5 Top Things to Consider When Opening a New Business

Business Structure

 

People establish new business ventures being led by various objectives and goals. The efficiency of one business form or another depends on the nature of the business and its methods of transactions and operations. Nowadays anybody can conduct business activities using one of the following structures: Sole Proprietorship, General Partnership, Limited Partnership, Limited Liability Company, Corporation. In order to determine which business form will be the most efficient for their activities, the organizers should consider the pros and cons of each and ask themselves:

 

1.      Whether they will be the sole owners or they may enter into partnership relationships with others

2.      How much flexibility they need in daily operations of the company

3.      What voting and managerial rights they want to retain for themselves and grant to other partners 

4.      Whether there is a need to protect their personal assets from liability that may be incurred during the business operations

5.      Whether they may need to raise substantial capital through sources other than their close contacts or bank loans

6.      Taxation Issues

 

Employees vs. Independent Contractors

 

If you are going to hire somebody else except yourself to serve for your company, you should consider whether you need to get those services from employees or independent contractors. There are differences between their obligations to the company and your liability for their actions. For example, you must pay certain taxes on every employee you have, you have complete control over their work performance and conditions of employment and vicariously liable for their actions performed during the course of their employment. Employees owe uncompromised loyalty to the company. If you deal with independent contractors, on the other hand, you are not responsible for withholding their taxes or making the matching contributions to the IRS, you don’t exercise constant control over their methods of work and accordingly, carry less liability for their actions, your relationship are temporary in nature and your require their services on “as needed basis”. Independent contractors can perform the same job for several companies at the same time. Remember that as your employees so the independent contractors can bind the company to certain liabilities in case if they act as the agents of the company. So it is very important to execute a written agreement with each of them before you enter into the business relationships, which state in detail what they can and what they cannot do on behalf of the company.

 

Contracts

 

Having the right contracts in place ensures that the business is run smoothly, prevents arguments and misunderstandings, helps to enforce your rights, protects from excessive liability, and often prevents protracted and costly litigation. The main contracts that most businesses should have are:

1.      Shareholder Agreement, Membership or Partnership Agreement depending on the legal structure of your company

2.      Employment or Independent Contractor Agreement

3.      Confidentiality Agreement, which prevents other people involved in your business from disclosing and using business inner information for their private benefits

4.      Service Agreement and/or Sale Agreement. These are the contracts with your vendors and customers which guide your relationships, set parties expectations and obligations

5.      Intellectual Property Assignment Agreement or License, if you use the work product of other people in your business operations

6.      Terms of Use for the Website. Under certain conditions advertisement and puffery may be considered an enforceable contract. So it is important to disclaim expressly to the users of your website what you intend to be responsible for and what they should discuss with you personally.   

 

Commercial space and equipment

 

If you are not conducting your business from your apartment, most likely you will have to enter into a lease either for office, store, or storage space. You should consider how long you are willing to rent the space, the possibilities of lease extension and/or termination, the possibility of expansion in the future, renovation needs, personal guarantee or other terms required by the landlord, what collateral services are included in your lease agreement (for example, will you have access to the building after the business hours, the operation of the air-conditioning and heating system after the business hours, cleaning services, the option to use your own Internet and phone provider or only the one already present in the building, the existence of the parking space for you and your customers/clients and many others).

Concerning the necessary equipment, you may compare leasing vs. buying options. Then, in a lease or sale agreement you should pay close attention on guarantees, future price changes, return/exchange policy, etc. It is very important to have a business attorney review every agreement you enter into, as very often the fully executed contracts are enforceable in Court and you should know exactly your rights and liabilities before you commit to something.

 

Insurance and Business Planning

 

Life presents us with all kinds of situations. Instead of taking a wait-and-see approach and hoping for the best or worrying excessively, it is possible to protect yourself and your business in advance. Here come all kinds of insurance policies you may need or want to have – business liability insurance, worker’s compensation, auto insurance if you use a car for your business, property insurance in case of property damage (e.g. wind, flood, fire) or loss of valuable documents or products, business interruption insurance, medical and life insurance, to name just a few. The benefits of having a certain type of policy greatly depend on the expenses it helps you to save. Accordingly, when comparing different insurance contracts think about your needs for the coverage limit, deductibles, tail coverage/prior acts exclusion, etc. Dealing with different policies may be tiring and overwhelming at first, but once everything is in place, you can concentrate on developing your business knowing that you are protected from unexpected surprises.

 

Each of the above topics will be reviewed in greater details in our subsequent articles. Please, follow our publications to know the applicable laws and different options and methods of structuring and conducting your business ventures.

 

Starting a new business enterprise is an exciting and rewarding experience. Although it may seem challenging at the beginning, American small business owners declare themselves to be much happier than their peers, according to a new survey from TD Bank, - “remarkable 69 percent of American small business owners polled for the TD Small Business Happiness Index would describe themselves as "very happy," with 61 percent believing they are happier than their peers.” This research further revealed that nearly 9 in 10 American small business owners are happier owning and running their own business as compared with working for someone else.

 

“Opportunity is missed by most people because it is dressed in overalls and looks like work.” Thomas A. Edison

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