You have got an amazing idea, product, or service to offer, and you are considering starting your own business. The legal aspects of actually creating a business entity can be overwhelming for some. If you are considering starting your own business, you may be attempting to determine a business structure, finance your business, or establish contracts with clients. While understanding all of these aspects of starting a business is important, contacting an experienced business attorney first and foremost will ensure that your business has the best legal and financial start.

Forming a Business Entity

The first important decision you will need to make is regarding how your business is structured. The type of business entity you choose to establish will affect everything from your daily operations, to what taxes you will be required to pay. From registering your business, to obtaining your official tax ID number, to correctly filling out and filing all of your business paperwork, each business entity requires a different approach. While an experienced business attorney can help you make a final determination, some of the most common types of business structures for small businesses include the following:

• Sole Proprietorship: While this business structure does not offer as much legal protection, it is oftentimes the way many small business owners form their business entity in the beginning. A sole proprietorship is simple and inexpensive to establish, and common among small business owners.
• Partnership: If you are starting your business with another person, the simplest business entity you can create is a partnership. There are two types of partnerships you can establish — a limited partnership or a limited liability partnership.
• Limited Liability Company: A limited liability company (LLC) is also extremely simple to establish. This type of entity provides some protection against liability, but not as much as C or S Corporations provide.
• C Corporation: Creating a C Corporation is much more complicated than establishing a sole proprietorship or a limited liability company. However, while option takes more money, time and paperwork, it does insulate the business owner from liability. This type of business structure also allows a company to expand and issue company stock.
• S Corporation: An S Corporation is more complicated to establish than other business entities, but certain taxes can be avoided by creating an S Corporation rather than a C Corporation. While you may avoid more taxes, this type of business structure can be the most costly and complicated to establish.

These are only a few examples of the types of business structures you may consider for your new business. However, visiting with an experienced business attorney can help you understand which option is the best for your unique circumstances.

Purchasing/Selling Businesses

If you are considering either buying someone else’s business or selling your business, there are substantial legal and financial decisions to make. These business transactions can be complex and challenging. Some of the items you should have available to potential buyers and the items you should request when considering purchasing a business are listed below.

Company Records:

You should always provide and/or request all legal records, and internal company records for at least the past three years. Some of the most common ones to request include:

• Articles of Incorporation, and any other documents from the Secretary of State establishing the company
• Company bylaws
• Company minutes of meetings
• Organizational chart
• Shareholder listing, along with any contracts regarding shareholders rights and responsibilities
• Documentation regarding where the company does business, owns the property, or has employees.

Company Finances:

You are likely considering purchasing or selling your business due to financial issues. Make sure to always request or provide the following documents for the past three years at a minimum:

• Audited company financial statements
• Auditor’s notes to the company financial statements
• Analyst reports
• Accounts receivable and payable, indebtedness and contingent liabilities
• Inventory
• Depreciation or amortization methods and the type of accounting practices used
• Fixed and variable expenses
• Company’s general ledger
• Internal control processes

Company Assets, Real Estate and Intellectual Property:

Company assets can include more than just real estate, products, and equipment. Intellectual property rights, such as trademarks, patents, and trade secrets can all be substantial assets to a business.

• Listing of all physical assets and equipment
• Documentation regarding any sales or purchases of major equipment
• Real estate transactions
• Legal documentation regarding trademarks, trade names, copyrights, patents, and patent applications
• Any trade secrets and how they are protected

Company Employees and Benefits:

One of the greatest assets of a company are its employees. Understand who works and the company, and what employee benefits they are offered can help not only determine the culture of the company but help understand how the workforce is a potential asset for the seller or buyer of the business.

• Listing of all employees
• Employee handbook or other related onboarding documents
• Documents regarding employee benefits, including sick leave, vacation leave,
• Summary Plan Descriptions (SPD) and Plan Documents for ERISA covered retirement benefits plans
• Employee Stock Ownership Plan (ESOP) documents
• Any Department of Labor, Internal Revenue Service or other government investigations either closed or pending
• Collective bargaining contracts with any unions
• Any discrimination or harassment lawsuits either closed or pending
• Workers’ compensation policy and any claims

Company Environmental Issues:

Depending on the nature of the business, there may be environmental issues to consider if you are purchasing or selling a business. Some of the environmental issues to consider include:

• Environmental permits, state or federal licenses, and any environmental audits that have been done
• Hazardous substances and disposal methods
• Any Environmental Protection Agency investigations either closed or pending

Company Taxes:

Have the taxes of the business been paid on time? How were the taxes determined? Depending on how the company was established as a business entity, were they paying their taxes accurately? Ask or provide the following:

• All federal, state, local, and foreign tax returns
• Internal Revenue investigations closed or pending
• Employment tax filings, or any other tax filings

Company Contracts:

One of the most important aspects of a business are its contracts. As a small business owner, you need to ensure that your contracts provide not only the most protection but are also accurate and represent the products, goods, or services you are either providing or receiving. Consulting a business attorney can help you develop strong contracts that can benefit your business. If you are buying or selling a business make sure to request or provide the following:

• All business contracts, loan contracts, and other contracts that would pertain to any internal or external aspect of the business.

