By Kelly Bagla, Esq.
Having been a start-up lawyer and entrepreneur, I have been asked many of the following questions over the years from entrepreneurs who are starting a company.
Sometimes there isn’t an easy answer and, as lawyers often like to say, “It depends on the circumstances.” But here are my short-hand answers to ten of the most frequently asked start-up questions:
- Should I form my company as a C corporation, an S corporation, an LLC, a partnership, or a sole proprietorship?
Start it as an S corporation, unless you have to issue both common stock and preferred stock; in that case, start it as a C corporation. And an S corporation can easily be converted later into a C corporation. LLCs are popular, but can get overly complicated. Partnerships and sole proprietorships are to be avoided because of the potential personal liability to the owners of the business.
- Where should I incorporate my business?
The standard answer to this is Delaware, because of its well-developed corporate law. My answer is that it should be the state in which the business is located, as this will save you some fees and complexities. You can always reincorporate later in Delaware.
- How much should I capitalize my business with at the beginning?
As much as you can reasonably afford, and definitely enough to carry you for at least 6 to 9 months with no income. What you will find is that it always takes you longer to get revenues, and you will undoubtedly incur more expenses than you anticipated.
- How can I come up with a great name for my business?
This is difficult. First, brainstorm with a bunch of different names. Then do a Google search to see what is already taken, and that will eliminate 95 percent of your choices. Make it easy to spell. Make it interesting. Don’t pick a nonsensical name that will leave people wondering what you do. Do a trademark/trade name search on the name you like, then make sure you can purchase the domain name.
- What are the biggest challenges to starting a business?
Entrepreneurship isn’t easy. Some of the challenges you’ll face include—
- Shortage of capital and cash flow
• Having a good business plan
• Coming up with a great product or service
• Sticking to it
• Working more than you expected
• Getting through the frustrations of being constantly rejected by customers
• Hiring good employees
• Knowing when to fire bad employees
• Having to wear so many hats
• Managing your time
• Maintaining some kind of work/life balance
- What kind of business should I start?
Be sure your business is one that—
- You are passionate about
• Is within your reach to fund
• Has the potential to grow into something big in a reasonable time frame
• You have some experience in
- What are the biggest mistakes made by start-up entrepreneurs?
- Not starting with enough capital
• Thinking that success will come quickly
• Not carefully budgeting
• Not focusing on the quality of the product or service
• Underestimating the importance of sales and marketing
• Not adapting quickly enough
• Not understanding the competitive landscape
• Ignoring legal and contract matters
• Hiring the wrong employees
• Mispricing the product or service
- Where can I get money for my business?
Many books and articles have been written on this subject, and those resources can be very useful. In short, some of the most effective sources of capital include—
- Personal funds
• Credit cards
• Friends and family
• Angel investors
• Crowdsourcing sites, such as Indiegogo.com and Kickstarter.com
• Bank loans/SBA financings
• Venture capitalists
• Equipment loan financing
- What kind of insurance does my business need?
Needs will vary, depending on the type of business, but consider the following:
- General liability insurance
• Product liability insurance
• Professional liability insurance
• Property insurance
• Worker’s compensation insurance
• D & O (directors & officers) insurance
• Health insurance for employees
• Business interruption insurance
• Commercial auto insurance
• Data breach insurance
• Key man life insurance
- What book is helpful for learning more about starting a business?
Get answers to even more questions in my book, Go Legal Yourself: Know the Legal Lifecycle of Your Business, available on Amazon.
About the Author
Kelly Bagla has been providing expert legal counsel to domestic and international clients for more than 10 years. As a creator of the Legal Lifecycle program, she knows how to help her clients navigate the legalities of running a business. Kelly specializes in assisting entrepreneurs throughout the various stages of their company’s lifecycle, developing roadmaps that lead their businesses to success, and planning exit strategies that maximize their profits.