The First Legal Steps Every Business Should Take

If you’re starting a new business, you may feel exhilarated and optimistic, but also confused and overwhelmed. Business ownership throws a lot of questions, concerns and details at you all at once, and it can be hard to know what to prioritize. Here are some initial legal steps you definitely need to put at the top of your to-do list.

1. Establish your business structure – What type of business entity should you form – a sole proprietorship, an LLC, a partnership, an S Corp or a C Corporation? Each structure comes with its own set of pros and cons that influence your legal vulnerability, tax status, HR challenges and other issues. Most notably, a sole proprietorship (or a general partnership, for a business owned by more than one person) is devoid of any protection from liability for the business owner(s).  Be forewarned – these are the default classifications that the law will choose for you if you fail to do so yourself.  You’ll want to confer with both your business attorney and your CPA to select the most sensible structure for your needs and goals. 

2. Separate business and personal finances – If you’re a small business owner just get started, it might seem convenient to pay your startup expenses with a personal check instead of setting up a separate business bank account. But from a legal liability standpoint, you’re asking for trouble. Separate those financial streams right from the beginning.  You will be thankful that you did once it comes time to file your business taxes.  Also, commingling business and personal assets can be used as ammunition for a creditor trying to go after personal assets to satisfy a business debt.  As discussed previously, if you are classified as a sole proprietorship or a general partnership, business creditors will have an easy path to personal assets.

3. Develop your forms and contracts – Formal, attorney-composed contracts will help you establish clear parameters, rules, exceptions, timelines, contingencies and recourses for your projects and relationships, right down to which court in which the parties agree to settle their grievances. Some contracts will be drafted as needed, but you’ll also want to create those standard documents that you know you’ll be using regularly.

As an experienced Austin business attorney, I’m happy to answer you questions you may have about these important first steps. Start your business off right – you’ll be glad you did!

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