“Whenever you see a successful business, someone once made a courageous decision.” ― Peter F. Drucker, Getting Started
Every new venture is as unique as the people trying to start it up and each new business has its own distinct needs and challenges. One thing they all have in common is the people who are willing to take risks.
There are few universal truths in anything , but one that runs through all businesses, is to make sure your personal assets are not at stake. In order for a new business to have the best chance of succeeding, it must start with a rock solid foundation that allows it to take risks and hopefully reap great rewards. In case the risk does what it is inclined to do, there must be built in protection for the risk-taking owners’ personal assets. The key to that protection is to form a business entity to run under before the first Open sign is hung.
Some for You & Some for Me
Most people that call me about starting up a new business already understand that running it as corporation (Inc.) or a limited liability company (LLC) is what they must do to protect their personal assets. If the business is organized as a corporation or LLC, the possibility of the owners being personally responsible for the business’s debts and liabilities is much diminished. The best way to build in this protection is to take advantage of the liability shields authorized under state law. These laws, usually statutory, authorize the creation of a separate legal entity to conduct business through that will bear the burdens that may befall. On the flip side, the Inc./LLC also bears the benefits, which the government is happy to see created since it gets to relieve you of some of the burdens of those benefits, i.e., taxes.
The owners of a corporation or LLC can be protected from personal liability for the business’s debts as long as the business is formally organized, operated and maintained under their state’s laws governing businesses. This personal liability protection is commonly called a “liability shield” or “corporate shield” and can be extremely valuable if the new business does not do well.
For instance, if a business has one deal go wrong at the worst time possible (when else does it happen?) it could be financially ruinous to the company. It may force the business to file for bankruptcy. Or if things are bad enough, two or more creditors could file petition for an involuntarily bankruptcy against your company, forcing your business into bankruptcy court so the creditors would have a better chance of recouping what they are owed (at least some). Under either of these scenarios, if the liability shield has been maintained so it is intact and enforceable, your business’s creditors would be unable to get a judgment against the you as the owner personally. This helps to encourage people to take chances and start businesses, something the government sees as a valuable to society.
Doing it for Themselves
A number of businesses I represent seem to be increasingly formed without a lawyer’s assistance. Especially by anyone who has been involved with the ownership of an incorporated/organized small business (or LLC) before. In law school, my Corp Prof explained how you only had to fill out a few lines on a postcard, check a couple of boxes and then pay a fee to form a Minnesota corporation, I was flabbergasted! (Yeah, I said a postcard. And flabbergasted. At the time, the form was the size of a large postcard. And the State didn’t have many decent or useful websites either. I don’t have any excuse for flabbergasted).
For a single owner just going out and doing her own thing, forming a corporation or LLC in Minnesota is easy and can be done without a lawyer. In fact, the page, “Starting a Business or Nonprofit” at the Minnesota Secretary of State’s website, that has some great information for startups, only mentions the word “lawyer” once, the same number of times it uses “accountant.” If you have the right forms from the Secretary of State, a link to the business filing website and a credit card that is about all you will need (You can use your checkbook, a stamp and a paper application, but it is on 81/2” X 11″ paper—larger than a postcard).
Multiples Need Counsel
If there is more than one owner, I always recommend getting an attorney involved. Usually to make sure the new business gets an operating agreement, control agreement or a buy-sell agreement in place right away that will define the owners’ mutual rights and responsibilities and address how any future disputes will be addressed and handles (a business prenup). After all, business partners get along great when they are broke and just opening the doors to an exciting, promising and unknown future. The fussing and feuding never starts until after they taste some success, want more and ain’t gonna share. Once that point is reached, it can be impossible to agree on anything, let alone how to resolve any disputes like the one going on now!
Here are some more resources to help you startup your Minnesota business so it has a solid foundation and you can feel a bit better about the risks you want to take.
Governmental Resources With More Information
Organizing. Planning. Financing. Licensing. Hiring. Managing. Growing.
The Minnesota Department of Employment & Economic Development’s Division’s Small Business Assistance’s website maintains a handy directory of license and permit information. SMALL BUSINESS ASSISTANCE” also puts put out numerous helpful publications for the new business, including an awesome book everyone thinking about starting a business in Minnesota should have, and it is even more awesome as a digital download: “A Guide to Starting a Business in Minnesota.” Simply essential.
The Three Ds:
DEPARTMENT OF LABOR & INDUSTRY affectionately called DOLI (pronounced “Dolly”)(Worker’s Compensation & Trades Licensing for Boiler operators, Building officials, Contractors, Electricians, Elevators and more!); and last but not least:
DEPARTMENT OF COMMERCE (Licensing info for Banks, Credit Unions, Insurance, Securities, you know “commerce” stuff).
Now go forth and start your own business! (and if you get sued, I know this guy that’s a business litigator . . . I think this is that lawyer’s website).