by Nellie Akalp of CorpNet

Starting a Business? ...Get your legal ducks in a row!

Yes, I know. Most of you did not start a business because you love dealing with tax law and legal fine print. Corporate regulations and company filings are hardly the things to get you out of bed in the morning. But as much as you'd like to procrastinate about those pesky questions like 'Should I Incorporate?' or 'Do I need to Register a trademark?', as a business owner, the day will come when you inevitably will have to address the legal aspects of your business – and the sooner the better.

You might be wondering why you'd need to incorporate your business in the first place. Many startups and small businesses consider themselves too small to worry about incorporation — that having a legal structure is only for those larger businesses with a big staff and mazes of cubicles. However, that couldn't be farther from the truth.

Incorporating or forming an LLC can be a smart idea, even for the self-employed marketing consultant or the family-run catering business. And here's why:

  • It protects your personal assets: Once your business is incorporated, it exists as a separate legal entity. This means that the corporation (and not you, the owner) is responsible for all of its debts. Of course, most entrepreneurs don't start their business expecting to anger clients or default on payments. And most likely, you won't encounter such problems…however, what if a computer technician accidentally wipes out a client's hard drive during a basic upgrade? What if a copywriter unintentionally plagiarizes while working on a client's website? What if your major client fails to pay, making it impossible for you to pay your own vendors? Without incorporation, you, as the owner, can be personally liable in these situations, and this puts your own personal savings and property at risk.
  • It can offer tax benefits: For some individuals and businesses, incorporating can help lower the tax burden. For example, through incorporation, a self-employed contractor could reduce his or her federal and/or state income taxes by avoiding self-employment taxes. And corporations may be entitled to additional deductions not available to individuals. Of course, specific circumstances vary, and you should consult with a CPA on your particular tax situation.

For example – and this is by no means meant to be a comprehensive look, just a quick synopsis to get you thinking – an LLC (Limited Liability Company) is great for startups that want legal protection, but minimal formality — i.e. no exhaustive meeting minutes or addendum filings. The LLC is also the perfect structure for a start-up who will have foreign owners. An S Corporation (or S-Corp) is ideal for those businesses that plan to make a profit soon after incorporation, and distribute that profit back to all the shareholders. A C Corporation (C-Corp) should be used for those businesses that plan to reinvest their profits back into the company or seek funding from a VC.

Unless your business is particularly complex, you should be able to incorporate your business or form an LLC online, without having to retain a business attorney. By working with a legal document filing service, you can represent yourself to create a legal business entity. And in the eyes of the law and IRS, your business structure will be just as valid than if a high-priced attorney sent in the documents for you.

Unlike a CPA or attorney, a document filing service cannot give you specific legal or financial advice; however, they can give you general information and tips to help steer you toward the right business structure (i.e. LLC vs. S-Corp). And there's exhaustive information on the web that explains the differences between these structures, and in plain English!

In addition to forming a Corporation or an LLC, there are a few other legal matters to address, such as:

  • Registering your DBAs (“Doing Business As” aka Fictitious Business Name)
  • Getting a Federal Tax ID number (also known as an Employer ID Number or EIN)
  • Filing for trademark protection for your company name and/or logo
  • Educating yourself on employee laws, such as payroll, anti-discrimination laws, OSHA regulations, unemployment insurance, workers’ compensation rules, wage and hour requirements.
  • Obtaining business licenses and permits
  • Purchasing business insurance

And yes… when you're hustling for clients or putting in 80-hour weeks to get product out the door, legal fine print and paperwork aren't exactly high on your priority list. But getting your legal ducks in a row from the start will enable you to scale far more smoothly and help you avoid any legal pitfalls in years to come.

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Nellie Akalp is the CEO & Co-Founder of CorpNet, Incorporated, her second incorporation filing service company based on the simple philosophy of truth in business and her strong passion to assist small business owners and entrepreneurs in getting their business off the ground in a fast, reliable, and affordable manner.

Website: www.corpnet.com | Twitter: @CorpNetNellie & @CorpNet


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