Ask Questions Before You Buy or Sell a Business

Ultimately, if you are attempting to buy or sell a business in California you will want to ensure that it is a good financial decision. Always provide or request information regarding the profitability of the business, the current customers that provide the most income for the business, any pending litigation regarding the business, any possible changes to the business between now and the time of the sale, and how the business has been represented in the press and related business or trade magazines. The decision to purchase or sell a business is a financially and emotionally significant one, and having a business attorney on your side can help guarantee that you are asking the right questions, obtaining all applicable documentation, and ensuring that you file all documents correctly and on time.

Business Financing

If you are considering starting a new business, you may have to find financing to being your business journey. Finding financing can be challenging in any economic climate, however, there are some different options you may have regarding different financing techniques.

• Bank Loan: Many people consider taking out a bank loan to start their business. However, it is important to note that lending standards have become much stricter. Some banks such as Bank of America and J.P. Morgan Chase set aside funds specifically for small business owners, so it may be beneficial to try these types of banks first if you are looking to receive funding in the form of a bank loan.
• Credit Card: While this may not be the most financially safe decision, many companies feel a need to start their business right away, and the only option is to use a credit card to obtain funding. Falling behind on payments could mean serious damage to your credit score, and even paying the minimum amount could turn in to decades of payments. Consider other options first before obtaining a loan on your personal credit card.
• 401(k) Loan: Similar to a credit card, taking out a loan from your 401(k) retirement plan can be considered risky. If you never pay this money back, it will be considered a distribution and other penalties will apply. Additionally, you will be losing valuable time that adds up to substantial interest in your retirement savings. This means that if your business does not succeed, you not only have lost your new business but your retirement savings as well.
• Crowdfunding: Some businesses are very savvy to attempt to garner attention and buzz through the internet regarding their new business. Some crowdfunding sites, like Kickstarter, can help small businesses raise money for a low cost. The old way of “crowdfunding” was simply to ask family and friends for the financing to fund start-ups. This is still a viable way to raise financing but could cause damage to personal relationships if your business is not profitable.
• Pledge Future Earnings: There are certain places online where a new small business owner can pledge potential future earnings in exchange for upfront funding from investors. It is important to note that some of these contracts may not be legal and enforceable, so you should proceed with caution.
• Microloans: If you only need a small amount of money to start your business, some banks will not even consider your request. However, microlenders often provide smaller loan sizes and require considerably less documentation than banks. There are a few hundred microlenders in the United States, and if you are looking for only a small amount of financing, this could be your best option.
• Angel Investors: One of the oldest types of ways to find funding for your new business is through angel investors. These investors take a hands-off approach with regard to your day-to-day operations, however, they will take a substantial amount of profit from your company once you start to make it.
• Small Business Administration Loan: One of the most common ways for a small business to obtain start-up capital is through loans from the U.S. Small Business Administration. If you can not obtain the money on your own and have been turned down from banks and other financial institutions, this may be a beneficial option for you. You will need to meet certain criteria, including qualifying as a small business by definition.

Making a decision about how to finance your business can be overwhelming. Consider visiting with a business attorney that can help you understand which option will benefit you and your business the most.

Business Contracts

Business contracts are crucial to the success of a small or growing business. The following are the most important contracts you need to start your new small business.

• Partnership contracts
• Non-disclosure contracts
• Shareholders’ contracts
• Business plans
• Operating contracts
• Service contracts
• Buy/sell contracts
• Employment contracts
• Administrative contracts
• Intellectual property agreements
• Privacy Policies and Terms and Condition agreements
• Confidentiality agreements
• Letters of intent
• Stock Purchase agreements
• Loan agreements
• Business leases

These are just a few of the many contracts and agreements a startup business will need to have to successfully launch their product or service to the public.

Having a small business attorney by your side can help you not only determine which contracts you need but also help you create and draft those contracts in such a way that they are most beneficial to the business owner. For example, commercial lease reviews are one of the most important for a business as these agreements tend to be very one-sided in favor of landlords. Having an attorney review this contract can ensure that the business owner is receiving a competitive and fair price, a sufficient lease term with a right to extend, an appropriate amount of space, that the lease allows for the production of whatever service or product the business owner is producing or providing, and that there is some flexibility regarding subletting or assigning the lease. This is just one type of contract that will be beneficial for a small business attorney to examine before a business owner makes a substantial commitment.

Contact an Experienced Small Business Attorney