Starting a business:

We provide a wide variety of services to our business clients, including assisting in selecting the type of organizational entity under which to operate, preparation of agreements, sale and purchase of businesses, obtaining financing and funding for business operations, and employee relations, and dissolution.

We regularly assist clients in selecting among and incorporating or organizing new business entities in for new businesses, including C corporations, S corporations, limited liability companies (LLCs), limited liability partnerships (LLPs), limited partnerships (LPs), and other joint ventures.

Financing and the Business Plan

When starting a new business, you will need to finance it and set up a business plan. An experienced business law attorney can help you to take these steps.

There are a large number of costs associated with any new business. You must consider one-time expenses and start-up costs, from construction and renovation to inventory to advertising costs to hire new employees. You will need to draw up a business plan and organize your business.

Typically, financial institutions and other investors require a business plan before agreeing to finance a new business. Your business plan should include:

• A description of the business and its features.
• What goods or services you will sell.
• A marketing plan that indicates your customer base.
• Research showing a need for your business.
• Staffing and management plans, showing how you will organize and run your business.
• Financial plans. These should show the cost of starting, operating, and maintaining the business and indicate what profit is expected and when.

A new business owner must always be aware of the costs involved in starting a new business. All start-up costs and one-time expenses must be considered. The business owner will want to contact a financial institution and/or other investors in order to attain financing.

Permits, Licenses, and Other Legal Concerns

As a new business owner, you will face a number of legal issues, including licenses and permits, zoning, name and trademark registration, and others. You should consult an attorney with experience in business planning and these areas in order to protect your legal rights.

When naming your business, you should first see whether the name is legally available. Your state’s secretary of state can inform you whether the name you’ve chosen for your business is taken. Often, this information is readily available from the secretary of state’s website.

You can also find contact information for these companies. You should also determine if your name conflicts with a registered trademark, by visiting the federal Patent and Trademark Office’s website at www.uspto.gov.

You may require a license or permit to operate your business, depending on what your business is and where your business is located. You should carefully research all regulations and laws governing your business; your state and local governments (and your local Chamber of Commerce) can help you find the requirements you need to fulfill. The state of Iowa has some helpful resources at:

The department of revenue

The department of economic development

In most cases, you need a state license to work as a:

• Dentist
• Physician
• Lawyer
• Teacher
• Accountant
• Contractor/trade worker
• Barber

Often, city or county governments regulate business activity by requiring permits, including:

• Noise permits
• Equipment permits
• Construction permits
• Public gathering permits
• Sellers’ permits

You may be required to pay ongoing fees, update fees, or to complete regular testing for some business activities. Many jurisdictions require businesses to publicly post their licenses and permits.

Many city and county governments also enforce zoning regulations. Government zoning classifies land into different zones, with separate rules regarding land use, the size and height of allowed structures, and many other aspects of ownership. Zoning is part of a state’s “police power”, which allows states and local governments to regulate land use for the benefit of the public. It is a good idea to understand zoning restrictions in your area before purchasing land or starting up a business.

Given the amount of legal preparation involved in starting a business, and the consequences of failing to do so, you should contact a lawyer for help with business planning and land use matters.

Organizing Your Business

You should be aware of the advantages and disadvantages of different business structures in order to decide on how your business should be organized. This will have a large impact on daily operations and on which statutes and regulations you will have to follow. There are four major business organization types: the sole proprietorship, the partnership, the limited liability company, and the corporation. In choosing which type of organization you should have, the most important considerations should be taxes and liability.

Sole Proprietorships

A sole proprietorship is any business with one owner which has not been set up as a limited liability company or corporation. This is the simplest form of business organization, and begins as soon as the owner opens for business. Decisions are managed by the owner and the process of recognition is quite simple. The sole proprietorship, however, does not protect its owner’s assets. Any action taken by a sole proprietor or an employee can create liability for the sole proprietor. Profits from the business count as personal income, and must be reported by the owner to the IRS. In short, the owner reaps all the benefits of owning a business, but has no protection against possible hazards. 

Partnerships

There are two major forms of partnership, a general partnership and a limited partnership. In a general partnership, two or more persons are co-owners of a business. They all participate in management of the business, and all are personally liable for any obligation incurred by the business. Partners are legally bound by any business-related action taken by another partner. All income is split and reported by the general partners as personal income.

In a limited partnership, there must be at least one general partner responsible for management and at least one limited partner. The limited partner may contribute capital but is not involved substantially in managing the business. A general partner is liable personally for business obligations, but a limited partner has limited liability and can only be held responsible to the degree of their capital investment. Limited partnerships must be registered with your state’s secretary of state. The filing process can be extremely complicated. While partnership is still flexible and allows a business owner to share the responsibilities of management, it raises the question of trust, since partners are liable for each other’s actions. All partners must also consent if one partner wishes to sell or transfer their interest in the partnership.

