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Entries in Starting a Business (7)

Wednesday
Jul152009

New Blog for Start-ups and Small Business - IndianaStartup.com

Up until now, this blog has really focused on start-up businesses and the many legal issues that come with running a start-up or small business.  That focus has been moved to a new blog I just launched today called IndianaStartup.com.  Here is short blurb about the new blog:

IndianaStartup.com is a resource for entrepreneurs, start-ups and small businesses. The site will constantly be evolving, but the focus is to provide information (not legal advice – see the Terms of Use/Disclaimer) that hopefully will be useful to the start-up community. Beyond the information supplied on this site, I am hopeful entrepreneurs will engage in a constructive dialgue by leaving comments about the articles posted here.

IndianaStart-up.com also serves as a platform for start-ups to let the world know they exist through our Start-Up of the Week feature. This is something that is provided to qualifying start-ups free of charge. Hopefully this site will gain a strong following, and the platform provided will help more than a few start-ups get the word out.

So please check out the new blog. I think it has lots of possibilities - and I am not totally sure what direction it will take.  I love the format, the platform and the message - so I am hopeful for good things.

I will still be posting to this blog, but more on about personal musings related to my law practice. 

I will also be launching two more blogs in the coming weeks - so stay tuned!

 

Tuesday
Jul072009

An Internet Start-up Attorney - Advising Internet Start-Ups

About 10 years ago, during the Web 1.0 dot-com boom, I co-founded an Internet start-up.  For 3 years I raised capital, hired employees, developed web applications, and did everything else necessary to operate the business.  My experience as an Internet entrepreneur has been invaluable for the portion of my practice that focuses on Internet start ups.  I am a firm believer that specialized experience prior to practicing law allows an attorney to provide real value to clients - beyond just rendering legal advice.  My Internet start-up clients also seem to appreciate the "been there - done that" aspect of my background.

If you have an Internet start-up, contact me  to speak with an Interent start-up attorney that has a practical understanding of your business and the legal issues it faces.

Monday
Jun222009

Business Start-Up Attorney - Employees vs Independent Contractors

 One question I get from quite a few start-up clients of my business start-up law practice, is whether they should hire employees or independent contractors. After a brief discusion, those clients usually will opt to classify new workers as independent contractors instead of employees. This is mainly a cost saving decision. The costs attributable to hiring employees can be substantial, including workers’ compensation, unemployment insurance tax, social security tax and withholding and local payroll taxes.


A good start to identifying workers as independnt contractors vs employees is to have a properly drafted agreement signed in writing by the company and the worker, although simply identifying a worker as an independent contractor, even in a signed agreement, does not mean that the law will recognize the worker as such. The law will look to factors such as the degree of control and direction the company has over the worker. Misclassification of a worker can lead to obligations to pay back taxes, penalties, and interest payments.

If you are a start-up and have questions about how to classify your workers as independent contractors, make sure you seek the legal advice of a good business start-up attorney.

Sunday
May312009

Business Incorporation - Why you should consider your home state.

Martin Zwilling over at Startupprofessionals.com has a nice post regarding why start-ups should consider incorporating / organizing their business in their home state.  The post can be found here, but here is a brief summary:

  • Don't automatically flock to incorporating in Delaware.  Sure there might still be some advantages to doing so, but they don't really apply to start-ups.
  • In Indiana, where I practice law, the filing fees for incorporating a business are inexpensive and the process is relatively straightforward - not the case in popular states such as Delaware and Nevada.
  • Attorneys in your home state, if you are using an attorney (hopefully you are), will be more familiar with your state incorporation laws.
  • Your company may qualify for an intrastate securities law exemption in the event it offers securities for sale.
  • There is no need to register as a foriegn entity in your home state - and added expense if you incorporate elsewhere. 

As he points out, there are many other concerns that should be addressed when determining in what state you should incorporate - concerns you should address with a corporate attorney in your home state.

Thursday
May212009

Starting a Business - A checklist of things to consider.

