Archive for the ‘Startup’ Category

Minimum Document Checklist for New LLC’s and Corporations

Posted by | Startup | April 14, 2016

Disclaimer: Obviously, this blog does not provide legal advice. How do you know? This is free. Legal advice you have to pay for.

It's not easy to know which business documents you need for your new LLC or corporation.

It’s not easy to know which business documents you need for your new LLC or corporation.

One of the largest problems we see when new clients come in is that they are lacking even the most basic legal documents for their business. Considering how many free or low cost legal templates are online, there is no excuse for not having the minimum to keep your business legal. It is difficult for us to help after something goes wrong when there has been no foundation laid.

Here’s a great example, a business comes in after being sued. The business is small and doesn’t have a lot of money, so the plaintiff wants to go after the business owner. Typically the corporation or LLC is supposed to protect the owner in this case. However, often courts will look at the documents and see that they are incomplete, or not kept up. In that case, they will say that the corporation or LLC is void and the owner is the defendant. They call this piercing the corporate veil.

So here is a list of the absolute minimum documents you need to have in order to keep your business legal. Without these, your company is not providing you with sufficient protection:

Corporation

  • Articles of Incorporation
  • Bylaws
  • Initial shareholder meeting minutes
  • Initial directors meeting minutes
  • Stock Purchase Agreement
  • Company receipt for contributions
  • Owner receipt for shares
  • Annual report
LLC

  • Articles of Organization
  • Operating Agreement
  • Initial member meeting minutes
  • Member interest purchase agreement
  • Company receipt for contributions
  • Owner receipt for interest
  • Annual report

 

Recommended:

  • Indemnification Agreement
  • Buy Sell Agreement
  • Non-disclosure Agreement (NDA)
  • Executive Employment Agreement
  • Employment Agreement
  • Independent Contractor Agreement
  • Business Plan
  • Online Terms and Conditions
  • Privacy Policy
  • Intellectual Property Transfer Agreement

 

Of course, our LLC and corporation packages include all of your minimum documents and even a few from the recommended list to make sure your business is off to a strong start.

 

Photo by imagerymajestic at freedigitalphotos.net

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The Problem with the Sole Proprietor

Posted by | Startup | June 29, 2015

Most businesses in the United States are run by sole proprietors. A sole proprietor is simply someone who operates their own business, but does not have a partner and never bothered to create a corporation or LLC. Most businesses use this model because it’s free and doesn’t require any paperwork. However, the easy road is never the best road when it comes to running your business.

The main problem with being a sole proprietor is that you are personally liable for anything your business does. If your business had some creditors you couldn’t pay or someone were to sue you, then they could take your business, your house, your car, and your dog (well, maybe not the dog). Creating an LLC or corporation protects your personal assets, dog included. This limits your liability to only the things that are part of the company.

In the business world, sole proprietors are usually frowned upon. First, having a registered company makes your business look more professional, and that can lead to increased activity. Second, many see it as a reflection on your work ethic and desire to succeed. If you can’t be bothered to cough up the small costs and paperwork associated with registering a company, then you’re thinking small and may not do the work necessary for your clients and customers.

Finally, investors won’t touch you. Investors want to see structure and purpose, and an understandable way to invest. Sole proprietors are simply asking for money to put in their bank account. This significantly limits your growth potential.

So it’s time to think big. Creating an LLC or an S-Corp doesn’t cost much, provides significant protection to your personal stuff, and makes you look like a real business. How can professionalism, investment, and increased sales hurt?

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5 Differences Between Corporations and LLCs

Posted by | Startup | January 07, 2015

Disclaimer: Obviously, this blog does not provide legal advice. How do you know? This is free. Legal advice you have to pay for.

Two of the most common business entities around are the Limited Liability Company (LLC) and the corporation. Business owners should seriously consider entering into one of these entities as they provide significant liability protection. But what’s the difference between them? Below are five differences between an LLC and a corporation. Later, we’ll discuss ways to help select between them.

  1. Taxes. LLC’s and corporations are typically taxed differently. Corporations suffer double-taxation – the profits of the company are taxed, but so are the dividends to shareholders, and their capital gains. An LLC is a “pass-through” entity according to the IRS. This is their way of saying they don’t recognize the LLC, but instead tax it either as a sole proprietor, a partnership, or a corporation. Generally, the LLC can decide how it is to be taxed and can avoid double-taxation.
  2. Deductions. Because the LLC is a “pass-through” entity, the IRS allows members to deduct the company’s losses from their personal income (this is allowed for S-corps as well). However, all profits are taxed even if they were not distributed to the members. On the other hand, a corporation’s shareholders cannot claim deductions based on the company’s losses, but can reinvest profits into the company and avoid taxation on that amount.
  3. Organization. The organization of the business can be very different under the two structures. A corporation typically has laws specifying the general corporate structure. Certain meetings are outlined and required (like shareholder meetings) and a number of reports are required annually. The LLC, on the other hand, is very flexible in how it is organized. Members don’t need to be managers, managers could operate independent of members, any sort of boards or committees could make the decisions, or it could be the simple will of one person. LLC’s bring flexibility to run the company however you want.
  4. Owners. Membership and ownership are different. The LLC and C-Corp do not have ownership restrictions, but the S-Corp is limited to just 100 shareholders. Meanwhile, all corporations must give an equal vote to each share. The LLC can determine in the operating agreement how voting is divided among members, whether it be by contribution amount, time spent working with the company, or any other reasonable scenario the members decide. They could even decide that members don’t vote at all, except in certain matters.
  5. Ease. Often the most important difference (from the perspective of the new business owner) is that LLC’s are much easier and usually cheaper to establish. Because of the stricter reporting requirements of corporations, many find it maintain an LLC. The downside is that corporations are typically better respected and are more likely to receive investments.
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GrubHub IPO Highlights Entrepreneur Excitement

Posted by | Startup | April 05, 2014

grubhubProving once again that tech companies are enjoying a renaissance in excitement and funding, on Thursday GrubHub launched its IPO and its stock rose more than 30%. For those who do not know, GrubHub is a very simple idea – people should be able to order food from their favorite restaurants online. It’s a perfect example of one of those “duh” ideas, executed well, that are heart of some of the most vibrant new businesses.

What’s especially cool, is that these businesses are easier than ever to get started. The excitement that comes with creating something new, that is now so accessible, is why I love working with new online companies.

CNN – GrubHub IPO delivers: Up 31%

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