Business & Corporate FAQ
June 27, 2016
How you form your business depends on what type of entity is right for your business. When deciding what form of business ownership to use, you need to consider liability exposure and tax ramifications. Click here to view our article “A Brief Introduction to Business Entities” which will explain the various business forms. Unless you intend to do business under your given name, you will have to file a fictitious name registration with the Department of State even if you elect not to form a business entity, and there may be advertising requirements as well.
Not necessarily. If you are starting a small home-based business as a sole proprietor, you may be able to protect your assets and obtain the most beneficial tax results without forming a business entity by taking steps such as purchasing insurance. As such, if you can file a fictitious name registration on your own, and properly advertise that name, you do not need an attorney. However, it may be prudent to meet with an attorney who is experienced in setting up business to help you make that decision. Keep in mind too, that you want your business to be successful, and need to evaluate if the decisions you make at the outset can affect your business’ ability to grow in the future. To ensure that you not only start out in business correctly, but start from a sound basis that will allow your business to grow in the future, it may be prudent to invest in legal advice up front.
If you are investing in a business, you obviously feel it provides or will provide a worthwhile product or service. However, you should also consider a few other factors:
- Who will control decisions affecting the future of the business and your investment?
- What issues affect the success of the business other than money (i.e. regulatory permits, zoning and municipal approvals, competition)?
- How will the business and your investment be protected from liability?
- How active will your role be in the business? Are you comfortable with that role?
I don’t have any money to invest, but I have been promised an ownership interest if I help to get the business off the ground. How can I protect my interests?
Get everything in writing! Ideally, you should have a written agreement outlining how and when you can achieve an ownership interest and/or increase your ownership interest. Until you are an owner, you should have a written and signed employment contract. You also need to consider the tax ramifications of accepting an ownership interest as consideration for employment services. Visit our Tax page for more information on forms of compensation.
A shareholders’ agreement is a written agreement among a corporation and its shareholders. Generally, a shareholders’ agreement will outline:
- Rights related to the sale, issuance, or distribution of shares;
- Any options available to buy or sell shares;
- Steps to be followed in the case of the retirement, disability or death of a shareholder; and
- Rights and guidelines for approving new shareholders.
A shareholders’ agreement may also contain provisions about:
- Rights and duties of the officers and management;
- Voting rights of shareholders for the Board of Directors; and
- Restrictions affecting the ability of the majority shareholders to make decisions that can impact the minority shareholders.
It is never too soon to begin to develop a succession plan or exit strategy. Just as you would never start a journey without deciding when and how you will return home, so too, you should have an idea of how long you want to be involved in your business, who you want to own it when you decide to retire, and how you will be compensated for the business when you retire. Are you creating a business that you want to pass to your children? Are you looking to build the business to a certain size so you can then sell it? Do you eventually want to take the business public? By planning in advance, you will have a better road map for growing your business and a better idea of when to divest yourself.
Many times a business owner will determine what amount he/she needs to comfortably retire and considers that arbitrary number as the asking price for the business. In reality, business valuations are incredibly complex and ever-changing. If you are considering a merger, acquisition, or sale of your business, or the admission of new co-owners, it may be prudent to engage a valuations specialist who can objectively determine the market value of your business.
You can protect your ideas and creative thoughts (artwork, computer programs, articles, music, etc.) through copyrights. Copyright protection is governed by the Copyright Act of 1976. A copyright protects the expression of an idea. Another way to protect your brand identity is through a trademark. Trademark protection is given to the name of an item and the particular color, shape and design associated with that name. To be able to register a trademark, the mark must be distinctive.