If you are starting a business, there are a number of things you need to consider when you are in start-up mode, beyond what you might normally think of (i.e. the business name, business location, sales and marketing...etc).  From a legal perspective, here are some of the things you should carefully consider with the help of a business start-up attorney:

  • What form of business entity should you choose?  There are multiple entries on this blog dealing with the various forms of entity a start-up can choose from.
  • If there will be multiple owners (i.e. shareholders, partners or members), how will control of the business be structured?  
  • How much and how often will the business owners be paid should the business turn a profit?
  • What record keeping methods will the business employ?
  • Will the business hire employees, contractors, or a mix of the two?
  • What type of liability insurance will the business need?  How much will it need?
  • Will the business enter into a lease for space?  Or will it buy and develop its own real estate?
  • If the business will have employees, will it provide benefits? How will the business handle payroll?
  • What types of banking relationships will be necessary?
  • Will the business need to raise capital?  If so, will it be through debt or private equity?
  • Will any sort of license or permit be required to conduct business?

These are just a few things that should be considered?  Need help sorting through your start-up business questions?  Contact start-up business attorney Brian V Powers.

 

Monday
May112009

Raising Venture Capital - What is a Liquidation Preference?

There is an informative article posted on TheStartpLawyer.com, a great blog maintained by Texas attorney Ryan Reynolds, about liquidiation preferences.  Liquidation preferences are often required by a venture capitalist as a component to the preferred stock they receive in return for their investment.  Check out the post for a brief overview of liquidation preferences.

Friday
May012009

Starting a Business - Forming a Corporation

A corporation is an entity created under statute that is separate and distinct from its owners. In other words, a corporation can be created only by following the requirements of the relevant statute (in Indiana, it is the Indiana Business Corporation Law) and will not automatically be created (as can be the case with some partnerships). Once formed, the corporation is recognized as being independent from you, the owner/shareholder. The corporation is managed by directors and officers; sometimes, the directors and officers are also the shareholders. From a liability standpoint, the corporation affords you complete protection; creditors must rely on the assets of the corporation and you are notpersonally liable for anything beyond your investment and financial commitment to the corporation.

That said, lenders frequently require shareholders of smaller corporations to personally guarantee the debt of the corporation. Corporations are the most complex entities, both in terms of creation and operation. In addition to filing articles of incorporation, corporations need to adopt by-laws, elect directors and officers, and in many states, have regular meetings. There may also be annual reporting requirements with the Secretary of State in addition to annual fees.

The shares of a corporation are freely transferable and unlike a partnership or limited liability company, the transferee of yourshares will succeed to all of your rights in those shares. In other words, the person to whom you transfer your shares will be just as much an owner of the corporation as you were. This ease of transferability can have significant impact later on as you begin to implement exit strategies (that is, you are ready to retire from
the enterprise).

From a tax perspective, corporations can also be more complex than their partnership and limited liability company counterparts. Usually, a corporation is a separate taxable entity. It pays tax on its income and later, when it distributes accumulated income to the shareholders, the shareholders will pay a second layer of income tax on those dividends. This “double taxation” is a significant drawback for most corporations. There is a special type of corporation (commonly referred to as an “S” corporation) that generally is not subject to double taxation. An “S” corporation allocates income and losses on a pro-rata basis to its shareholders, although the use of losses by a shareholder is limited to that shareholder’s basis in the corporation. You must strictly adhere to rigid equirements imposed on “S” corporations, and shareholders sometimes are surprised by how easy it is to terminate an existing “S” election inadvertently.

Occasionally, a business owner might intentionally choose the double taxation of a regular corporation to take advantage of certain corporate tax benefits. For instance, while partners in a partnership cannot be employees of that partnership, shareholders in a corporation can be employees; as a result, these shareholders can participate in certain fringe benefits extended to “employees” under the federal tax law, such as flexible spending accounts. Other examples include (i) the ability of a corporation to participate in tax-advantaged reorganizations unavailable to partnerships and limited liability companies and (ii) the potential for up to $50,000 ($100,000 on a Married Filing Joint Return) of losses from the sale, exchange, or worthlessness of certain small business corporation stock to qualify for ordinary loss treatment (as opposed to capital loss treatment).

As you can see from this post and my prior business entity selection and formation posts, a good deal of thought and care must go into your decision of what type of legal form your new business should take. Quite often, the advantages of one form will be offset by disadvantages not present in another. As mentioned, within similar types of legal forms, nuances exist that make the decision all the more difficult. By identifying the right combination of advantages and disadvantages and with the assistance of competent advisors, the right choice of entity selection can help ensure your business success.

Contact Indiana business attorney Brian v. Powers if you need legal advice on setting up your Indiana business, and for your other business, legal needs.