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FAQ: Business Organizations and Transactions

Why should you contact an attorney before starting a business?

When entrepreneurs decide to start a business, they usually have a great idea and some money to invest in the enterprise. Some people opt to start the business by themselves or with family members; others have partners or other investors who will not be involved with the management of the business. Even businesspeople who decide to go it alone have options to protect themselves from personal liability for business debts and obligations. A lawyer experienced in business law and entity selection can help you focus on all of the following important considerations.

Contracts. Most businesses execute contracts for space, services and supplies. Businesses often have agreements between partners, investors and employees. It is important to get the contract terms right so that you do not end up in court or so that you are better protected if you do.

Registering, Licensing and Permits. Some business entities are required to register with the state to obtain legal status. Even businesses that are not required to register may be required to obtain licenses or permits.

Control. The choice of business entity often dictates the manner in which the business is operated. Choosing the wrong entity may make you personally liable for the wrongs of employees or partners or may give you less control than you wish.

Multi-State Business. The requirements for forming and conducting a business in one state may be different than another state's requirements. If you do not abide by the rules of the states in which you do business, the protections you have in your home state of operations may be lost.

Strict Conformity. With some business entities, you must strictly conform to the state law governing that business form or you lose its benefits and protections.

Capital. Businesses need to have money, maintain accurate records of income and distributions and have processes in place to be financially responsible. Different business entities may require different procedures for raising capital and making distributions.

Variety of Entities. Although certain basic business entities exist within each state, some states allow businesses to form entities based on the tax treatment and liability protections for owners and officers.

Autonomy. With many business entities, the things you do not decide are decided for you. Most states have adopted uniform laws that fill in the gaps for business entities when their charters, by-laws and other organizing documents are silent. You may be subject to a whole set of laws and regulations that you don't even know exist.

Tax. Different business forms provide different tax advantages and disadvantages. The only thing more crucial to a new business is liability.

Liability. Business entities provide different protections and risks to the business owner or investor. Personal liability means that your business puts everything you own at risk. An attorney can help you avoid this situation or minimize your risk. Knowing your personal liability and reducing the risk to your and your family's economic well-being is worth the visit to your attorney.

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