Corporate Law

Frequently Asked Questions: Starting a New Business

Corporate Attorneys, Serving Northern Virginia

Shin Law’s Corporate Attorneys Answer  New Business Frequently Asked Questions

Starting a new business requires aspiring owners to make constant decisions before the first customer walks through the doors. This can not only be overwhelming but can bring about frustration when the conversation turns to legal matters.

The attorneys in Shin Law’s Corporate practice want you to understand the legal side of starting a new business and reinforce to you, that we are here to help.

Below, are some of the most common new business frequently asked questions we receive from entrepreneurs, working towards new business success.

Q: Should I form a C Corp, an S Corp, an LLC, a Partnership or a Sole Proprietorship?

This depends entirely on the needs and goals of your company. But first, let’s go over the basic definitions of each of the above:

C Corporation: This is the most common type of company formed in the US. C Corps offer far-reaching potential and growth through the sale of stocks — which can attract investors. Also, the amount of shareholders you can have is unlimited.

S Corporation: An S Corp is basically a C Corp light — it offers investment opportunities, perpetual existence and it offers limited liability. But S Corps file taxes yearly and are not subject to double taxation.

Limited Liability Company (LLC): An LLC is the least complex business structure. Unlike an S Corp or C Corp, an LLC is flexible. LLC businesses have the benefit of pass-through taxes, limited liability and legal protection for personal assets.

Partnership: Partnerships are a legal form of business between two or more who share management and profits. The federal government recognizes several types of partnerships. The two most common are general and limited partnerships — each define variations of the partnership.

Sole Proprietorship: Sole Proprietorship is the simplest way one can operate a business. BUT it is not a legal entity. It is a person who owns a business and is personally responsible for its debts –it does not create a legal entity separate from the owner.

Typically, smaller businesses opt for incorporating as an LLC or a partnership; but this type of structure can still be very useful for larger companies as well.

Ultimately, it’s a choice between tax savings and liability exposure.

Q: Where should I incorporate my business?

The ideal location for you to incorporate your business is where it will primarily be located. But don’t take this to mean you can’t do business in other states because you can.

Q: Should prospective partners and/or employees sign a Non-Disclosure Agreement (NDA) so they don’t steal my ideas?

A Nondisclosure Agreement (NDA) is a legal contract, creating a confidential relationship between a person who holds some kind of trade secret and a person to whom the secret will be disclosed. This can include product details, working ideas or other items you consider to be proprietary.

NDAs and Non-Compete Agreements are absolutely critical so former partners and employees cannot take information or ideas from the company you have worked so hard to build.

Q: How much dilution in share ownership should I give up to investors in my business?

This depends on the corporate documents and the structure of your business.

You want to strike a balance between good profit and good partners. In order to strike a good balance, you need to consider the worst case scenarios in the event the business doesn’t go as planned.

Q: What legal protections do I need to have before hiring employees or working with distributors and suppliers?

You should have an airtight employment contract that is clear on all of its terms. There is nothing worse than thinking you have an employment contract that addresses everything and then getting litigated over something you missed.

Q: What are my legal obligations to full-time employees vs. part-time employee?

Among the terms and conditions of your employment agreement, there are statutory obligations you must comply with, such as the Virginia Minimum Wage Act, which requires all employees to be paid for their time.

The burden to prove how much time was worked and how much was paid is on the employer, so it’s imperative to have good corporate infrastructure to account for your payroll.

Q: What legal protections should I have to protect myself from business-related litigation?

This depends largely on the strategy behind protecting yourself from lawsuits, such as determining whether or not you are in an industry where the chance of prevailing in a lawsuit is high or low.

Depending on this, you may, for example wish to keep an attorney’s fee provision in or out of the contract. There are tons of small nuances going into this question, so it’s definitely a great idea to reach out to one of our experienced corporate law attorneys.

Q: Legally, how do I prepare my company for growth and expansion?

You should always prepare for growth in your company, but you should also always prepare for failure.

The adage of “hope for the best but expect the worst” is something all business owners should take to heart. The corporate documents at the heart of your business, if done correctly, will outlast the changes to your business, no matter how much it changes.

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Frequently Asked Questions