Legal Considerations for Entrepreneurs When Starting a Business

Entrepreneurs will face many hurdles when starting a new venture and/or business. Many will be tempted to plow right into the matter without first researching laws and regulations regarding their particular business.

I am going to let you in on a little secret, many entrepreneurs are dead before they even make their first sale! Why, you may ask? These entrepreneurs are in trouble because they made the classic mistake of not seeking the help of professionals. If you, as an entrepreneur, have the requisite knowledge of the law to begin and maintain your venture and/or business without fear of having done something inconsistent with the law, then you should be fine. However, most new entrepreneurs will just start a business without thinking of the ramifications of a bad contract, a badly negotiated lease, failure to properly incorporate and or organize, and/or failure to obtain financial assistance (whether it an accountant, financial advisor, bank, etc.), to name a few.

The most popular excuse used by entrepreneurs is that lawyers and accountants cost too much. Using this line of thinking, these people try to handle complex legal and financial matters for themselves and, most of the time, end up with a problem that will cost more to fix than it would have originally cost to avoid the problem. These types of entrepreneurs practice “stepping over dollars to pick up dimes.” I suggest you not be one of these entrepreneurs.

Do not fall into a legal and/or financial pit that could have been easily avoided. Starting a business is not as easy as opening the doors to your shop. There exists many state and federal considerations (whether they are taxes, permits, licenses, incorporation or organization or registration, proper accounting, employee matters, and/or stock issues, to name a few) an entrepreneur needs to consider before “starting a business.” Do not ruin your business before it starts by avoiding proper legal and financial assistance.

Do Not Be Fooled By Incorporation Fees

If you are planning to form a corporation, you have many options as to where to form. You may know that Delaware is a popular state in which to incorporate. Put basically, Delaware laws are very corporate friendly. I will get into the specifics in another post. Back to the point, many states advertise that you should incorporate in their state because the fees are less than other states.

Although this may be true, you have to consider where you are going to be doing most of your business. For example, Nevada demands a relatively inexpensive fee to incorporate. However, if you are doing all of your business in California, and merely incorporated in Nevada to save on the incorporation fees, consider this; in order to do business in a state other than the state in which you incorporated, you have to file for a foreign corporation certificate. This basically means that you incorporated in another state and want to do business in the present state.

What is the big deal with filing for a foreign corporation certificate? A foreign corporation certificate costs money, and has a yearly maintenance fee. So before you incorporate in a state to “save money” think about how much the foreign corporation fee is and do some serious calculations to determine whether you are really saving any money!

Another popular advertisement by states is the tax advantage pitch. Some states have a smaller tax rate than others. However, money earned in one state is taxed in that state. Therefore, seriously weigh the advantages of forming out of state against the disadvantages, and do not be duped by “money saving” sales pitches that may end up costing you in the long run.

There is a popular saying among entrepreneurs, “do not step over dollars to pick up dimes.” I implore you to avoid doing the same thing!