The Ultimate Legal Checklist for Starting Your New Business

Starting a new business is an exciting venture, but it comes with its fair share of legal complexities. Ensuring that you’re legally prepared can save you from potential pitfalls down the road. Here’s a comprehensive guide to the legal steps you need to take to get your business off the ground.

1. Choose a Business Structure

Selecting the right business structure is crucial as it affects your liability, taxes, and ability to raise capital. Here are the main types:

• Sole Proprietorship: This is the simplest form of business ownership. It’s easy to set up and gives you complete control, but it doesn’t offer any personal liability protection. Your personal assets could be at risk if the business incurs debt or legal issues.
• Partnership: If you’re starting a business with one or more partners, this structure might be suitable. There are two types: General Partnerships (GP) and Limited Partnerships (LP). In a GP, all partners share liability and management duties. In an LP, there are both general and limited partners, with the latter having limited liability and typically no management role.
• Corporation: This structure is more complex and involves more regulations, but it offers liability protection and can make it easier to raise capital. There are different types of corporations, including C-Corporations and S-Corporations, each with its own tax implications.
• Limited Liability Company (LLC): An LLC combines the liability protection of a corporation with the tax benefits and flexibility of a partnership. It’s a popular choice for many small businesses.

2. Register Your Business Name

Your business name is your brand’s identity, so choose wisely. Ensure the name is unique and not already in use. You’ll need to register it with the appropriate state authorities. If you’re planning to operate under a different name than your legal business name, you may need to file a “Doing Business As” (DBA) registration.

3. Obtain Necessary Licenses and Permits

Depending on your industry and location, you may need various federal, state, and local licenses and permits to legally operate your business. This could include health permits, zoning permits, and professional licenses. Research the specific requirements for your business type and location.

4. Get a Federal Employer Identification Number (EIN)

An EIN is like a social security number for your business. It’s required for tax purposes, hiring employees, and opening a business bank account. You can apply for an EIN through the IRS website.

5. Open a Business Bank Account

Keeping your personal and business finances separate is essential for legal protection and financial management. Choose a bank that offers the services you need and open a business checking account. This will make it easier to track income, expenses, and manage taxes.

6. Comply with Tax Requirements

Understanding your tax obligations is crucial to avoid penalties. Register for state and local taxes, such as sales tax and unemployment insurance tax. It’s advisable to consult with a tax professional to ensure you’re in compliance with all tax laws and regulations.

7. Draft and Sign a Partnership Agreement (if applicable)

If you’re starting your business with partners, a partnership agreement is essential. This document outlines each partner’s roles, responsibilities, and profit-sharing arrangements. Having a written agreement helps prevent disputes and provides a clear framework for the business relationship.

8. Prepare Legal Contracts

Contracts are the backbone of your business transactions. You’ll need client and vendor contracts that clearly outline the terms and conditions of your agreements. Employment agreements are also crucial to define roles, duties, and expectations for your employees. Ensure all contracts are legally sound by consulting with an attorney.

9. Protect Your Intellectual Property

Your business’s intellectual property (IP) includes trademarks, copyrights, and patents. Protecting your IP is essential to safeguard your brand and products. Register your business name, logo, and any unique products or services. Consult an IP attorney for comprehensive protection and guidance.

10. Ensure Compliance with Employment Laws

If you plan to hire employees, you must comply with federal and state labor laws. This includes adhering to minimum wage laws, overtime regulations, and anti-discrimination laws. Create an employee handbook that outlines workplace rules and procedures to ensure compliance and set clear expectations.

11. Set Up an Accounting System

An organized accounting system is vital for tracking income, expenses, and tax obligations. Choose accounting software that suits your business needs and consider hiring an accountant for expert financial advice and tax preparation.

12. Plan for Business Succession

Planning for the future of your business is crucial to ensure its longevity and success. A well-thought-out succession plan can help you prepare for unexpected events and provide a smooth transition when you're ready to retire or move on. Here’s a detailed look at the steps involved in creating a robust business succession plan:

a. Identify Your Succession Goals

Start by defining what you want to achieve with your succession plan. Consider the following questions:

• Do you want to keep the business within the family?
• Are you planning to sell the business to a third party?
• Would you prefer to transfer ownership to a business partner or key employee?

b. Choose Your Successor

Selecting the right successor is critical. If you’re passing the business to a family member, ensure they are interested and capable of running the business. If you’re considering a business partner or key employee, evaluate their skills, experience, and commitment to the company's future.

c. Develop a Training Plan

A successful transition requires thorough preparation. Develop a training plan to equip your successor with the knowledge and skills needed to run the business effectively. This might include:

• On-the-job training
• Formal education or certifications
• Mentorship and shadowing opportunities
• Leadership development programs

d. Create a Transition Timeline

Establish a clear timeline for the transition. This should outline key milestones and deadlines for transferring responsibilities and ownership. A gradual transition can help ensure a smooth handover and allow time to address any issues that arise.

e. Update Legal Documents

Your succession plan should be documented in legal agreements to ensure it’s enforceable. This may include:

• Buy-Sell Agreements: These agreements outline how ownership interests will be transferred in the event of retirement, death, or disability.
• Wills and Trusts: Ensure your personal estate planning documents align with your business succession plan.
• Operating Agreements: Update your LLC’s operating agreement or corporate bylaws to reflect the succession plan.

f. Plan for Financial Security

Consider the financial aspects of your succession plan, including:

• Business Valuation: Obtain a professional valuation to determine the fair market value of your business.
• Funding the Transition: Explore funding options for the transition, such as life insurance, seller financing, or external financing.
• Tax Implications: Work with a tax advisor to understand and mitigate the tax consequences of the transfer.

g. Communicate the Plan

Transparent communication is key to a successful succession. Inform stakeholders, including employees, customers, and suppliers, about the transition plan. Clear communication can help maintain confidence and stability during the changeover.

h. Regularly Review and Update the Plan

A succession plan is not a one-time task. Regularly review and update your plan to reflect changes in your business, personal circumstances, and the industry. This ensures your plan remains relevant and effective.

Creating a business succession plan is a complex but essential process to ensure the continuity and success of your business. By taking these steps, you can provide a clear roadmap for the future and protect the legacy you’ve worked hard to build. If you need personalized assistance in developing a comprehensive succession plan, our office is here to help. Contact us to schedule a consultation and secure the future of your business.

Starting a new business involves navigating a maze of legal requirements, but with careful planning and the right guidance, you can set a solid foundation for your venture. If you need personalized legal advice tailored to your specific situation, feel free to contact our office. We’re here to help you every step of the way.

At RJ Fichera Law Firm, we specialize in estate planning and asset protection strategies tailored to your unique needs. With over 35 years of experience, we can help you navigate the complexities of establishing a business and your business succession and ensure that your assets are protected for the future. Contact us today to schedule a consultation and learn more about how starting and transferring your business: www.rjfesq.com/contact-us .

Ronald J. Fichera
Email: [email protected]
Phone: (610) 768-9255