We know that the legal needs of startups and small businesses (SSBs) change over time, and so do those of many other clients and legal consulting is a great way to keep yourself updated with these changes. An attorney serving SSBs must be well-versed in the legal steps their client requires. Lawyers will benefit from knowing where clients are in the lifecycle of a business to facilitate this.
A business’s development can be divided into five stages: launch, growth, shake-out, maturity, and decline. Attorneys at SSB should be familiar with each stage since each requires different legal action. You can learn more about each stage by checking out our guide to serving SSBs.
Several legal steps go along with the launch stage of a business lifecycle. A business’s success is predicated by legal consulting in this phase because it lays the groundwork for future decisions. Knowing what the launch stage is and what the legal requirements are will assist you in building a solid foundation for your client.
How do you Define the Launch Stage of a Business Lifecycle?
The launch phase is the beginning of the lifecycle of every SSB. Generally, companies develop websites to showcase their offerings. The launch stage is comprised of the following and requires a lot of thought where legal consulting can be a savior:
- The idea for a new product or service is complete. Distribution and production of the product or service take place.
- Small sales: The brand is relatively unknown, so fewer people are buying the client’s goods.
- Startup costs are high: The company is probably not making much money. Higher input costs result in lower revenue.
During the launch stage, a product or service is finally made available to the general public. There is a risk associated with this stage make sure to get legal consulting to be aware of it, especially for new owners. During this time, attorneys must support their clients and encourage them to persevere.
What are the Legal Steps Involved in Launching a Product?
At the start-up stage, you will guide clients through legal consulting and other decisions that establish their company’s foundation. Business leaders must take these actions now to ensure their future success. You might be able to help your SSB client with getting legal consulting and:
- Your client should decide which type of entity to create with your help. It is important to consider the tax consequences, investment benefits, and decision-making formalities of each option.
- Protect your client’s brand, products, and services by filing trademarks, copyrights, and patents. You will be able to benefit your client in this way.
- There are different laws in different states for working across borders. You may need to consider taxes, licenses, and labor laws if your client is in such a situation.
When it comes down to it, starting any type of small-scale enterprise is not always as easy as it sounds. That’s why many entrepreneurs turn their focus on minimizing risk by taking proactive legal measures.
That said, here are the key legal steps along with getting legal consulting that you must take when launching a startup or small business.
Selecting a Business Structure
When starting your own company, you have the choice of creating an LLC (Limited Liability Company), S corporation, C Corporation, Partnership, or Sole Proprietorship – each being distinct from the other in terms of legal responsibilities and financial liability. For instance, an LLC is considered pass-through taxation which means that all profits and losses would be reported on your tax return. Alternatively, if you choose to form a corporation, then the entity itself will pay taxes while its shareholders will remain financially unbound. Taxation-wise – they’re treated as separate entities under federal law.
You can also read more about taxation here. Now while these factors should be carefully considered when determining your business structure, it is essential to acknowledge that other criteria differentiate one from the rest. For instance, LLCs and corporations are both limited in terms of liabilities – whereas a Sole Proprietorship does not offer such protection. Furthermore, with an S-corp, you can self-direct your tax liability which makes it particularly appealing for small businesses looking to save on federal taxes.
Applying for an Employer Identification Number (EIN)
What is a Business Tax ID? An Employer Identification Number, also known as EIN, is a nine-digit number that’s assigned by the IRS to any type of business entity. Why do I need one? Businesses are required to register with the IRS when they meet specific criteria; such as if you’re paying employees’ wages or withholding taxes from them then your company will be issued an EIN automatically. Another legitimate reason would be starting a new partnership or corporation and wanting to open up a bank account in its name.
While not mandatory, it is rather advised to apply for one for the following reasons. To establish a business credit profile. The EIN is reported as an identification number for federal tax purposes and helps your business build its credit history with the IRS. This can help when applying for loans, making big purchases, or filing any type of financial transaction in the future.
Getting Permits & Licenses
Your local area may require you to have specific permits or licenses before starting a business. Consulting with local authorities can help you identify all the necessary ones for your location.
Creating Business Records
Keeping a record of your business transactions is critical if you plan on transforming it into an official LLC, Corporation, etc. You must separate these records from personal ones (i.e. using different folders and not mixing them up). Additionally, having business invoices will allow you to prove the legitimacy of your company in case an issue was ever to arise down the road.
This applies no matter how big or small your startup maybe – even if it’s just a side gig on weekends or selling items through online classifieds such as Craigslist. It’s advised to keep the following records, The Articles of Incorporation signed by the incorporator are part of the company’s permanent records and should be kept in a safe place.
They include information such as the name, category (i.e. LLC or Corporation), date of incorporation, and how many shares are authorized for issuance. A list of shareholders A list of all board members with evidence of their consent (i.e. email) to serve as directors An S-corporation Agreement is an official document that outlines a shareholder’s rights as well as those who manage and control the corporation. It also contains details about their purpose, function, capital contributions made, etc.
Choosing a Business Name (DBA)
Before legally registering your business, it’s important to choose an official name – referred to as the ‘Doing Business As’ (DBA). This is how people will identify your company so make sure you pick something simple with little chance of being taken by another party. It also has to comply with your state’s guidelines which means it should not contain any vulgar wording or infringe on someone else’s copyright/trademarked materials.
Registering Your Business
Once you’ve got everything in order and have chosen your business name, you’re ready to go ahead and register with the proper authorities. Each state has its requirements when it comes to incorporating a company – such as the number of shareholders needed to make an official LLC, filing fees, etc. You can find out what they are by contacting the Secretary of State’s office in your location where you will also file your articles of incorporation.
Depending on whether or not you want to run it as a sole proprietor (which does not require any legal forms) or form a corporation, there are several types of registration processes that need to be completed such as Sole Proprietorship, Corporation, Limited Liability Company (LLC).
Lawyers need to be aware of the legal steps involved in the launch process and getting legal consulting can help a lot. It allows you to help your clients through their business ventures by having this knowledge.
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