Importance Of Legal Advice When Forming A Business

Why is legal advice essential when forming a business

When you start a new business you often head to an accountant to address the development of your company’s charter and to create a tax structure that is efficient for tax purposes. While using a qualified certified public accountant is important, an accountant is hardly the only professional that you will need to consult with. In addition you should talk to an attorney to obtain legal advice. This article will describe the benefits of legal practice management software and why legal advice is an essential component to starting a business and creating an efficient and safe company for the owners and other stakeholders in the business during this critical period in a company’s development.

Business Law

The formation of any company involves several key decisions that will have a significant impact on the future success of the organization. Legal services and advice can be an essential part of this process and can help a company to make sure that they are making the right decision. One of the critical decisions is the structure of the company, whether as an C Corp, S Corp, partnership or sole proprietorship. While a tax accountant can provide an owner with the main benefits of choosing one over the other, they may not be familiar with the legal ramifications of any decision.

An example could be a company that is looking to provide stock options to employees. Only C corporations are able to provide stock options to employees though S Corporations can provide something similar known as profit sharing interests. An attorney will understand this and can look at the development and structuring of your company from a different viewpoint than an accountant can and this legal advice can help your company to make the right legal decision.

An attorney can also provide legal advice on the major classes of shares in your company and how the major agreements between shareholders should be formatted to provide them with the individual rights that you want them to have. While simple structures of companies may involve only one class of shares, more complex company structures can have different share classes, each with different and unique rights and privileges. An attorney can help to craft and designate each share class with the appropriate privileges and can also design documents that document the rights of each party and know how to file and preserve these rights formally so that they are on record as appropriately with the various legal bodies that need this information.

Many new companies don’t start off with a lot of cash and are in need of financing to grow or support their business until they obtain more positive cash flow. In the early stages many companies will use debt financing and equity to grow or support the business. An attorney can provide legal advice that can help you to select a type and form of debt that minimizes your company’s exposure, as well as the exposure of the owners of the business, to the lenders to the business. Banks and other lenders will often insert terms into a loan agreement that are not beneficial for you or will impose restrictive loan covenants that limit your opportunity to manage your business. An attorney can help to negotiate better overall terms for your business in the agreement such as removing guarantees or relaxing some of the covenants that you could potentially violate which could trigger loan repayment. Avoiding this outcome is essential and the right legal advice can help.

business law

Once you hire employees you will need to have certain forms of policies and procedures in place to ensure that your business is currently complying with the various applicable rules and regulations that are present within the industry to avoid the possibility of future legal problems. An employee handbook should be granted and formal 401k, bonus and commission plans, as well as a guide to potential other legal mishaps such as sexual harassment, employee misdeeds, and so on.

Ask a lawyer to review the documents that you develop and get their legal advice on them as well as on any items that may be missing from your initial documents. Their legal advice can go a long way towards making sure that you are compliant with the applicable rules and regulations and are not susceptible to a lawsuit as a result of not properly documenting these items. Further wording in these employee related documents can provide your firm with future flexibility in restructuring plans when circumstances potentially change in the future.

This is not meant to be an all inclusive list of all the reasons why you should consult with an lawyer when you are in the process of forming a business or entering into notable agreements and contracts. However, it does provide the point that using an lawyer and obtaining effective legal advice is critical towards both creating an efficient legal structure that protects your business from operating effectively, and also from avoiding problems that your business could potentially face in the future.