As a business attorney and civil litigator, I have had the opportunity over the years to not only help clients start new business ventures, but also to defend or prosecute cases for clients who either failed to properly plan their business from the start, or after getting started failed to protect themselves with proper documentation and planning. A lot of grief (and money) can be saved by doing things the right way from the beginning, and below are 5 of the biggest tips I can give for those burgeoning entrepreneurs who are ready to take that next step and start a business.
Try to avoid going into business with another person!
Almost every business litigation case I have handled has involved disputes between the owners of a business. I have had cases where lifelong friends who decided to go into business together found themselves on opposite sides of the “v” in some of the nastiest litigation I have ever encountered. Granted, there are exceptions to this rule, but over the years it has become very apparent that one of the best ways to ensure problems down the road is going into business with another person.
If you do start a business with others be able to outvote them!
Sometimes you just can’t help but have another person or persons be part of your new adventure. That’s fine, it happens, and it can work. But, my suggestion is to always maintain a majority interest in your new company, and if not a majority ownership interest, at least a majority voting interest. Many people don’t think about this until it’s too late, but for example, if you and two friends start a business with everyone having equal shares of ownership, the default rule is “majority rule”, i.e., if your two friends want to do something and you don’t, you get outvoted! The best way to ensure you have control over your company is to maintain a majority voting interest. You can still have partners in the business with you who share in the company’s profits and losses, but with a voting majority you can rest easy knowing that nothing can happen in the company without you giving it your seal of approval.
Get a solid business agreement in place!
Regardless of the type of entity you decide to start, i.e., limited liability company, corporation, partnership, limited partnership, limited liability limited partnership, the most important thing for you to do is get a written agreement in place governing the rules of the company. This can be an operating agreement for an LLC; By-Laws and Shareholder Agreement for a corporation, or Partnership Agreement for a partnership. These agreements are vital to ensuring that everyone knows the rules of the game; i.e. how are officers elected; who can elect them; when can you sell your ownership interest; what power and rights do officers and/or directors and/or members or shareholders have? Everything from the day to day operations to the ultimate sale and winding up of the business can be addressed in such an agreement.
Don’t take short cuts with licensing, permits or taxes!
If you’re going to do something, do it right! If your local city or county requires an occupational license, get one. If you are going to be engaging in a business that requires a specialty license or permit, get it! If you are in a business that is required to collect and remit sales tax, do it! The last thing you want is to have your business take off, only to have it shut down because you failed to obtain a required license, permit, or register with the state and remit proper taxes. This kind of stuff happens all of the time, and in most situations small business owners don’t realize how much trouble they are in until it is too late.
Get a good CPA or Accountant!
The absolute last thing you want to deal with as a small business owner is a problem arising from your failure to properly keep you books and a visit from good ole’ Uncle Sammy’s Internal Revenue Service. From payroll taxes, self-employment taxes, income taxes, corporate taxes, and just general advice on how best to structure your business from a tax perspective, the advice and counsel of a CPA is invaluable, and can not only save you a lot of money, but also keep you out of a lot trouble.