Small Business Start-Up Advice: The Basics
Whitehurst, Blackburn & Warren believes in the transformative power of small businesses. After all, we are one! But starting a small business from scratch is no easy task. Where do you begin? How do you set yourself up for success? WBW partner Bruce Warren outlines the legal do’s and don’ts when starting a small business.
Decide on a Proper Business Structure
There are five common types of business structures: sole proprietorships, partnerships, corporations, S corporations, and limited liability companies (LLCs).
“When determining your business structure in today’s society, when a single individual or multiple people are involved, an LLC is a great choice,” says Warren.
The Georgia Secretary of State defines an LLC as a business structure that offers limited personal liability on the part of the owner. The LLC owner(s), also referred to as members, are afforded specific protection. Their personal assets can be protected from business debts and lawsuits against the business.
According to Warren, tax consideration is a large factor when determining the appropriate business structure.
“If an LLC is dissolved, you have the privilege of moving property into your own name with no tax consequences,” he says. “With other business structures, once the business is dissolved you are responsible for paying the difference in tax value of your property from when you purchased, as compared to the current tax value.”
Use of Personal Assets
With an LLC business model, your personal life is separate from your business life. As far as the law is concerned, the business entity is a “person” separate from the owner, so you, and your company, should be treated as two “individuals.”
“Put your vehicle in your business name. Add your tools to your books. You can contribute your assets as part of capital, but make sure to change the title,” Warren advises.
When insuring company vehicles, it is important to note that while it may be cheaper to insure personally instead of under a business, if an accident occurs, only the individual listed on the insurance plan has protection—not other employees.
“It’s one of the biggest mistakes I see,” Warren says. “If you intermingle your personal and business funds, the protection that you set up under the LLC can be pierced, and you will forego the benefits of the organization you setup.”
Workers’ Compensation Insurance
Workers’ compensation is essentially an insurance policy that employers provide to cover medical expenses, rehabilitation costs, and lost wages in the event of an employee’s injury on work premises or while doing a job off-site. Most associate workers’ comp with particularly dangerous jobs, but it’s important to remember that injuries can happen anywhere and in any industry.
“If you can’t afford workers’ comp, don’t go into business,” advises Warren. “Make sure you are charging enough for your services to cover the expense of having insurance.”
There are exceptions for some businesses. “If your business has two or less employees, excluding you–the boss / business owner–workers’ comp insurance is not required,” says Warren. However, carrying a policy is still a good practice.
Preparing for Success or Failure
All business experiences an ebb and flow over time. So, what happens if yours undergoes sudden growth or rapid decline? How do you prepare for those scenarios?
With sudden growth, the main concern is how to finance the growth you are experiencing and afford to hire competent employees who can do the job well. Warren suggests practicing ordinary care.
“Do work properly and hire honest employees,” he says. “For example, check employee history, and don't put people behind the wheel with bad driving records. Do your due diligence in screening employees.”
On the other hand, issues arise with rapid declines, as well.
“If you purchase liability protection and your business tanks, that debt is not personally guaranteed,” Warren explains. “You won’t have to pay that money.”
Starting a business is cumbersome with many nuances involved. But if you build a strong foundation from the start, you’ll save yourself a serious headache down the road. While some of the business formation process can be completed without professional advice, complicated tasks will be accomplished more quickly and thoroughly with the help of an experienced business law attorney.
Ready to launch your new venture? Call us at 229-226-2161 to schedule a free consultation with Bruce Warren or another member of the WBW legal team.