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Startup Legal Essentials

Congratulations on deciding to start a business! I want you to succeed, so I’ve created this checklist of legal actions you should take to make sure you don’t leave out an essential step. Remember, any advice you find on the Internet, even on this site, cannot supplant advice you obtain from your own lawyer. This article assumes you will want to do as much of the work as possible yourself. But it is never a bad idea to concentrate on the things you do best and retain a lawyer to do all of this for you. In that case you can use the information here as a guide to your conversations with your lawyer.

√ Protect your intellectual property: KEEP IT SECRET!

We start with a neglected fact: You won’t have a business very long if you don’t protect its assets. And right now, before you start, the only assets your to-be business has are your ideas. If you have a patentable idea, contact a patent lawyer right now and file an application in your name–it could be the best investment you ever made. (You can later transfer your patent to the business you will soon form.) If you have a great idea for a name or for a unique way to reduce operating costs or special personal contacts you can exploit, keep it all to yourself–don’t even tell your spouse! (Okay, that may be going overboard, but for sure don’t tell your girl/boy friend.) The point is that ideas form the 21st century ticket to the creation of wealth. DO NOT SQUANDER THEM!

√ Name it and trademark it!

You must start out with a unique name for the business. Check with your State Corporation Commission on the name ideas you have, but don’t stop there! Why not choose a name for which you can obtain a trademark? If you at all have the inclination to make your company sizable, you don’t want to find out in a couple of years that you are infringing on someone else’s property in the form of an overlapping business name. And remember that a well-nurtured trademark can add significant value to you business. The US Patent and Trademark Office handles trademark registration, and they allow you to do free online searches here. You should also go ahead and apply for the mark immediately–cost to file an application online is currently $325. This is something Do-It-Yourself business people can do themselves to save legal fees, but there are certain technical requirements involved, so you should read a reasonably good book on the topic first.

√ File Articles of Organization!

As long as your State Corporation Commission tells you that the name you want to use is available in your state, and your trademark search does not reveal any direct conflicts, you should be able to file papers to formally register your company with your state. There are many options for choice of business governance, but the most versatile is the Limited Liability Company (LLC), which is available in every state and DC. It is beyond the scope of this article to compare the LLC form to all the others options, but we’ll assume that once you do the research (start with the IRS discussion and/or ask your lawyer’s advice) you will settle on the LLC form. If you are starting your business solo, you may be able to justify using the minimal filing requirements for your state and do the paperwork yourself–it’s called Articles of Organization. Just go to your State Corporation Commission’s web site and look for the requirements for starting an LLC. BUT, if you are starting the business with any kind of partner, one who will have even a tiny share of ownership, it would be very unwise to skip the help of a lawyer who is licensed in your state, will explain the myriad options to you, and will draft the Operating Agreement which will govern how you and your partner(s) will run the business and reap its benefits (or suffer its loses–heaven forbid).

Update, 2014: Until recently, a single-member LLC did not absolutely need a written Operating Agreement. But recently banks have started requiring that you have one to open a bank account in the name of the company. They claim it is part of federal government requirements that the banks know the persons with whom they are dealing. It may not make sense, but be prepared when you go to the bank and have your written Operating Agreement in hand.

√ Get your Employer Identification Number (EIN)!

There are only very few instances where you would not absolutely need this critical asset, so go to the IRS website and follow the steps to get this online as soon as your state confirms that your LLC is registered.

√ File with local governments and your state tax division!

Check with the city and county where you live to see if they have are any filing requirements. At a minimum one of those entities may require a permit for you to use your home as your place of business. Most local jurisdictions and states also require you to file tax and or licensing forms annually. Again, filing the proper paperwork is not likely to be difficult so do-it-yourselfers should be able to handle it.

√ Open a checking account in the name of the business and put some money in it!

For many reasons, you must keep your business money separate from your personal money, even if you started the LLC by yourself. If you started your LLC with a partner, the Operating Agreement will dictate how much money each of you must put in. Solo or with a partner, follow the rule: The company’s money is not your money (until it is paid out formally–the topic of a different discussion). By the way, you don’t absolutely need accounting software to keep track of your business checking account. After all, businesses were accounting for revenue and expenses for centuries before computers existed.

√ Protect your intellectual property: KEEP IT SECRET!

We finish the way we started: Protect your business’s assets. You wouldn’t give anyone the PIN to your company’s online checking account management system, so DON’T TELL ANYONE ABOUT YOUR IDEAS UNTIL YOU ARE SURE THOSE IDEAS ARE PROPERLY PROTECTED. Proper protection of ideas is the subject of different a article.

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