Sacramento, CA (Law Firm Newswire) December 2, 2013 - It is far too easy to make serious mistakes when starting a new business. Consult with an experienced business lawyer to avoid costly errors.
“Even though someone decides to open a business with a partner, and they spend a lot of time talking, in many cases, there is no clear deal outlined with the co-founders. Without a clear agreement about terms, direction and so forth, it opens the door to potential litigation,” explained noted business lawyer Deborah Barron, of the Barron Law Office in Sacramento, California.
There are certain key items that need to be discussed and thoroughly understood prior to embarking on developing a business owned by more than one individual. For example, who gets what percentage of the company and is that percentage ownership based on that person’s continued participation in the company? What are the precise responsibilities and roles each partner is to play? Can founders buy back shares if someone decides to leave? How is the pricing determined for the shares?
“Salaries definitely need to be discussed, as well as how much time everyone is expected to commit and if they should be entitled to raises and if so, when and how much. Who makes the daily operational decisions? Will the company run on majority voting or unanimous voting? What happens if someone should be fired? Or leaks company secrets to a competitor? Setting up a new company is much more than picking a name and agreeing to work together,” stated Barron.
Another major error many make is not starting their new business venture as a corporation or as a limited liability company (LLC). This is another one of the primary decisions that need to be made, what legal form is needed to run the company. Those who chose to start up without consulting a business lawyer usually discover they are on the hook for higher taxes and have hefty liabilities they did not expect. An LLC has distinct advantages for new companies and it is worth the investment of time and money to consult with a knowledgeable attorney.
There are a number of business forms available for new startups, such as sole proprietorships, general partnerships, C corporations, S corporations, limited partnerships and LLCs. Each has their own pros and cons. Choosing which one suits a particular situation can be tricky. Sole proprietorships are not generally recommended, as there is too much exposure for the sole owner to be sued directly. General partnerships leave each partner liable for company debts and exposes their personal assets to business creditors. “I don’t recommend this choice either. C and S corporations are formed under state law. Many C corps have venture capital backing, and many S corps receive favorable tax benefits. LLCs are hybrids and offer certain tax advantages over a C corp,” added Barron. “And, even though sole proprietorship and partnerships can covert to a C or S corporation later, the costs are significant.”
Starting a new business venture is more about making sure the legal niceties are attended to and not finding out later that something was done the wrong way and the repercussions are expensive. Choosing the right business lawyer ensures a new startup runs smoothly, on the right side of the law.
Barron Law Corporation
1387 Garden Hwy, Suite 100
Sacramento, CA 95833
Toll Free: 800-LAW 5908
San Francisco Office
1750 Montgomery St., Suite 100
San Francisco, CA 94133
Toll Free: 800-LAW5908
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