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FAQ.
What type of business should I form?
This is a question I get asked all the time by young entrepreneurs. Choosing the right structure
for your business depends on a variety of factors including your long-term goals, tax implications
and the efficiencies of your venture. For example, solo entrepreneurs with relatively few liability
and tax issues generally can start as a sole proprietorship coupled with a good commercial
liability insurance policy. However, if you have partners or are in an industry where there is more
risk of liability, LLCs and corporations are smarter ways to go, particularly if you want to bring on
outside investors. Also, lawyers, doctors and other licensed professionals are limited in the
types of business structures they may choose. Each business structure has its advantages and
disadvantages depending on your unique circumstances. Consulting with a qualified business
attorney you trust is a good idea so that you can set your venture on the best path for you.
Do I really need to write a business plan?
As an entrepreneur, I completely understand the resistance to sitting down and writing a
business plan. You have a great idea and you just want to get out there and get going already!
That being said, writing a business plan has tremendous value. So my recommendation is to
take a deep breath and buckle down. First, you’ve got to make sure you have a great idea, that
deconstructed and analyzed from every angle, your idea can withstand the scrutiny and come out
as a viable business. This will help you escape that nasty statistic from the SBA that says 50% of
all small businesses fail within the first 5 years. Secondly, if you’re going to need capital, you’ll
likely need a business plan. Most lenders and investors require it before they’ll even consider
handing over a chunk of cash – they’ll want to know just how you plan on returning their
investments. Fair enough. Thirdly, writing the business plan will provide you with an organic,
ever-evolving roadmap as you build your venture, allowing you to avoid many mistakes and
surprises in the areas of marketing, budgeting, taxes and legal issues. If you have a structured
business idea in mind, and depending on how much time you commit, you can probably put a
solid business plan together in 2-4 weeks. One month of planning and preparation while you
continue to network is a smart investment and hardly any time at all in the grand scheme.
Can I just use template agreements or borrow a contract that my cousin
used in his business?
The lawyer in me who spent 3 years in law school and passed one of the most rigorous licensing
exams to become a lawyer cringes when I hear clients tell me they use template contracts, let
alone their cousin’s. The entrepreneur in me understands that start-up budgets generally don’t
allot resources for legal services and since contracts are so readily available on the Internet and
via cousins, heck, why not? Here’s why not. There is a reason that lawyers spend 3 very intense
years in graduate school and are then subjected to a grueling 3-day exam (here in California) to
get licensed to practice law. All of that rigmarole specifically trains us to think in a very particular
(some say peculiar) way, to know how to protect you, and to advocate on your behalf. I have had
too many clients show up on my doorstep asking me to help them unravel a poor legal choice
they made without consulting an attorney, which ends up costing them a fair amount of money in
the long run and probably more than they would have spent had they gotten legal advice from the
beginning. I always tell my clients that if they have spare time, it's better spent working on
building your business than trying to take on responsibilities that can be outsourced to service
providers and professionals like lawyers and accountant. Read contracts. Be aware of the terms
and understand what you're signing, but set aside a budget to obtain sound legal advice as soon
as possible and avoid getting yourself into much more expensive trouble later on.
What does "Piercing the Corporate Veil" mean?
Many of my clients get very excited to make their business official by incorporating or forming an
LLC - and gaining all of the limited liability (not to mention tax) benefits. I get excited for them too,
but always invite them to pause a moment and remember that with the protection that a corporate
or LLC affords comes certain responsibilities. Mainly, starting an LLC or corporation requires the
owner(s) to observe corporate formalities. This comes in the form of properly capitalizing your
business, including start-up and general operating costs and maintaining separate business
and personal bank accounts. It also means keeping good business records, which may include
by-laws, an operating agreement, meeting minutes, and corporate resolutions. When
companies don't observe these formalities they compromise their limited liability allowing
creditors and litigants to pierce the corporate veil and come after owners personally. So please,
take the time to make sure you're running your business with structure and formality.
DISCLAIMER :: The information contained in this Website is provided for informational purposes
only, and should not be construed as legal advice on any subject matter. No recipients of content
from this site, clients or otherwise, should act or refrain from acting on the basis of any content
included in the site without seeking the appropriate legal or other professional advice on the
particular facts and circumstances at issue from an attorney licensed in the recipient's state. The
content of this Website contains general information and may not reflect current legal
developments, verdicts or settlements. Shaheen Sheik-Sadhal, Esq expressly disclaims all
liability in respect to actions taken or not taken based on any or all the contents of this Website.
