Have a great business idea in California, New York or other state that you need to put into action? Over the last few decades, startups have taken over, and some of the best are not limited to tech startups. They are in every industry, from health (e.g., Devoted Health) to consumer and retail (e.g., Juul Labs), e-commerce (e.g., goPuff), artificial intelligence (e.g., ByteDance), financial tech (e.g., Stripe), supply chain (e.g., Instacart) and more. Getting started with your startup business, however, is the hard part. There are laws and regulations that must be followed. Getting it right can mean either a solid foundation from which your business will grow or a rocky foundation from which your business may fail.
If you are looking to launch a Startup venture in New York or in Los Angeles or Ventura County, California or in any other state and are curious about forming a Delaware corporation or limited liability company ("LLC"), I can help you identify the most advantageous business structure for you, and help you perfect, qualify, organize, and capitalize your new business.
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Startups and the Importance of Business Structure in California, New York, and Delaware
One of the first, and most important, decisions when setting up your startup is which business structure to use.
The main business structures to choose from are:
- Corporations. A corporation has a separate legal identity from its owners, limiting their personal liability. However, corporations may be a bit more expensive and complex to set up and run than other types. On the other hand, this additional cost may be more than made up for by the advantages, and the complexity is usually manageable (and, in some case, necessary). Incorporation may be attractive to startups requiring third-party financing (angel investors, venture capital funds, or even family and friends), or for tax reasons (about which consultation with your independent tax advisor is invaluable), and for certain other reasons.
- Limited Liability Companies ("LLC's"). An LLC combines the features of partnership and corporation, including having the same limited liability benefit for the owners as corporations have. The LLC structure suits a range of businesses that are seeking a sightly simpler formation process. LLC's may also offer more flexibility in ownership structure, management and control, and capitalization than a corporation. Of course, if you are seeking third-party financing, an LLC may not be desirable to investors.
- Partnerships. A partnership is defined generally as an arrangement between or among two or more persons (the "partners") to carry on a business for profit. Generally speaking, no registration or filing is necessary for forming a "General Partnership," even though most if not all states have a sophisticated body of partnership law. Registration may still be required, but that requirement would be after the fact of the formation (existence) of the General Partnership itself. Because the agreement between or among the partners is usually sufficient to form the General Partnership, it is critical to have a well-drafted, written partnership agreement in place that contemplates a number of important (and sometimes esoteric) legal issues. "Limited Partnerships" are distinct from General Partnerships, may be subject to more regulation, and are generally used in more sophisticated business or financing arrangements.
- Sole Proprietorships. Non-lawyers often mistake a sole-proprietorship for a business entity. It is not. It can barely be called a business "structure." While it is as simple as can be to set up (there is no set up), the disadvantages make it the least desirable mode of operating most businesses. I don't know that I have known any startup lawyer or other business attorney -- whether in my former big-law-firm life, or since becoming a solo practitioner working with many small firms and other solo's -- who has ever advised a client to conduct a business as a sole proprietor.
The structure of your startup has long-term legal, financial, and tax consequences so it's important to choose wisely.
Startup Legal Services in California, New York or in Another State but Forming in Delaware
When setting up your startup, you should engage an experienced startup lawyer or other business law attorney to advise and assist you on a range of matters.
Choosing a Business Structure
A startup lawyer or other business law attorney can explain the business structures available, the pros and cons of each, and which may be the best choice for your startup. They can also advise you of any city, county, state, and federal regulatory requirements, such as licenses, permits, and professional registration.
Drafting Initial Documents
There's a lot of paperwork involved when starting a new business. An attorney can draft all the necessary initial documents, including:
- Charters ("articles of incorporation" or "certificates of incorporation")
- LLC operating agreements
- Partnership agreements
- Assignment Agreements
- Investment agreements
- Employment contracts
- Service contracts
- Website terms and conditions
- Privacy policies
- SaaS agreements
- Venture financing documents
Reviewing Contracts
In addition to preparing contracts for you, a business law attorney can review and advise you on any business contracts prepared by third parties, like clients, suppliers, or landlords (e.g., commercial leases).
Protecting Your Intellectual Property
A lawyer can assist you with patent, trademark, and patent applications to protect your business's intellectual property.
Providing Ad Hoc Advice / "Go-To" Business Law Counsel
There is a range of other legal issues that can arise in the course of setting up and running a startup business. These include tax, capital raising, and employment issues, like determining employee stock options and termination.
Identifying Any Legal Risks
Once a business lawyer has an overview of your business and what it does, they can identify and explain any legal risks or potential issues that may arise. They can advise you on how to avoid them and best protect your business.
Making Sure You Comply with Regulatory Laws
The government regulates the activities of businesses, including startups. Five main areas of law can be significant and could impact your startup in California, New York or other state. These five core areas include:
- Advertising restrictions (to protect consumers)
- Employment and labor laws (to protect employees, provide safe working conditions, etc.)
- Environment regulations (to protect the environment)
- Data security and privacy protection (to protect sensitive data and other information collected from employees, customers, clients, business transactions, etc.)
- Safety and health (to protect employees from unsafe and hazardous work conditions, etc.)
These five areas are regulated by the federal government, state governments, and local governments. The layering of laws and regulations can make compliance more difficult, but a well-versed business attorney knows the laws and regulations and will ensure compliance.
Five Factors to Consider before Starting a Business in California, New York or in Another State but Forming in Delaware
Starting a business can be risky if adequate planning and due diligence are not undertaken. There are many issues to think about before setting up your business, and here are just a few of those things.
1. Nature of your business
Clearly outlining the nature of your business helps guide many of the choices you make when starting a business, such as choosing a business structure. This includes identifying the product you are selling or the service you're providing, your target audience, and where the business will be based.
One of the best ways to think through these issues is in a detailed business plan.
2. Business structure
The best structure for your business depends on a variety of factors, including the number of owners involved and how the business will be funded. Its structure will determine the business' tax obligations and the personal liability of its owners, so it is crucial to take time to consider the issue.
3. Capital
One of the biggest questions when starting a business is how it will be funded. Are you funding it personally from savings or via a business loan, are family members contributing, or will you seek external investment?
4. Employees
Will your business need to hire employees? If so, you need to factor salaries and any other compulsory employee contributions into your financial planning. You will also need to familiarize yourself with the relevant federal and state employment laws.
5. Compliance
There are also various state and federal regulations on businesses (as already noted), depending on the business structure and its activities. It is important to understand all of these compliance requirements, such as registration requirements, financial reporting, and other record-keeping obligations.
A business lawyer can advise and guide you on many of these issues.
Your Startup Lawyer in Los Angeles and Ventura County, CA
If you are launching a Startup venture -- be it the next industry-disrupting tech startup, the freedom-providing venture of being self employed, or a community rooted "mom-n-pop" shop -- do it properly. I would love the chance to get to know you and your business, for you to consider me a professional resource to help you set a firm foundation from which to launch your business properly and intelligently, so you can focus on building your new personal empire. Click here to make an appointment now for a Free Consultation..
Disclaimer
This article is not legal advice, but is provided for general information purposes only: see the disclaimer in the footer of this site, and read Legal Notices here.