Legal Briefs

Look to an Attorney When Starting and Running Your Business

Published Monday, October 10, 2011

During the Great Recession, more Americans have started businesses than in any period over the last decade and a half according to the Kauffman Foundation, which tracks statistics on entrepreneurship in America. The number of business start-ups in the United States is currently at a pace of 565,000 a year.


If you are one of those entrepreneurs perhaps out-of-work or simply itching to follow your dreams, itís important that you establish your business correctly to ensure the best chance for long-term success and survival. Investing in a good business attorney on the front end is a wise move to build a firm foundation and a good start.

Jim Coyle, a tax attorney and partner with the Gainesville, Ga. law firm Stewart Melvin & Frost. He is one of the firmís many specialists with expertise in business formations, tax planning, and sales and acquisitions in addition to his tax and estate planning practice. He offers advice on starting a new business.


Question: Before we get into the details of how a lawyer can help you start your business, letís get to the heart of what a lot of small business owners may think or fear about attorneys Ė that theyíre too expensive. How would you respond to that?

Jim: For a small business person just starting out, it is certainly understandable and even advisable to be concerned about expenses.


But my response is that if you donít structure your new business in the correct manner and with the help of an experienced legal expert, as well as a financial expert such as an accountant or banker, you could wind up paying more money in the long run from such things as unforeseen taxes, improper financing, exposure to potential personal liability or maybe due to a disgruntled employee who leaves your company and takes all your customers with him.


In addition, there are some things that you can do to keep your legal and accounting expenses within reason, especially during the initial period of starting your business.


First, most lawyers typically will not charge for an initial consultative meeting where you simply are outlining your needs and determining whether you and the attorney are a good fit for each other.


Once you move forward, itís good to do your homework before meeting with your attorney for the first time. My advice is that you research and develop a business plan that sets out your goals and strategies for as far in advance as reasonably possible. This will save a lot of time and help your attorney make the best-informed decisions for your business. A well-thought-out business plan not only will help your lawyer but also your accountant and your banker.

Question: What are some specific legal areas that an entrepreneur should consider in starting a new business?

Jim: One of the first areas that needs to be addressed is your legal structure. Are you going to be a partnership, limited liability company, or a corporation? If itís the latter, then what type of corporation?


There are many factors that will determine the best legal structure for your business and this is something that may change through the years as your business evolves.


Your legal structure is dependent on such things as:

    • Your need to limit personal liability from potential claims or lawsuits aimed at your business;
    • Whether or not you have outside investors in addition to friends and family members;
    • Or the need to limit your tax exposure from both a corporate and personal standpoint.



Question: What are some other legal areas that typically need to be addressed up front when you start a business?

Jim: You may need to establish contractual agreements with key people in the operation of your business.


For example, you may need to set up an employment and/or non-compete agreement with key sales employees to prevent them from taking your customers, confidential information, or other employees if they should ever leave your company to join a competitor.


If you are going to have a business partner, you will need to establish a contractual agreement, called a buy-sell agreement, that outlines percentages of ownership by each partner and how the business will be valued if one partner should decide to leave or want to buy out another partner.


You also need to think about the protection of any intellectual property assets. You may need to patent a particular new design or business process. Or, at the very least, you may need to trademark your product or company name to protect against someone copying you.


Question: Should exit strategies and succession planning for business owners be addressed at this point or is it too early?


Jim: No, itís not. But a lot of business owners will put off these types of decisions for the same reasons that we put off preparing a will. Sometimes, people simply donít want to deal with these issues, because they may be uncomfortable to talk about.


However, a good succession plan for a business can help you avoid future disputes with partners or family if the business owner should decide to retire, become disabled, or die unexpectedly.


There are also tax implications that you can avoid with a good succession plan, and a qualified attorney can certainly help you in this area.


Question: It would appear that you not only need an attorney to help start your business but also hopefully a legal partner throughout the life of your business?

Jim: Establishing a long-term relationship with a law firm and an attorney whom you can trust is very important. Your attorney can be just as important as your own business partner in the overall life and success of your company.


In a larger practice like our law firm, most every attorney has experienced the multitude of legal issues that you are likely to face in the life of your business. So it is helpful to have someone on your side that has been there before and can help you navigate through those uncharted waters of starting a business.