The Importance of Formalities When Starting a Business
Starting a business takes courage, resourcefulness, and a willingness to think on your feet and make peace with uncertainty.
There are so many things in the world of entrepreneurship that you cannot control, but many of the legal and financial troubles that small business owners involve preventable mistakes with the formalities of business. Some of these mistakes are big enough to sink the company entirely; they are part of the reason that only a fraction of companies stay open for three years or more. You can avoid a lot of these mistakes, saving up your emotional and financial resources for dealing with the unexpected twists and turns of entrepreneurship, by working with a small business lawyer from the very beginning of your entrepreneurship process.
Choosing a Business Structure
On the surface of it, applying for a Tax ID number for your business seems easy – the form is only one page long.
One box that you check determines the structure of your business throughout its existence, namely the “entity type” question.
If you choose the wrong entity type (also known as a business structure) for your company, you could face high personal and business taxes, or else you could leave yourself personally vulnerable if the business becomes a defendant in a lawsuit. Some business structures, such as Limited Liability Companies (LLCs) are also required to file additional documents with the state. Working with an experience business lawyer from the beginning can help you get your business started on the right foot, so you don’t have to spend additional resources trying to fix your mistakes.
Licenses and Insurance
Many industries require people who operate businesses related to them to hold licenses and permits issued at the federal, state, or local level. You can also get in trouble if you do not carry the right business liability insurance coverage required for a company like yours. Additionally, all but the smallest companies must carry workers’ compensation insurance. Business insurance is part of your asset protection plan, so be sure to do your research and make the right purchase.
Accurate Record Keeping
Perhaps you have an excellent memory, and maybe you even prepare your own tax returns using only pencil and paper, plus a list of expenses you compiled in a Word document. But filing business taxes is unlike anything you have done when managing your own finances. The IRS is not the only opponent that will take you to task about your financial records.
Accurate record keeping is likewise your armor if you end up in a legal dispute about breach of contract or the removal of a business partner. Keeping impeccable records is not a substitute for working with a business law attorney. Rather, your attorney can use your records as evidence to help you argue your case persuasively.