Startups and Business Formation
Many first time entrepreneurs, business owners and founders of startups underestimate the importance of having a proper business structure to ensure the long term success of their companies. Many founders of companies view legal issues as secondary concerns, thinking they can work them out at a later date. This unfortunate but common situation can cause business owners to face large legal problems down the road that cost a small fortune, and sometimes even result in a company’s demise.
Consulting with a startup lawyer specializing in business law can prevent any possible legal issues down the road and help to ensure the success of a company. It also can help to improve profitability of the business by providing a clearer structure and understanding of how the business is run. This increases trust and transparency among customers, investors and employees – resulting in better long term stability, efficiency and profitability.
Hoeg Law offers affordable legal advice to help grow, scale, and structure your business. While working with Richard, and The Hoeg Law Firm, you can expect large firm caliber work with a personalized, small firm approach. Contact us today and let us help with your new company.
How We Help Your Business
From the very start of your new endeavor, the law can be both a protective shield and a daunting adversary. Unfortunately, if not considered and dealt with at the outset, that “adversary” can have a wide ranging and negative impact on both your ability to operate in the present and also any financing or sale transactions you might pursue in the future. As a result, it’s a good idea to have a legal expert assist you. Fortunately, Hoeg Law can help guide you through the process.
Hoeg Law can help you decide whether to form your entity in Michigan, or another area. We can also help determine the structure that is right for you. For instance, we help determine who will sit on your board of directors or management committee, and much more. Additionally, once you’re up and running, we can help you manage the day-to-day compliance issues, so that “limited liability” stays “limited liability.” Hoeg Law can handle the formation and structure of your legal entity; thus, saving you time and resources so you can focus on your business.
Here are some common aspects we assist startup companies with:
- Articles/Certificate of Incorporation
- Board and Shareholder Resolutions
- Incentive and Option Plans
- Stock Certificates
- Non-Disclosure Agreements
- Inventions Assignment Agreements
- Employee Offer Letters
- Limited Liability Company Agreements
- Structure and Domicile Counseling
- Board Meetings
- Minute Books
The first step for any startup is the forming of a legal entity. This can provide a startup or new business with the legal protections and structure it needs to ensure a smooth continued growth.
There are often many questions as to what type of incorporation a new business should use as their legal entity. The legal structure selected will depend on the particular business and what best suits that business’s needs and particular goals.
There are quite a few options for structuring a legal entity. These options are outlined in the Michigan LARA. There are four types that make up the bulk of what startups use. These are C-Corps, S-Corps, LLCs and limited partnerships. Below are detailed descriptions of each:
C-Corps – These are traditional corporations that are classified as individual tax entities. This is the preferred structure if a business will be pursuing venture capital funding.
S-Corps – Similar to C-Corps, except that there are limitations on investors and stock options. They are also considered pass-through entities for tax purposes instead of individual tax entities like a C-Corp.
LLCs – These are the most flexible type of structures for startups, as they are taxed as pass-through entities and have less compliance requirements.
Limited Partnerships – These entities are formed under state law. These are commonly used to hold investments in real estate.
Standard Forms and Governance
During the course of day-to-day operations a startup will be open to possible legal liability resulting from interactions with customers, employees and even the use of a website. Standard forms are used to protect businesses from liability arising out of these operations, which are normally drafted by corporate lawyers. These forms normally fall into two categories – HR related (for employees); and contract related (for customers).
HR related standard forms are used for formal employees, and protect a business from liability from state and federal labor law violations. These are generally known as employee contracts, which are drafted by startups and signed by employees. Generally speaking, the following is covered in employee contracts:
- Offer letters showing “at-will” employment
- Any stock options, profit sharing and related rights
- Confidentiality or non-disclosure agreements
- Employee handbook
- IRS and state tax documentation
- Applicable benefits packages, forms, etc.
If an employee is a contractor and not a formal employee of the company, then it is advisable for the startup owner to speak with a lawyer regarding proper employee classification and any additional requirements or liabilities that they may be responsible for.
Frequently Asked Questions
— How do you start a business?
After you’re done writing your business plan, choosing a name, and choosing your location, you’ll have to work out the technical and legal details for your company. For instance, you’ll need to have a plan for funding your business and choose an ideal legal structure (i.e. LLC, corporation, etc). You’ll also need to file the necessary paperwork within the state where you wish to primarily conduct your business. For example, if you wish to create an LLC in Michigan, you’ll need to file paperwork related to the Michigan Articles of Organization with the State Government.
— Do I need an attorney to start a business?
Although you can file the legal paperwork to establish a legal entity without an attorney, that doesn’t necessarily mean you should. Having a business law attorney draft, review, and file the paperwork will ensure it’s done properly to protect your company from potential liabilities such as litigation or tax issues. Furthermore, there’s more to starting a business than simply establishing a legal entity. For instance, an attorney can help with details such as:
- Choosing the proper legal entity (LLC, Sole Proprietorship, Corporation, etc)
- Determining ownership, equity, etc.
- Choosing where to establish a company
- Minimizing tax and liability for your specific industry
- The legal side of business management and growth after formation
These factors all directly impact how the company is operated, financed, and controlled. With so much on the line it is important to get good legal advice from a lawyer right from the start.
— How much does it cost to start a business?
Outside the hourly rate of your legal counsel, there are filing fees to legally establish your business within the State you’re operating in. These filing fees vary from State to State. In Michigan, these fees are generally in the low hundreds of dollars but vary based on the type of entity formed. Also, for corporations, fees vary based on the number of shares authorized for issuance.