A strong foundation of any building is essential for its stability and longevity; the same is true for a business. By ensuring that your business is on solid legal footing, you will be best prepared to handle the challenges that come with running a business. A strong legal foundation is built on a number of principles, including entity formation, contracting, permitting and licensing, and business succession planning.
Entity Formation. The cornerstone of a strong legal foundation for your business is choosing the right entity structure. The best entity structure for your business will depend on a number of factors, including your personal financial situation, the size and complexity of your business, and your risk tolerance. There are several entity types available to form, each with its own advantages and disadvantages:
- A sole proprietorship is simply working under your own name (or under a registered fictitious name). There is no liability protection for the owner.
- A partnership is a business owned by two or more people. Partners share profits and losses, and are jointly liable for debts. There are two main types: general (all partners have unlimited liability) and limited (some partners have limited liability).
- A corporation is the most formal entity that offers the most liability protection to its owners, but are also more complex in formation and governance.
- A limited liability company is an entity that affords its owners limited liability but has more flexibility in its governance and taxation than a corporation.
Contracting. If choosing the correct entity type for your business is the cornerstone of the foundation of your business, strong contracts are the cinder blocks that make up the foundation walls. It is vital to have clear and concise contracts in place with your customers, suppliers, vendors and employees. Your company’s contracts should set forth the terms and conditions to which the parties agreed, such as the price, the scope of work, the payment terms, any change order process, and the dispute resolution process. It is important to make sure your contract matches your project; there are numerous differences in what terms a contract can have when dealing with consumers, residential clients, or commercial clients.
Permitting and Licensing. Obtaining the necessary permits and licenses to operate your business are the mortar of your business’ foundation. The specific permits and licenses required will vary depending on the type of business you are starting and the location of your business. It is important to research the required licenses and permits early in the business planning process as the process can be complex and time-consuming. Failure to obtain the necessary licenses and permits can result in fines, penalties, and even the closure of the business.
Exit Strategy. From the very beginning, it is important to have a plan in place for the succession of your business. A solid business succession plan can help ensure that your business continues even if you are no longer involved in the day-to-day operations, whether because of illness, retirement, or sale of the business. There are a number of different ways to structure a business succession plan and the correct succession plan will depend on your individual circumstances and goals.
Building a strong legal foundation for your business is essential to its success. By taking the time to address these items, among other important issues specific to your business, you can protect your interests and set your company up for success.
For more information, please contact an attorney in the Business Transactions, Construction, or Banking/Real Estate Practice Groups at MacDonald Illig at 814/870-7600 or email firstname.lastname@example.org.