Starting a business can be a huge step for new entrepreneurs. After all the planning, research, and time put into your venture, you do not want to miss any of the legal paperwork to make sure you are getting started off on the right foot. While it can be relatively simple to register your business name and obtain a tax ID number, there are some other important legal protections that you should consider.
Here is a quick summary of some of the things you should think about:
- Business Form. The first step after deciding that you are starting a business is choosing a business form. That means you will need to decide whether to operate as a corporation, limited liability company (LLC), or some form of a partnership. Generally, you want to choose an entity that has liability protection, which means that, because the business is treated as a separate entity, the members do not have personal liability for the actions of the company. This can be one of the most important reasons for choosing a corporation or LLC as the business form. Both corporations and LLCs also offer some flexibility for tax planning. The LLC form is becoming much more the preferred entity because of these features.
- Tax ID Number. The next step for most businesses is to obtain an EIN number from the IRS. This number will allow you to open a business checking account and file taxes. This is also a good time to plan how you will be filing taxes. You may also need to obtain sales tax or other ID numbers from the state.
- Buy-Sell Agreement. Unless you are a sole proprietor, you should prepare a buy-sell agreement. If you are forming an LLC, these terms can be incorporated into the operating agreement. A buy-sell agreement gives you the opportunity to consider how you will exit the business in the event of certain situations. Some of the situations you should anticipate would include voluntary transfer or sale, death or disability, divorce, and bankruptcy. Typically, a buy-sell agreement would provide that the other owners have a right to buy-out the withdrawing owner. The owners might decide to fix the price or include a discount. This would also be a good time for the owners to think about life insurance to fund the buy-out.
- Bylaws, Operating Agreement. The bylaws and operating agreement of a company help establish the formalities needed for a corporation or LLC. The bylaws will set forth the meeting and quorum requirements, duties of the officers, and procedures for establishing the board, if applicable.
- Employment Agreements. If your new business will be hiring employees, you should consider formalizing the employment relationship. While Minnesota is an employment “at will” state, meaning that employees can terminate employees for any reason that is not illegal, it is a good idea to let employees know what the workplace policies are in writing. You should also consider non-compete and non-disclosure agreements for new employees. Non-compete agreements can help protect your business from unfair competition by a former employee. Non-disclosure agreements make it clear to employees that your protected information and trade secrets should be kept confidential.
While starting a business is an exciting time, entrepreneurs should take the time to be sure they are covering all the legal aspects of the enterprise. This guide includes some of different documents a new business owner should consider.
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