Business Formation Considerations
Forming a business and proceeding to conduct business transactions require several vital considerations. In general, a business should seek legal counsel in the early stages of formation to assist in meeting its legal and financial objectives. This step can also involve certain preventive measures that can help avoid unnecessary legal complications.
An initial consideration between an attorney and a business will involve the nature of the fee agreement that will outline the nature and scope of the relationship between the attorney and the business. For instance, attorneys typically operate with flat fee, hourly fee, or retainer fee agreements. Additionally, in instances involving businesses that conduct very specific operations, the business may consider hiring attorneys who are skilled in that area of work. Regardless of the nature of the representation, a business will need to establish who is responsible for legal fees and costs. A company as a whole may bear any such costs, or the members who constitute the company may bear the costs in their individual capacity. Under either arrangement, the business will need to provide the terms of the financial responsibility upon formation. For example, the business and its respective shareholders, members, or partners should consider drafting a contract (e.g., shareholder agreement, operating agreement, or partnership agreement) that outlines the rights and responsibilities of the parties.
In forming a business, and before any transaction, it is vital for a business to outline its objectives and any potential concerns. Additionally, it is important for a business to conduct research and collect relevant information that will assist with a successful transaction. Furthermore, in order to capitalize on the rewards of any transaction, businesses should consider available alternatives. This will allow the business to evaluate the costs and benefits of a specific avenue, in comparison to available alternatives. For example, a small business may be able to obtain funds through various SBA loans or grants.
Participating in an initial interview with an attorney may allow a business to effectively evaluate the important legal considerations underlying its formation or pending transaction. For instance, when a business is planning its initial formation, an attorney can help explain the benefits of the various entity forms that a business may select. Businesses may choose to organize as a sole proprietorship, partnership, limited liability company, or corporation. Each of these structures has various benefits depending on a business’s ultimate interests and goals. Additionally, a business should consider the tax implications underlying each of these organizational options. At the most basic level, the structure of a business will determine the specific forms that the business must file with the Internal Revenue Service to calculate taxes throughout the year.
In light of these paramount concerns that constitute the formation and operation of a business, a skilled attorney can help a business outline its objectives, and then work to accomplish the same towards a prosperous and efficient future.