I’ve decided to start a business. Now what?
First, congratulations! Now, you have some important decisions to make to insure the business starts out on the right foot.
As any successful business will agree the first important decision a business faces is how to properly form the business entity. This important process consists of four components.
Entity Selection – The first step is to decide what entity form to select for your business. There are several options available, such as a sole proprietorship, limited liability company (LLC), corporation (with either an S or C corp. election) and many forms of partnership. Typically, if there is more than one person but less than five as part of the business, a limited liability company is the preferred entity structure due to the liability protections and relaxed corporate formalities. However, before selecting the entity type, the business should consider a number of factors, including tax consequences, which should be obtained from the business’ tax professional.
Formation – After determining the entity form, important legal documents must be drafted and filed with a number of state, federal and city agencies. The agencies include, but are not limited to, the Washington Secretary of State, Department of Revenue, and the Internal Revenue Service. In addition to these filing requirements, the entity should also adopt an agreement amongst the owners governing the operation of the business. These documents are often referred to as an operating agreement and/or shareholder agreement depending, on the entity form.
Employment Needs – The next component of business formation is determining the business’ employment needs. Assuming the business will be hiring employees and/or independent contractors, the business should provide employment contracts and/or adopt important employment policies to protect it from potential liability. If no employees will be hired, it is still necessary to consult our attorneys regarding this aspect as one or several of the owners could be bound by other employment agreements (non-compete and/or non-solicitation agreements) with third parties, which could interfere with the business’ operations.
Customer Contracts – The final component of our representation is to create a contract the business can use to conduct business with its customers.
Forming a business entity is a critical first step in any business, so make sure you receive the proper guidance.