Business Structure and Agreements for Start-Ups & Entrepreneurs
Before starting a new business or venture, start-ups/entrepreneurs should assess which business structure to use. There are several business entities available, the most common being the limited liability company, the corporation (C-corporation or S-corporation) and the partnership. The choice of course depends on the intended use and the entrepreneur's plans (e.g., do you wish to take on investors? Are there any plans to go public in the not too distant future?) but there are many different issues to consider when choosing the appropriate entity. Tax consequences are complex and should be reviewed with a tax advisor or accountant. Also, different jurisdictions have different laws concerning business entities. Once a business structure has been chosen after careful analysis, the governing documents need to be put in place. Depending on the business entity, this includes by-laws and a shareholder agreement, an operating agreement or partnership agreement. Such governing documents are important and may have an impact on the success of the business. For example, in case of a partnership, the new business might fail because the partnership agreement did not spell out the duties, obligations and rights of each partner or how decisions have to be taken (unanimous or majority rules). While there are templates of such agreements available online, an entrepreneur/start-up is generally well advised to consult with a legal advisor. An attorney can help with the selection of the business entity and will prepare the governing documents based on the specific circumstances and needs. A discussion of the various provisions of the agreement with the attorney will help ensure that the entrepreneur understands their impact on the business.
The information contained in this blog is provided for informational purposes only and should not be understood or construed as legal advice.