I am going to take a break from the usual estate planning focused post and shift this month to business law and how to best protect your business and yourself.
Generally speaking, when you start a business spending money on legal fees to set it up properly is somewhere in the middle to bottom of the priority list. There are so many other things to worry about, like making money so you can pay your bills.
Creating an entity isn’t difficult but choosing the correct entity and how that entity is taxed can be. We will work with you to make sure you form the correct entity with the correct structure and then will work with your CPA to make sure that the legal and tax side are consistent.
In addition to forming the correct entity, having governance documents, like an Operating Agreement in the case of an LLC, is vitally important to protect your interests. Many people start businesses with friends and family and “don’t need a contract to govern their business relationship.” An Operating Agreement is a pre-nuptial agreement for your business. It’s best to set it up when relationships are good so that the parties know the process for handling issues when things are not. Here are just a few of the questions that need to be answered for your protections:
- What happens if the company needs more money?
- Which decisions can one person make alone and which have to be made together?
- How and when are distributions made?
- What happens if a member dies? Is disabled? Retires?
- Are other terms appropriate like non-compete or non-solicitation provisions.
There are significant issues that need to be addressed for companies that have more than one owner.
We can help whether you are just getting started or you have been in business for a while and just need to “take care of business”.