Your Top Start-Up Questions Answered

Legal Issues

Licenses & Permits

Q: I'm thinking of starting an e-commerce site that sells products to college students, such as dorm room decorations and lights. What licenses and permits do I need to do this? Should I incorporate if my products are coming from a wholesaler and I simply distribute the goods?

A: My advice is to definitely form a corporation. And don't do it on the Internet or out of the back of a magazine-get a real attorney to help you. This will cost you less than $1,000 for the whole thing, but if you don't have the money to do this, try to do it as soon as you can.

One major reason to incorporate is to separate you personally from the corporation for liability reasons. You may have heard a reference to the "corporate veil." In general, you can't be held personally liable for anything that happens in the corporation, and your personal assets (house, car, etc.) can't be attacked by creditors or a lawsuit on the corporation.

In order to have that protection, you must act like a corporation. That means you need to do things like have board meetings, take notes and publish minutes in your corporate books. Be sure to have a separate corporate checking account and, if you need them, corporate credit cards. Don't use corporate money for personal things, and vice versa (unless you file an expense report). Many people think that they don't need to go to all this trouble if it is just a one- or two-person company, but in order to be treated like a company, you must act like one. Your attorney will be able to give you a lot more details.

To determine what permits and licenses you need, contact your city or county. They can tell you exactly what you need.

Registering Your Company

Q: How do I register my company-not the Web page, but the company?

A: Company names are registered by state. When I've started a company, I've always had my attorney do a name search-I think there is a state database that most lawyers have access to. I'm sure you can do this yourself, but it has always been part of the start-up process-my attorney has drafted articles of incorporation, bylaws and the name.

Skipping the attorney and incorporating yourself is something that I absolutely do not recommend. The odds are that somewhere, sometime, someone will wind up suing you. If they do, you want to be protected personally, and a good set of corporate documents is the best way to do that.

Subchapter S Corporation

Q: I am starting the first of three Day Spas in the Tri-Cities, Tennessee/Virginia area. My question is regarding subchapter S corporations. I will be starting the business with one other partner. After much research, we decided on the S corp structure for the tax and limited liability aspects.

The name of our corporation will be different from the name of our spa. How does this work tax-wise? Under the corporation, there will be at least three to six different businesses within the next five years.

A: This used to confuse me considerably. Eventually, I figured it out-you can have an official name for your company "XYZ Corp." and then have as many "doing business as" (dba) names as you want. For example, I used to run a contract engineering company (WireSpeed), and with my brother-in-law, I started a golf vacation business (Tucker Golf). As you can see, those companies are very different, with different employees and different clients. Instead of incorporating a new business for Tucker Golf, we just ran it under WireSpeed as a dba. Officially it was "WireSpeed dba Tucker Golf," but to the public it was "Tucker Golf Co." We kept a separate set of books, had a separate checking account, separate corporate credit cards, etc. No one knew or cared that they were really the same company.

Then one day we decided that it was big enough to stand on its own, so we incorporated Tucker Golf Corp. We did this because we wanted to start out small and cheap and not spend the money on paperwork for the new company until we knew it would be successful.

You can do the same thing even if you don't ever plan on making them separate corporations. You will need to register your dba name with either your local or state government. There are always tax, accounting and cross-liability considerations with such a strategy, so contact your accountant and attorney for advice.

Trademarks

Q: I am a graphic designer in the process of starting my own company. I am the sole proprietor and principal designer. I would like to use the business name "Divine Design." I've checked with the official government trademark registration office via the Web, and there is no business officially registered as that. However, there is a Web site, divinedesign.org, that has a TM next to its "Divine Design" logo. Does this forbid me from using that name for my own business?

A: You have hit on one of the hardest things about starting a business these days-getting a decent name! With so many people out there registering domain names, it is tough to get a good one anymore.

As for the trademark, the only way to be sure is to check with a decent corporate attorney. My advice, though, is to come up with a name that is unique to you. Having a cool name like Divine isn't as important as having one that means you! Come up with something that you can attach a good domain name to-in the graphics business, that's probably where most people will find you anyway. Even if you can legally use the name Divine Designs, you don't want people to be confused or to go to the other Web site looking for you.

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