Business planning includes many areas of the law, including; incorporation, financing, security, business plans, and contracts. Your attorney should have a good understanding as to what it takes to form a business and how to make that business successful. My legal service does not stop at the formation of your business. I will guide you in the practices of running and managing a successful business. My knowledge of success comes from learning how to be successful. My client’s have continually benefited from that knowledge and avoid the common pitfalls that doom new start up companies.
While some owners think incorporation is only for “big” companies, there are a number of reasons even “small” businesses should think about incorporating, mainly from the standpoint of personal liability protection. In the U.S., each state governs the corporation structure and its own legal requirements for forming one. Generally, a corporation is treated under the law as an individual person, with full legal standing, and may own property, sue and be sued, and enter into or make contracts.
While the number of sole proprietorships outnumbers corporations, most of those entities exist by default–meaning the owners have taken the easiest and least expensive road to getting their businesses off the ground. What those owners fail to see, however, is the downside of having all of your “business eggs in one basket,” and many are just a lawsuit away from losing every asset in their name–including their home, cars and any personal or investment savings. While forming a corporation or LLC is less expensive and easier than ever before, here are some things to avoid to get your corporation off the ground. If done correctly, your business will continue to thrive long after you’ve decided to sell your ownership stake and move onto better and evermore profitable business ventures. Make sure you get the right guidance before jumping in. Some of the services I offer to my business clients are:
- Commercial Residential Purchase and Sales
- Commercial Liquor License Applications
- Complex Litigation ex. Breach of Contract
- Lease Negotiations and Evictions
- Enforcement of UCC or Financing Agreements
- Preparation of Complex Business Agreements
- Preparation of Partnership Agreements
Top 6 ‘legal tips’ of pitfalls to avoid:
1. Sharing capital instead of expenses:
Whenever you share your own capital – be it money, resources, information or property – you automatically give away your enterprise ability. In a perfect world, the person you are partnering with is upright, full of integrity, and not at all tempted to take this gift and run with it as his own. However, the world’s not perfect. So be careful. Instead, work out an arrangement where expenses are shared in an “associative” arrangement. It also makes it easier to walk away if things go wrong.
2. Partnering with someone because you can’t afford to hire:
This is a partnership killer right from the start. The scene is always the same: Bob has a business idea and Fred has the business skills, but Bob can’t afford to hire Fred as an employee, so they decide to share duties, expenses and profits. What happens is both Bob and Fred end up working against each other, and Bob finds himself liable for Fred’s obligations (financial and otherwise) under the partnership agreement. If you’ve got the idea and someone else has the skill, simply hire him or work out an independent contractor agreement. Don’t give away what you don’t have to.
3. Lacking a written and signed agreement:
Due to the nature of partnerships, every detail and obligation must be clearly defined and written out, and agreed upon by all parties. This is best done with a written legal agreement drafted by a well-qualified, mutually agreed-upon lawyer. Just make sure the attorney is well-versed in business agreements, and be sure to keep her card handy at all times. You may need that person again when things go wrong
4. Lacking an out or an exit strategy:
Big-time marriages start with a pre-nuptial agreement. In business and contractual terms, a pre-nup is analogous to an exit agreement. In any business agreement, define the terms of an exit strategy that allows you or your partner to walk away from the partnership, or that provides options to buy out the other party. This can be done very clearly and simply–and without imploding the operations of a successful business.
5. Expecting the friendship to outlast the breakup of the partnership:
Again, from the perspective of a marriage, how many ex-couples do you know who are truly friends? Not many, I suspect. So don’t go into any partnership with a friend expecting to remain friends after a partnership breakup. It may sound great to do business with your friends, but remember, in the business world, it’s always business first and friendships second. Also remember, most times when the business ends, so does the friendship.
6. Having a 50/50 partnership:
Every business, needs a boss. If you decide to go the partnership or corporate route, make it a 60/40 or 70/30 split. Then you and the business have a point person for accountability and overall operational control. Also, keep your buyout or exit strategy clear and in your favor–benefitting you and saving problems down the road.
As a final note, I leave you with an interesting solution to the partnership issue from one of the companies mentioned earlier: Baskin-Robbins. Hopefully, it provides additional perspective. When Burton Baskin and Irvine Robbins first considered partnering in the ice cream business, Robbins’ father advised against it, thinking the compromises each man would make in getting the partnership to work would kill the product’s potential. So the men each worked on their own businesses for two years before combining Robbins’ five shops with Baskin’s three stores under one name decided by the flip of a coin. Only after successfully launching and running their own separate businesses did the subsequent partnership actually work.
Whether you are just starting out or a well established business, my business expertise can steer you in the right direction. I offer a free consultation and can get you and your business on the right track. Call Attorney Stephen P Levesque at (401) 490-4900 for a free consultation to discuss your business matter confidentiality.