Legal issues for entrepreneurs 1

Legal issues for entrepreneurs

New ventures must deal with important legal issues at the time of their launching. Legal errors made early on can be extremely costly for a new venture down the road. Before deciding how to organize an operation, prospective entrepreneurs need to identify the legal structure that will best suit the demands of the venture. The necessity for this derives from changing tax laws, liability situations, the availability of capital, and the complexity of business formation.

It is important for an entrepreneur to select an attorney as early as possible when developing a business venture. It is critically important that the attorney be familiar with start-up issues. An entrepreneur must also decide what type of business to establish. There are three main types of business. Each has a distinct form and structure.

Sole proprietorship
The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts. A sole proprietorship can operate under the name of its owner or it can do business under a fictitious name, such as Nancy's Nail Salon. The fictitious name is simply a trade name--it does not create a legal entity separate from the sole proprietor owner.

Partnership
A partnership is an association of two or more persons acting as co-owners of a business for profit. Each partner contributes money, property, labor, or skills, and each shares in the profits (as well as the losses) of the business."  The Uniform Partnership Act is generally followed by most states as the guide for legal requirements in forming a partnership." Though not specifically required in the act, written articles of partnership are usually executed and are always recommended. This is because, unless otherwise agreed to in writing, the courts assume equal  partnership-that is, equal sharing of profits, losses, assets, management, and other aspects of the business.

Company
This is a legal entity. It is owned by shareholders. The shareholders bring capital into the business. Shareholders take less risk than sole traders or partnerships because they have legal protection called limited liability. This means that if the business cannot meet its debts, then the maximum sum that shareholders can lose is limited to their investment in the company. Company decision-making is steered by a board of directors.