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6 second take: Not many people seek the services of a lawyer as they start their rst
business. But it’s worth the time and money to set your business up right from the start.
o
It seems to be the rallying call of our generation: Start your own business! From cover stories of
tech wunderkinds earning billions a year to articles bemoaning the death of the traditional 9-to-5
job, there are endless stories that promote the idea of becoming your own boss.
How to Start a Business: Getting the Right Legal
Advice
• 3 minute readJan 12, 2018
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How to Start a Business
Starting a business is much more than printing business cards and putting together a website.
There are legal, nancial, and time considerations to factor into the decision. That’s why it’s
essential to do your research before you start a business.
In that vein, you should probably speak with a lawyer and an accountant before you le any
paperwork. I formed a business myself in early 2017 and consulted a lawyer for my legal needs
before taking the plunge. My lawyer, Karolyn Knaack, has practiced law in Texas for over 15 years
and works primarily with business owners. She has some interesting advice for people starting
new businesses.
What Kind of Business Entity Works Best for You?
Let’s start at the beginning. When it comes to forming a new business entity, you need to know
not only how to do it, but which kind of entity you should form.
When you’re a sole proprietor, there’s no legal distinction between your personal income and your
business income. Incorporating by forming an LLC (which stands for “limited liability company”)
provides a measure of nancial and legal protection by creating a clear distinction between
personal and business nances. S corps, according to the IRS, “elect to pass corporate income,
losses, deductions, and credits through to their shareholders for federal tax purposes.” That
means that the shareholders report income and losses on their personal taxes.
“Which entity is the best form depends on structure, liability, management, and tax
considerations,” Knaack says. “I suggest that a sole proprietorship incorporate as soon as they
start their business. There is no reason to risk your personal assets.”
What are the Different Types of Business Entities?
LLCs are common and easy to form. Plus, they can consist of just one person or many people. As
such, they’re a popular choice. Meanwhile, an S-Corp is an option for businesses with multiple
An LLC is different from a sole proprietorship, which is different from an S
corp. How do you know which one is right for you?
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owners. Legal considerations like taxes and formation vary state to state.
For those looking to start an online company, Knaack stresses that it’s critical to have terms of
use, a privacy policy, and terms and conditions for anything you sell online.
“The terms of use contain provisions governing the access and use of the website,” she says.
“Basically, having terms of use on your site helps protect you against lawsuits, since you tell
visitors what the site is for, and it protects your original content.”
Meanwhile, she says, “A statement on the site’s privacy policy noti es users about practices
concerning the collection, storage, use, and disclosure of information, including personal
information. It’s to be upfront with your readers and to protect you as well as them.”
Knaack also says that, “If you are selling goods or services through your website, you need to
have terms and conditions regarding the sale transaction. These terms and conditions typically
contain the main business terms of the transaction, which may include description of the goods,
quantity, price, and payment terms, among other things.”
It’s also important to keep accurate records of all nancial transactions so that you can
understand your tax obligations. Many business owners may need to le quarterly taxes, and the
IRS has strict rules about tax deductions and record keeping.
“Finally,” Knaack says, “ nd a good accountant or bookkeeper to help you with your books and
preparing your taxes. You can also look online at Lawyers.com and Nolo, and seek out the Small
Business Administration and Trade Associations.”
Common Mistakes That First-Time Business Owners Make
The most common mistake is simply not doing proper research before starting a business. People
get caught up in the excitement of turning a passion into a business and skip over a lot of the
legal steps. They may start selling things online before they form a business entity, or host events
without vendor release forms.o 11 j s b f k y

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Start with researching other businesses’ legal and market positions in the niche you want to
enter. If you want to sell vintage clothing, see how other sellers handle their business. That will
give you a good starting point.
Another mistake rst-timers make is not keeping accurate and detailed records. This applies to
both nancial receipts and records of contracts, licenses, or partnerships that you make with
other people. You can keep digital records or hard copies, but either way, you’ll need these records
if you get audited or sued.
The third biggest mistake comes as the company grows. When you need to hire people — even
just on a part-time basis — you need to have iron-clad work agreements. There’s a lot that goes
into this, from non-disclosure agreements about trade secrets to non-compete clauses to keeping
accurate documents about your employees’ legal standing on le. Consult a lawyer before you
put an ad up on Craigslist.
KARA PEREZ
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