Answers to Your Startup Legal Questions
I've received quite a few start-up legal questions, and this month I'm going to address some of the more common ones.
Before I do that, though, let me give you some advice that anyone who's ever asked me a legal question has received: You need a good attorney. If you're going to go to all the time, trouble and expense of starting a business, you need to make sure your company is structured so that it protects your interests and fits your goals. In addition, if you ever have a legal problem, you'll need someone knowledgeable to advise you. Attorneys are not as expensive as you might think, and the value you'll get is significant. For more information, check out " Developing a Solid Relationship with Your Attorney ."
Now, let's take a brief look at some common legal startup questions:
- What's a DBA? "DBA" stands for "doing business as," and it's is just another name for your business. Sometimes people want to use different corporate and business names. For example, "Jones Inc." could be the corporate name, with "Bob Jones Landscaping" as the business name. In this case, you would see it described in a legal context as "Jones Inc. doing business as Bob Jones Landscaping."
A reader recently wrote this to me: "My wife incorporated a multimedia business three years ago, and I am starting a voice-over business. Is it more beneficial for me to open as a sole proprietorship or to operate within her multimedia business?" My answer was that he should open his company as a division of his wife's business, as a DBA. Even though he is using his own business name (the DBA), technically his wife's corporation is launching the product/service and therefore should give him some liability protection. Doing so would also help him save on startup costs (such as having to pay for a separate incorporation). It's easy to keep a separate set of books, and when the new business takes off, you can simply spin it off into a separate company.
- Should I incorporate in Delaware? There used to be some tax and legal advantages to doing this, particularly if you were a very large corporation with many shareholders. But based on everything I've learned, incorporating in Delaware isn't important for a small startup.
- Will a corporation protect me from liability? It can, if you handle it right. You may have heard about the corporate veil, which means that you can't be sued personally for anything that happens in the corporation and your personal assets can't be attacked by creditors or a lawsuit on the corporation. But in order to have this protection, you must act like a corporation. This means having board meetings, taking notes and publishing minutes in your corporate book. In addition, 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 they don't need to go to all this trouble if there's just one or two people in their company, but in order to be treated like a corporation, you must act like one. Your attorney can give you more details.
- How do I register my company name? Contact the office of the secretary of state for your state. Click here for a listing. Most will have an overview page (often named something like "Name Registration FAQ"), which will tell you all you need to know about how the process works.
- Do I need a business license? This is a pretty complicated question. However, here are two good articles that will tell you what you need to know: " Business Licenses and Permits " and " Getting Your Startup Paperwork in Order ."
Remember, tax and corporate laws change all the time and can vary significantly from state to state. If you're going to be successful in your business, you'll need an attorney on your team who can keep up with changes in the laws and tax codes and advise you as you move ahead in your business. This will reduce the chances of some unknown issue blindsiding you, and will also save you money as you use those laws and codes to your best advantage.