This is a question I get asked all the time by young entrepreneurs. Choosing the right structure
for your business depends on a variety of factors including your long-term goals, tax implications
and the efficiencies of your venture. For example, solo entrepreneurs with relatively few liability
and tax issues generally can start as a sole proprietorship coupled with a good commercial
liability insurance policy. However, if you have partners or are in an industry where there is more
risk of liability, LLCs and corporations are smarter ways to go, particularly if you want to bring on
outside investors. Also, lawyers, doctors and other licensed professionals are limited in the
types of business structures they may choose. Each business structure has its advantages and
disadvantages depending on your unique circumstances. Consulting with a qualified business
attorney you trust is a good idea so that you can set your venture on the best path for you.
Do I really need to write a business plan?
As an entrepreneur, I completely understand the resistance to sitting down and writing a
business plan. You have a great idea and you just want to get out there and get going already!
That being said, writing a business plan has tremendous value. So my recommendation is to
take a deep breath and buckle down. First, you’ve got to make sure you have a great idea, that
deconstructed and analyzed from every angle, your idea can withstand the scrutiny and come out
as a viable business. This will help you escape that nasty statistic from the SBA that says 50% of
all small businesses fail within the first 5 years. Secondly, if you’re going to need capital, you’ll
likely need a business plan. Most lenders and investors require it before they’ll even consider
handing over a chunk of cash – they’ll want to know just how you plan on returning their
investments. Fair enough. Thirdly, writing the business plan will provide you with an organic,
ever-evolving roadmap as you build your venture, allowing you to avoid many mistakes and
surprises in the areas of marketing, budgeting, taxes and legal issues. If you have a structured
business idea in mind, and depending on how much time you commit, you can probably put a
solid business plan together in 2-4 weeks. One month of planning and preparation while you
continue to network is a smart investment and hardly any time at all in the grand scheme.
Can I just use template agreements or borrow a contract that my cousin
used in his business?
The lawyer in me who spent 3 years in law school and passed one of the most rigorous licensing
exams to become a lawyer cringes when I hear clients tell me they use template contracts, let
alone their cousin’s. The entrepreneur in me understands that start-up budgets generally don’t
allot resources for legal services and since contracts are so readily available on the Internet and
via cousins, heck, why not? Here’s why not. There is a reason that lawyers spend 3 very intense
years in graduate school and are then subjected to a grueling 3-day exam (here in California) to
get licensed to practice law. All of that rigmarole specifically trains us to think in a very particular
(some say peculiar) way, to know how to protect you, and to advocate on your behalf. I have had
too many clients show up on my doorstep asking me to help them unravel a poor legal choice
they made without consulting an attorney, which ends up costing them a fair amount of money in
the long run and probably more than they would have spent had they gotten legal advice from the
beginning. I always tell my clients that if they have spare time, it's better spent working on
building your business than trying to take on responsibilities that can be outsourced to service
providers and professionals like lawyers and accountant. Read contracts. Be aware of the terms
and understand what you're signing, but set aside a budget to obtain sound legal advice as soon
as possible and avoid getting yourself into much more expensive trouble later on.
What does "Piercing the Corporate Veil" mean?
Many of my clients get very excited to make their business official by incorporating or forming an
LLC - and gaining all of the limited liability (not to mention tax) benefits. I get excited for them too,
but always invite them to pause a moment and remember that with the protection that a corporate
or LLC affords comes certain responsibilities. Mainly, starting an LLC or corporation requires the
owner(s) to observe corporate formalities. This comes in the form of properly capitalizing your
business, including start-up and general operating costs and maintaining separate business
and personal bank accounts. It also means keeping good business records, which may include
by-laws, an operating agreement, meeting minutes, and corporate resolutions. When
companies don't observe these formalities they compromise their limited liability allowing
creditors and litigants to pierce the corporate veil and come after owners personally. So please,
take the time to make sure you're running your business with structure and formality.
DISCLAIMER :: The information contained in this Website is provided for informational purposes
only, and should not be construed as legal advice on any subject matter. No recipients of content
from this site, clients or otherwise, should act or refrain from acting on the basis of any content
included in the site without seeking the appropriate legal or other professional advice on the
particular facts and circumstances at issue from an attorney licensed in the recipient's state. The
content of this Website contains general information and may not reflect current legal
developments, verdicts or settlements. Shaheen Sheik-Sadhal, Esq expressly disclaims all
liability in respect to actions taken or not taken based on any or all the contents of this Website.
| the union of profitability, positive social impact and the law. |
| shaheen@sheiksadhal.com :: 310.455.6761 |