Limited Liability Companies

A limited liability company (LLC) uses elements of corporations as well as partnerships in its organization. Generally, your state’s secretary of state must receive filed papers to create an LLC. In most states, one person can form an LLC. The filing also requires a written agreement which details the rights and responsibilities of all LLC members. LLC owners only risk money which they have invested. An LLC’s debts can legally only be paid using the LLC’s assets. The owners are therefore protected against personal liability. However, LLC owners report their share of profits and losses as personal income; the LLC is not a taxable entity. An LLC can be very complex to set up.

Corporations

A corporation is legally a separate entity from its owners and managers. Corporations are legally considered persons, and can enter contracts, incur debt, and pay taxes independently. The owners are therefore protected from the corporation’s creditors and only liable to lose money invested in the corporation. Creating a corporation requires several important legal procedures, which generally include:

• You must file articles of incorporation with your state’s secretary of state.
• You must produce written bylaws to govern the corporation, including meeting rules, decision processes, and voting rights.
• You must convene an initial meeting of the board of directors.
• You must issue corporate ownership stock.

The corporation is therefore extremely complex and expensive to set up and manage. However, it is relatively easy to add new owners and to gain new capital, and the freedom from legal and financial liability allows the owner to experiment and take risks. Choosing the best form of business organization is a crucial decision, and one that can be very complex. Before organizing your business, you should seek the advice of an attorney with experience in business planning.

Hiring Employees

A number of state and federal laws impact the process of hiring a new employee. You must be careful to maintain legal compliance at all stages of the hiring process, from advertising and interviewing to hiring and employment. At all times, employers must refrain from illegal discrimination. You should take precautions to ensure you do not hire illegal immigrants. You must also observe age regulations and respect privacy rights.

The consequences of failing to abide by these rules can be severe. You should consult with an attorney who is experienced in business planning and employment law to ensure that you maintain compliance with federal laws as well as laws that apply in your jurisdiction.

Before you advertise for a new employee, you should determine the requirements for the job. Use these requirements to determine which questions should be asked on the job application. Using the requirements as a guideline can help to guide your decisions and examine each applicant fairly.

Private businesses are not required to advertise for job openings, and jobs can be filled however the owner or manager wishes as long as the employer maintains compliance with federal, state, and local regulations. You should be aware that advertising can be of great advantage to your business. Advertising a job opening can bring you a much wider pool of qualified applicants, increase the odds of finding the right person, and help to eliminate the question of discrimination. A wider pool of applicants lets you maintain your options, view a more diverse group of applicants, and still allow you a full examination.

You should also consider writing down your company’s policies and procedures in an employee handbook, to minimize misunderstandings over policies, compensation, and other employee issues. Every new employee should be given a handbook.

A number of federal laws prohibit discrimination. These must be followed strictly when hiring or paying employees. All of the following laws are enforced by the U.S. Equal Opportunity Commission:

• Title VII of the Civil Rights Act (1964), which bars discrimination in employment based on race, color, religion, sex, or national origin.
• Equal Pay Act (1963), which prohibits unequal treatment of men and women performing substantially equal work.
• Age Discrimination in Employment Act (1967), which prohibits discrimination against workers over 40.
• Title I and Title V of the Americans with Disabilities Act (1990), which prohibits employment discrimination in the private and state or local government sectors against individuals with disabilities.
• Sections 501 and 505 of the Rehabilitation Act (1973), which prohibits discrimination in federal employment against individuals with disabilities.
  
• Civil Rights Act (1991), which provides for damages in claims of employment discrimination.

Even after the hiring process is complete, businesses must meet a number of regulatory and filing requirements. For the state, you must:

• Report the new hire to the state employment agency.
• Register the new hire and pay state unemployment taxes.
• Withhold and pay any state income taxes.
• Filing concerns for the federal government include:
• Have the new hire complete the Employment Eligibility Verification I-9 form.
• Have the employee complete the IRS W-4 form.
• Withhold and pay payroll, Medicare and Social Security taxes to the IRS.
• File an IRS SS-4 Form to obtain a federal Employment Identification Number (EIN) for the new employee.
• File an IRS 940-EZ form to report federal unemployment taxes for each employee.

In addition, you must:

• Prepare an injury and illness prevention plan in compliance with Occupational Safety and Health Administration (OSHA) standards.
• Acquire workers’ compensation insurance.
• Post all notices required by the state and federal Department of Labor.
• Inform all employees of employee benefits.
• The process of hiring employees can be complex, and it exposes your business to potential damages. You should obtain the counsel of an attorney with experience in business planning before beginning the hiring process.

