How to Start a Business From Scratch
As the owner of the Law Offices of Steven R. Sutton and a business lawyer in New York City, Steven Sutton frequently works with individuals who are going to start businesses from scratch. According to Sutton, whether an individual chooses to create a corporation, an S corporation, or a limited liability corporation will depend both on what type of business is being created and how many partners are involved.
Determine What Type of Business Entity
When it comes to starting a company, the first decision that any aspiring business owner needs to make is what type of entity to use. I recommend that anyone opening a company in Manhattan get a competent business lawyer involved as quickly as possible, since the mistakes that entrepreneurs make when they first open businesses can result in costly litigation and lawsuits down the road. In fact, it is extremely important to file the right agreements and documentation right away when starting your own company.
In Manhattan, a qualified business lawyer should be able to advise clients on what type of business entity makes the most sense given each situation, and recommend any accounting professionals who can help with the financial aspects of running a new company. Starting an LLC can have very different tax consequences than starting an S corporation, for example, which is why it is so important to seek legal advice right from the start.
Sign a Commercial Lease
The second stage of the business creation process involves determining where the business headquarters are going to be. If the new business owner is going to need to sign a commercial lease, then I recommend hiring an attorney who is willing to be a part of that process as well. Among the most easily confused areas of many commercial leasing contracts are the provisions, escalations involved, and the responsibilities for various things that may come up.
Many lawyers are not well versed in real estate law, and as a consequence, they end up having clients sign agreements only to have problems later on because they didn't fully understand what they were signing. I often see clients who say they don't even know what types of guarantees they signed or what types of clauses were included when they first agreed to their commercial leases.
Therefore, it is very important that a qualified, competent attorney who is knowledgeable about the areas of commercial leasing and real estate review any lease agreements before they are signed. Specifically for those leasing commercial spaces in Manhattan, hiring a business lawyer is key because commercial lease laws in New York City are even more technical and specific than those in other areas of the country.
Create Contracts among Partners
The third step in starting a new business is to create contracts among partners that spell out who is involved in which aspects of the company. Very often, people think that they should wait before creating a written agreementwrongly assuming that it's too early in the business to start signing contracts between partners. Unfortunately, failing to do so is what usually leads to trouble.
Many people getting into a business with friends think that all they need is a handshake, but that isn't the case. I recommend that business partners create shareholders agreements or operating agreements to be signed by all involved parties. It is very important to have an agreement that memorializes all the agreements between the parties. Not only should these shareholder agreements define how profits should be distributed, but they should include details about how capital is to be advanced among partners and how business partners can get out of the arrangement at a later date.
Avoid the Problems
If a group of business partners declines to sign any legal documents defining how the partnership will be ended, and then one of the partners does decide what he no longer wants to be a part of the company, then the other partners will be stuck without much leverage. Not having a real arrangement as to the valuation of the business and how partners are expected to exit can lead to litigation down the road, which is going to be very costly for everyone involved.
In order to avoid these problems, business partners need to clearly document how the exiting of one or more parties will impact the business, as well as how one party can sell his stake in the company to a third party. The methods that should be used in determining how the business is valued should be included in this contract as well.
This article is for informational purposes only. You should not rely on this article as a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel. Publication of this article and your receipt of this article does not create an attorney-client relationship.
How to Start a Business From Scratch
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