Starting a Business
When starting a business, the principals tend to look at everything as sunshine and roses. It makes sense to be focused on the business of doing business and with an optimistic view of the future. However, caution suggests that some time be given to business planning for unforeseen eventualities. Here are some issues to consider in planning your business at the outset:
1. Liability
Most new businesses are interested in limited liability, which means that the individual principals are not liable for corporate debts. That is a reason to not choose a sole proprietorship or common law general partnership as your business entity.
2. Operating Requirements
Different types of entities involve different levels of complexity of the requirements for maintaining the entity’s separate existence. Frequency of required meetings, record keeping, required number of principals – all of these vary according to the type of entity, so they should be considered when choosing the form of the enterprise.
3. Resolving impasses
Often people organize with the ownership of the business partnership split evenly among two (or another even number) of owners. However, if you have a disagreement that results in a tie vote, you have an impasse. You will want to have a mechanism in place that can resolve the impasse without requiring the business to be dissolved.
4. Taxes
Corporations are subject to separate taxation, but this can be avoided by making an election with the IRS in some circumstances, or choosing a different form of entity.
5. Management
Who is going to be a part of the business? Who is going to have the right to manage it? These issues should be considered in choosing the form of business entity, and in drafting its principal documents.
6. Exit Strategy
Even though such a thing may seem unthinkable at the outset, you have to plan for the possibility that one of the owners leaves the business. What happens to that owner’s interest, and how is it going to be valued?
In Summation
All of these are issues that should be considered with legal counsel at the outset, so that the necessary planning can go into your initial agreements and corporate documents. An experienced business attorney is necessary to prevent nasty surprises down the road.
Sam Ventola has a wide variety of experience in business formation, business litigation, legal education, and business mediation. When he is not helping business owners, he enjoys volunteering in his community and spending time with his family, especially his grandson, Jack.
Ventola Law serves the Denver Metro area including Arvada, Aurora, Boulder, Brighton, Commerce City, Castle Rock, Golden, Lakewood, Littleton and Arapahoe, Adams, Douglas and Jefferson Counties.