Starting a new business is exciting and frightening at the same time. Often, you’ve put all of your hopes and most of your money on the line to fulfill your dream of a real, thriving business. Attorneys from some of St. Louis top law firms can tell you that they see small business owners make the same three legal mistakes when starting out. Read on to learn how you can avoid being one of them.
- Choosing the wrong business structure
The most common business structure for a new small business is a sole proprietorship. It’s basic, it doesn’t require you to have a board of directors and it’s the easiest option. However, easy doesn’t always mean better. Choosing wrong can open you up to unexpected – and potentially costly – liabilities.
The things to consider when deciding on a legal business structure are:
– Your personal circumstances, such as whether you’re married, have children or own property
– How much each corporate structure costs to form
– Ongoing financial obligations; some corporate structures require you to re-file or pay a fee yearly, while others do not
– The tax advantages of your type of corporation when weighed against all other factors
– Your legal and personal liabilities should you incur problems with your business. For example, if you are unincorporated and someone sues your company, your personal assets could be on the line.
- Not creating s custom service agreement
If your business provides a specific type of service, a standard service contract may not protect you in some situations. You should create a custom sales or service contract laying out the obligations of each party. Include things like type of services offered, payment method, return or refund policy and any legal disclaimers.
- Not formalizing business relationships
Some types of businesses function better by hiring independent contractors and some hire traditional employees. You are responsible for certain things like providing insurance, worker’s compensation coverage and paying taxes for employees, but not for independent contractors. If you use contractors, you should have a clear agreement stating the rights and responsibilities of each party.
Statistics say that 90 percent of businesses will close within the first year due to lack of preparation and a solid business plan. There are two professionals you should always consult when starting out in business: an accountant and an experienced business lawyer. The more you know before you open for business, the better your chances of making it through that first difficult year.