Business Startup Overview

Free Forms

Calendar

 Content Pages
 

Startup Overview

Incorporation

Contracts

Co-Ownership

Intellectual Property

Branding & Naming
 

Links
 

In theory, starting a business is not that difficult;  you find a consumer need, and then find a way to fulfill that need.  Often, people begin selling goods or services without registering their businesses anywhere.  This is not recommended, however.

Fifty percent of all businesses shut down within the first two years;  and a full ninety percent close within the first ten years.  The number one reason for these alarming rates of business shut-downs is that owners do not adequately plan.  Failure to plan is also a primary reason for incurring legal liability in business.  Use the steps below to get an overview of what you need to plan for in business.

Startup Step-by-Step:  Click on any of the links below to learn more about the legal issues pertaining to that step in the business planning process.  

There are four crucial steps you should consider, if you wish to reduce your exposure to legal trouble:

Step 1 - Incorporate Your Business
Incorporating your business helps protect your personal assets (i.e. your savings & property) from being seized by creditors when the business cannot satisfy its own  legal liability or debt.  To read more about incorporation, click here.

---

Step 2 - Buy Good Business Insurance
Buying good insurance is a must for limiting your exposure to liability.  Incorporating is no substitute for adequate insurance because incorporating can't stop liability from draining the assets from your business, or even bankrupting your business.  What's more, if you fail to acquire reasonable levels of insurance, you may not benefit from the benefits of incorporation in shielding your personal wealth and credit rating.  That is because being adequately insured is one of the formalities required in order for the courts to respect your liability shield.

---

Step 3 - Use Contracts to Your Advantage
Contracts allow you to shift what would otherwise be your own liability onto the other party you are contracting with.  This can be done, for example, when you require that the other party "indemnify" you -- that is, pay for your legal liability, in the event of a lawsuit.

Shifting of responsibility can also occur when you inform buyers that you won't provide warranties otherwise granted under law, or that such warranties are limited in ways acceptable to you.  All contracts for the sale of goods automatically come with warranties provided by law, unless you "disclaim" them -- i.e. you clarify by contract that you don't accept the automatic warranties.

One of the most common ways contracts are used to limit liability is by requiring the other party to waive any claim they may have against you if liability arises while using your product or service.  While these waivers are not always upheld in court, they provide a very good deterrent to lawsuits.

The ways for limiting your liability through contracts are only limited by your imagination.  Whether you're using a form contract for multiple clients over and over, or putting together a large deal with a single party, paying an attorney to review the contract will pay for itself many times over -- both in financial protection and peace of mind.

More about analyzing contracts...

---

Step 4 - Prevent Problems Before they Happen
The best way to prevent problems is often the simplest;  treat people well.  The fact is, people are reluctant to sue people they like, even when mistakes are made.  Meanwhile, people won't hesitate to sue if they feel they've been mistreated or disrespected;  they may even pursue frivolous lawsuits out of spite.

Another good way to avoid problems before they start is to plan well.  Do not promise something you can't deliver, and don't promise to buy what you cannot afford.  Especially, don't assume you know how to plan properly in the beginning.  CPA's, business consultants and attorneys provide invaluable services to fill in the gaps of your own expertise.  Look for professionals that help you learn.  For instance, once you understand some basic concepts and vocabulary about contracts, you probably won't need to run to your attorney each time you're presented with a basic contract.  

Finally, know the rules that regulate your particular business.  You may need to apply for various permits and/or licenses, depending on your industry and local regulations.  Unfortunately, this can sometimes be one of the most difficult and time consuming steps of starting and maintaining a business.  Click here for more information on permits and licenses.

Buying a business has its advantages;  you can start out running instead of walking.  This means you're far more likely to make profit when you begin, than if you start a business from scratch.  However, there are also disadvantages.  When buying into a business, operations aren't necessarily set up the way you would like them to be.  You may find certain systems cumbersome and in need of change.  You may have employees that you don't find suitable.  It's almost impossible to find a business where everything is just as you would have set it up.  Further, when you buy a business, you loose the opportunity to know it as intimately as when you've built it from the ground up.  This may be a disadvantage when faced with managing the new business.  

Aside from these practical considerations, there are also a couple legal issues of which you should be aware.  First, depending on how the purchase was structured, you may be taking on all the debts and legal liabilities of the business prior to when you purchased the business.

 Second, you may be buying property in the business that is secured as collateral for a third party.  If so, that party may be able to collect on the debt and take the secured property, even if you didn't agree to take on the prior liabilities or debts of the business.  You also have to be careful that the transfer of intellectual property rights is done legally.  This is a tricky area that absolutely requires an attorney experienced in intellectual property transfers and licenses. 

Finally, you'll want to make sure that you're buying something of value.  Too often, people buy businesses that they could have easily started themselves, or that are not profitable.  For this reason, you are strongly urged to hire a CPA experienced in business valuation.   Click Here for CPA referrals

If you use a business broker, be clear about who the broker represents.  Unfortunately, too many brokers claim to represent your interest when in fact they are representing the seller.  In reality, too many brokers represent only themselves;  they only get paid if they make the sale happen.  If you have an attorney representing both parties to a sale, at least you can rest assured the attorney risks loosing his/her law license if there is unfair favoritism of one party over another or if the attorney fails to reveal a conflict of interest.

TERMS OF USE: By viewing the contents of this web site you acknowledge that you have read and understood this paragraph. Pliam Law Group, PA (hereinafter, "Pliam") provides this web site as a free information service.  THIS WEBSITE AND ALL ITS CONTENT ARE PROVIDED ON AN "AS IS" BASIS.  ALL WARRANTIES, EITHER EXPRESS OR IMPLIED, ARE DISCLAIMED. NEITHER PLIAM NOR ANY PERSON OR COMPANY ASSOCIATED WITH PLIAM SHALL BE LIABLE FOR ANY DAMAGE RESULTING FROM YOUR USE OR INABILITY TO USE THIS WEBSITE OR THE CONTENT ON THIS WEBSITE. Because every legal matter is different, and cannot be addressed in the generalized content of a web site, you should not rely upon the information provided on this site as legal advice, nor should you construe anything on the site to be an offer to represent you. Thus, you cannot create an attorney-client relationship by viewing this site, nor can you do so by sending e-mail to us or using forms found on this site. We do not guarantee the confidentiality of communications submitted through the Internet, whether via e-mail or web forms. By using this site you also agree that any legal claims or disputes arising from the use of this web site or any of its forms will be brought in a Minnesota court, under Minnesota Law, and you waive any arguments you may otherwise have to contest jurisdiction in Minnesota.