business owners, not all companies will be successful. If you or a majority of the founders of a company choose to no longer operate the company, it is important to know how to dissolve it. For companies operating as a corporation, it may not be good enough to simply stop doing business. It may be necessary to formally dissolve by notifying the state in which the company is currently incorporated. Otherwise, it could still accrue business taxes or other fees that will need to be paid.
There are many questions that may need to be answered, and situations to be thought through before starting a company. While you generally won’t think of everything right away, it is important to have a business plan in place that will help you deal with the most important issues and work through any scenarios that you haven’t thought of. Contacting a Memphis TN business attorney may help you to formulate a business plan and get your business started.
Thanks to our friends and contributors from Patterson Bray PLLC for their added insights into business law.