Employee Pay and Compensation

The federal Department of Labor and state agencies regulate many aspects of employment, ranging from overtime and child labor to the minimum wage and recordkeeping. These laws are often very complicated. In order to avoid legal problems, you should consult with an attorney with experience in business planning and employment law.

The Fair Labor Standards Act (FLSA) sets many of the standards employers must meet. Here are some of the requirements of FLSA:

• Minimum Wage. The federal government requires all employers to pay a minimum wage of $5.15 an hour for covered nonexempt employees. Employees who make at last $30 a month in tips do not qualify for the minimum wage; however, their pay plus tips must be the equivalent of at least $5.15 per hour.
• Child Labor. The FLSA prohibits persons under 18 from performing certain jobs.
  Weekend, Night, and Overtime Pay. The government does not mandate extra pay for work on weekends or nights. However, any time worked past 40 hours per week must be compensated at an overtime rate of at least 1 1/2 times the regular rate. Employees 16 and older can be required to work any number of hours, as long as overtime is paid.
• Vacation, Sick, and Holiday Pay. The FLSA does not require pay for time not worked.
• Severance Pay. The FLSA does not require severance pay.
• Breaks and Meal Periods. The FLSA does not require breaks or meal periods.

A number of employees are exempt from FLSA provisions. In most cases, these exemptions are interpreted in favor of the employee, who must nevertheless meet strict requirements. Employees exempt
from overtime pay include:

• Sales personnel who make more than 1 1/2 times the minimum wage.
• Computer and IT personnel making at least $27.63 an hour.
• Drivers, mechanics, and other employees whose duties impact the safety of vehicles involved in transporting goods or passengers.

Some employees are exempt from FLSA’s overtime and minimum wage requirements, including:

• Sales personnel and mechanics who work for an auto dealership.
• Farm workers. Young farm workers can also be exempted from child labor laws.
• Seasonal and recreation employees.
• Administrative, executive, professional and sales personnel who receive a salary.

Keep in mind that while this overview covers FLSA requirements, state and local laws may have much stricter requirements.

In addition, there are a number of other federal laws governing employment. The Family Medical Leave Act (FMLA) allows some employees the right to take 12 weeks of unpaid leave to attend to family or medical matters. Military personnel are granted some job-related rights and protections. The Employee Retirement Income Security Act (ERISA) mandates certain requirements for the administration of pension plans. The issue of employee pay is very complex, and the number of state and federal regulations governing the issue make it vital for any business owner to have the advice of an experienced attorney.

Business Insurance

One of the most important decisions facing a new business owner is the acquisition of insurance for the business and for employees. To determine what insurance you will need, you need to understand the potential risks your company faces. Federal or local laws may require you to have certain insurance coverage, as might a contract. A competent business planning attorney can give you advice on these topics.

These types of policies can help to protect your business:

• Commercial Multi-Peril or Business Owner’s Policy. This is a standard policy that covers property damage, liability, business interruption, and sometimes workers’ compensation. Some businesses are not eligible for this policy.
• Property Insurance. Property insurance covers your business against financial losses resulting from physical damage to your property from fire, lightning, wind, storms, or vandalism. It can also protect personal property such as art, furniture, materials, or inventory.
• General Liability Insurance. This policy covers you against losses when your business is legally responsible for damage to someone’s property or health.
• Business Interruption Insurance. If your property is damaged or lost and must close for a period, this policy protects you against losses. It also covers losses incurred to avoid or minimize time spent closed.
• Product Liability Insurance. This protects you against losses incurred when your product harms a user or the user’s property. This insurance is vital for any business that manufactures or supplies products.
• Malpractice or Professional Liability Insurance. This insurance protects the business against claims of error or negligence. Depending on your business and the state you reside in, this may be required by law.
• Business Vehicle Policy. This policy protects vehicles owned or used by your business. You may need special coverage if your employees use their personal vehicles for work.
• Umbrella Insurance. This covers your business against losses above the limit of your liability policy.

There are also types of insurance that help protect your employees as well as your business:

• Health Insurance. In some cases, you can save costs and provide better service to your employees by offering a group health insurance plan.
• Workers’ Compensation Insurance. This covers employee wages in case of accident or injury. In many states, this coverage is required by law. Also, some states require businesses to purchase workers’ compensation insurance from their own government.
• Life Insurance. Life insurance can be invaluable in providing for your family and loved ones.
• Disability Insurance. Disability insurance can be used to cover you or an employee if injury or illness makes it impossible to work.
• Keyman Insurance. If a key employee is unable to work or dies, keyman insurance covers revenue lost or the cost of replacing the employee.
• Insurance is a key protection for your new business. You should consult an attorney with experience in business planning for assistance in setting up new insurance policies.