FREQUENTLY ASKED QUESTIONS
Starting your own business can be a risky endeavor, and it requires careful thought and preparation. Being your own boss, however, can also lead to a great deal of personal satisfaction and success. Once you have determined an initial idea for your business, it is important to develop a comprehensive business plan that considers how your business will be structured, how it will operate, how you will market, and what your expenses and revenue are likely to look like. This will help you to evaluate whether you can be financially successful and also will allow you to attract potential investors or apply for loans.
You will need to establish the legal structure for your business, such as a C Corporation, S Corporation, or a Limited Liability Company. This will depend on the individuals involved in your business, tax implications, and liability risks. Once you have decided on the legal structure that is best for you, you will need to register your business in the jurisdiction of your choice. This could be where you live, or where you want your business to operate. This will include filling out some paperwork and paying a registration fee. It is important to remember that this registration will need to be renewed yearly.
Operationally, the two corporations are the same. The only difference is how each entity is taxed. A C Corporation is subject to the double taxation, where the corporation is taxed once on its profits, and then if any shareholder dividends are issued, the shareholders are then taxed on those dividends.
With an S Corporation, however, all of the profits and losses of the corporation flow down to the shareholder level where the money is only taxed once. Not every corporation can qualify to be an S Corporation. For example, the corporation must have less than 100 shareholders, it must only have one class of stock (i.e., you cannot have common and preferred shares), and, generally speaking, every shareholder must be an individual. There are additional rules and restrictions that apply.
Yes, if you follow a few simple rules:
- Form the corporation fully and completely (this means issuing stock for consideration, electing directors, appointing officers, adopting bylaws and filing all required state and federal forms).
- Adequately capitalize the corporation at its inception.
- Follow corporate formalities (i.e., holding at least annual shareholder and board of director meetings and documenting those meetings with written minutes).
- Do not commingle personal assets with business assets. This means keeping separate bank accounts and not paying personal expenses out of the corporate bank account.
- Do not sign any personal guarantees. This puts you back on the hook personally for corporate debts and obligations.
- Do not engage in any criminal activity. The corporation does not protect you from an intentional conduct.
More than 80% of Fortune 500 companies are incorporated in Delaware, and for good reason. Delaware is widely regarded as having one of the most sophisticated and modern corporate statutes of any state, and it devotes significant time and effort to developing corporate expertise within its courts. Indeed, Delaware has a court system that focuses exclusively on corporate law issues, known as the Court of Chancery. The Court of Chancery is known for its ground-breaking decisions on corporate law matters, and its existence ensures that disputes among companies incorporated in Delaware are handled in a sophisticated and expedited fashion. Additionally, because of the Court of Chancery, Delaware has well-developed case law and precedent on corporate law issues, making it easier for a corporation to assess its likelihood of success on legal matters.
As a result of the consistency and expertise applied in Delaware courts, most types of investor prefer to invest in corporations that are incorporated in Delaware and can take advantage of the Court of Chancery and all of its benefits. Anyone from bankers to start-up investors may prefer that the corporation in which they invest is affiliated with Delaware. This makes the state an appealing one for new corporations looking for funding and financial support.
Depending on what is at stake, there are several options available for protecting your business ideas from being stolen or copied by others. If you would like to ensure that your business partners or employees do not share important business ideas or information with others, your best bet may be to create a non-disclosure or non-compete agreement that employees can be required to sign. These types of agreements help to ensure confidentiality among employees and other individuals associated with your business, and they also protect against their leaving your company to create a competing business nearby that utilizes your ideas.
If your business idea is revolutionary or has required extensive money and time on your part, you may wish to seek a patent or trademark to protect your idea. These are legal protections offered by the government and typically require a fee to obtain.
Yes, there is an advantage to an employer having written contracts with its employees because there could be provisions such as non-compete and confidentiality, which are important to protect your business. It is very important to have written contracts with independent contractors. One of the main reasons is to detail why they should not be treated as your employees by the taxing and unemployment compensation authorities. You may find, after talking with your attorney, that the person you wish to classify as an independent contractor will likely be considered an employee by those authorities. It is to your advantage to know this in advance. Perhaps some adjustments in work description, compensation or oversight may save you money and headaches.
No matter how small your business, it can be a good idea to have an employee handbook. A document of this nature can clearly establish rules, rights, and expectations for employees. Having these policies memorialized can increase efficiency, and also serve to protect you from litigation. Keep in mind that employee handbooks should be worded carefully, as a badly drafted policy can expose you to legal liability. For example, employee handbooks can be construed as employment contracts in some states (even if you don't intend to establish an employment or contractual relationship), and this can provide the basis for a number of legal claims against you. It is a good idea to regularly review and update your employee handbook to ensure compliance with current employment laws.
Employees and independent contractors are two different types of individuals who work for an employer. They are treated differently under state and federal law, and there are many protections and benefits that are afforded to employees that may not be offered to independent contractors. Independent contractors are also treated differently for taxation purposes.
The main test for determining whether an individual is an independent contractor or an employee is the amount of control that the employer has over the individual. If the employer can only control the result of the work, such as the ultimate article that is created, the individual is probably an independent contractor. Conversely, employers are more likely to have behavioral control and financial control over individuals who are employees. This means that they can control the method by which the employee works, such as setting office hours or requiring a worker to use certain equipment. They also control the financial nature of the work, such as how a worker is reimbursed or whether they are allowed to seek outside competing business opportunities.
“Piercing the corporate veil” is a legal term of art that refers to holding a business owner, officer, or director personally liable when they have engaged in wrongful conduct, such as failing to maintain the required separation between the individual and the corporate entity. For example, this can occur when an owner uses corporate funds for personal purposes, or fails to observe proper procedures in operating the business. If found liable in this context, owners can be required to compensate plaintiffs from their personal assets for losses arising from their wrongful conduct.
Consider these factors before deciding whether choosing an online legal services company over Go Legal Yourself is your best choice:
- Other online companies do not analyze what type of entity is best for you.
- Other online companies do not discuss the levels of liability protection available to you nor how to conduct your business for maximum protection.
- Other online companies do not discuss your business goals with you.
- If you do call to speak to someone on the phone, just who are you talking to?
- Will you get to speak to the same person each time you call?
- The contracts you buy from them will be one-size-fits-all and may very will contain provisions not appropriate for your situation.