In their book Write Your Business Plan, the staff of Entrepreneur Media, Inc. offer an in-depth understanding of what’s essential to any business plan, what’s appropriate for your venture, and what it takes to ensure success. In this edited excerpt, guest contributor Alex W. Thomson, Esq., the director of the corporate practice group at the Pittsburgh law firm Houston Harbaugh, offers advice concerning critical legal issues when putting together your business plan.
As you begin to create a business plan for your company, sound legal advice is important. Attorneys are an integral part of strategic business planning because they offer the guidance necessary to ensure short- and long-term stability. Proper planning and organization in the beginning will lessen the likelihood of problems arising as your business develops.
Prior to creating a business plan, you should review five issues with your attorney:
1. What type of entity will the business use?
2. How will you raise money to fund the business endeavors?
3. How will you staff the business, and what compensation and benefits will you provide to your employees?
4. Does the business have important intellectual property or proprietary information, and if so, how will it be protected?
5. How will doing business abroad be handled?
Attention to detail in each of these areas is imperative in creating a successful strategic business plan.
In establishing your company’s legal entity, consider the advantages and disadvantages of each type—sole proprietorship, partnership, C corporation, S corporation and limited liability company (LLC). Choosing the right business entity is imperative in a successful business venture because there are many tax and nontax implications. A good lawyer can help you determine which entity would be best for your particular company and situation.
Financing a business requires knowledge of the laws governing the ways in which companies may raise money. For instance, when taking on investors, whether they're family and friends, angel investors or venture capital investors, there are securities law issues that may inhibit the way in which money may be accepted.
An important question to ask is “How do I raise money and not violate the law?” Legal professionals can guide you in your planning process to ensure that your company won't violate the laws regarding financing.
Determining staffing needs is yet another necessary component of a strong business plan. A lawyer can develop contracts and other detailed documents important in the hiring process. Salary issues need to be determined, too—for example, will your employees be paid hourly, or will they be salaried? Other considerations include incentive plans and employee benefits, such as health insurance, retirement plans and stock options. An employee handbook can also be a useful tool to set up a foundation for employee policies and procedures. All issues regarding employees typically require a lawyer’s involvement to avoid the specific liabilities that your company may face. In fact, your corporate attorney may not be the right person for labor law, so you may need to discuss hiring issues, including handbooks and even employee forms, with a labor lawyer.
Intellectual property and proprietary information can provide a company with a needed competitive advantage. Therefore, because of the potential importance of intellectual property and proprietary information, you should consult an attorney to ensure that it's properly protected. Ensuring all employees sign proprietary information and invention agreements is one step in protecting your company’s intellectual property and proprietary information. Obtaining patents or federal registration of the company’s trademarks is also critical to proper protection.
Another aspect of the business plan is how relationships with customers and suppliers will be established and what the terms of the legal relationship will be with them. The necessary question to ask and answer is whether standard terms and conditions will apply or whether each relationship will be contracted individually. In addition is the need to decide whether any of the Uniform Commercial Code (UCC) provisions will be overridden. Certain UCC provisions, such as implied warranties, will govern unless specifically disclaimed.
To find a competent attorney for your company, seek referrals from other business owners. It’s important to meet with more than one firm to determine which one is best for your particular company. Look for experience in your industry, as well as chemistry between you and the firm. Keep in mind that you may need more than one attorney to cover all the different bases. A good law firm that houses lawyers with different specialties, such as contracts, labor, taxes, etc., may be beneficial to your needs.
Don’t be afraid to talk about fees. It's important to know what you’re paying for to determine if you’re getting your money’s worth.
Successful businesses deal with a variety of laws and regulations on a daily basis, so it's important to hire an attorney who specializes in your business and can help facilitate growth of your company. Consulting an attorney before drafting your business plan will result in a more well-thought-out and better drafted business plan. This will lessen the likelihood of problems as the company grows, saving you both time and money. Through knowledge and experience, a good lawyer can efficiently aid in the creation of a successful business plan.