How do I limit my personal liability as a business owner?
The best way to limit your personal risk for liabilities arising from the activities of your small business is to form a business unit with the Secretary of State. Once founded, your company offers you protection from liabilities that arise from your company. Therefore, your company’s creditors are limited to the assets held in the company and cannot match your personal wealth.
How should I structure my business?
For most small businesses, the Limited Liability Company (LLC) or S Corporation forms work well. These two companies are known as “pass-through companies” because the small business itself does not pay taxes to the IRS. Instead, income tax generated by doing business is passed on to owners. This avoids a double tax situation where the small business pays an income tax and the owners pay a tax on the same income when that income is distributed from the business.
How should I determine ownership responsibilities?
The decisive factor is how active each of the owners will be in day-to-day operations. Ownership of a company is divided through shares. With these shares, shareholders can vote for the board of directors. Then the board determines the direction of the company and appoints the executives to run the day-to-day business. This is ideal for less active owners. For owners who actively run the business, a limited liability company can work better. The LLC is less regulated and allows the owners to run the business directly.
What should be included in the articles of association or in the company agreement?
A company’s articles of association and LLC corporate agreement contain the internal rules for interaction between its owners, officers, and managers. These documents should contain all the specific details for the roles, responsibilities and relationships between the various parties.
Which compliance practices does my company have to adhere to?
It depends a lot on what type of business you are running. Some services and products are more regulated than others. Local businesses such as liquor stores and barber shops are regulated by the state and require licenses to operate. If you have a physical location, you may also be subject to federal regulations under the Americans with Disabilities Act or the Occupational Safety and Health Administration.
What types of insurance does my company need?
Again, this depends on the type of business. If you have a physical room or a car, you’ll want to get general liability and auto insurance. This type of coverage may even be required by your lenders or landlords. You may also want to consider business interruption insurance to protect yourself against events that can temporarily weigh on your earnings – like tornadoes or weather-related power outages.
Which contracts does my company need?
Your company should have a contract with most of the people and companies it works with. Examples of contract types are:
• Financing and loan agreements with lenders.
• Rental agreements with landlords.
• Employment contracts with employees.
• Contractual agreements with fixed-term contracts.
• Service agreements with providers and customers.
It is important to examine all the points of contact your company has with others and assess whether that point should have a contract. In general, it is better to decide in advance (have a contract) how the relationship will work than to fight it afterwards in court.
What did I not take into account?
If you are an entrepreneur and your first time running a business, it is important to remember that the business is a stand-alone entity. It is this separation that forms the basis for liability protection offered by the establishment of an official company with the State Secretary. To maintain this protection, you must conduct all of the company’s business under your company’s name, hold all of the company’s money in the company’s accounts, hold the company’s assets on behalf of the company, etc. When personal and business operations are related Mixing Money and wealth put your personal wealth at risk for the company’s liabilities.
Start your small business journey with Hammerle Finley law firm today
There are many legal variables involved in starting a small business. The answers to all of the above questions will depend on the facts and circumstances of your company. Hammerle Finley’s lawyers are experienced in identifying and addressing these issues efficiently and effectively.