People start a new business or partnership because it is a chance to take advantage of a new economic opportunity or to do what they love for a profit. If you are starting a new business, it is probably for either or both of these reasons.
But starting a new business, while filled with opportunity, can also bring potential pitfalls. You need to set up an entity to protect yourself, but which one is best? What tax forms do you need to fill out? Is there something you are missing? Often times, mistakes are made at the beginning of a business’ life which does not show up until a misunderstanding arises on who is entitled to what or the owners seek to sell and realize a profit from their hard work. At that point, it is usually too late. Positioning yourself correctly in the beginning will set you up for success ahead. Stone & Baxter can help by eliminating these potential pitfalls from the start for a flat fee. Click here to get started.
You have many different options in setting up your business. LegalZoom or online forms can provide you basic forms, but can’t help you tailor these forms to your business’ needs. Should the members be allowed to sell their interest in the business without restriction or should the other members be allowed to purchase the interest before anyone else? Do you want to allocate profits equally? What about losses? Is your allocation of profits and losses permitted by the IRS? In answering these questions, you need an attorney, not a fillable pdf form.
You can also use an accountant to set up an LLC or a corporation. Accountants, however, focus on tax. They can’t (and shouldn’t) advise you on the legal side of forming a new business. Should you provide for vesting of stock to ensure that everyone remains interested and giving their best effort for the new company? Do you want to provide buy/sell agreements in case a member passes away, becomes unable to work for the company, or is divorced? Do you want to the ex-spouse of a former member owning a piece of the company?
What entity should you select? This decision may seem simple, but there are numerous factors to be considered. Are the founders going to work for the company and draw a salary or are there going to be passive investors who will want dividends? Is the members’ ultimate goal to grow the company to an attractive acquisition for a competitor or will the company be built to last to pass on to the next generation? Is the company going to need help in the future from outside investors who will expect the company to be structured in a certain way? The attorneys at Stone & Baxter can help you meld your answers and select the appropriate entity with the proper documentation.
Entrepreneurs may understand all of these decisions, but may be wary of the cost to address these issues at a time when cash is tight in a new company. At Stone & Baxter, we offer a flat fee for startup formations, so you can know exactly what you are getting and for how much.