START-UP

When starting a business, one of the first tasks you need to undertake is to determine the right legal structure for the company. To make a fully informed decision, you must consider both the short- and long-term goals of your business, personal financial circumstances of the owners, and your exit strategy. These factors along with other criteria including ownership (e.g. founders, investors, and/or employees), company and office locations, management, liability protection, and tax implications for both the business and the individual owners play into which entity type is appropriate for the owners. Usually, there is no "right" answer, but you need to balance all the issues to maximize efficiency and liability protection while minimizing taxes.

A key component of the start-up phase includes documentation of ownership and what each owner is contributing in exchange for his or her share of ownership (e.g. cash, services, or physical or intangible property). Where intellectual property (IP) is contributed to the business or developed by the business, you must ensure proper protections for IP through legal avenues, such as registrations, contract protections, and licensing agreements. If passive or "silent" owners are involved, you must also consider whether any Federal or state securities laws apply.

Because relationships create the greatest liability in business, documenting these key business relationships with formal contracts helps to spell out roles, responsibilities, and expectations—and insulates the company from risk. Key written contracts include owner agreements (e.g. Shareholder/Operating/Partnership Agreements), employment and contractor agreements, supplier and vendor agreements, leases, and website agreements (e.g. Terms of Use and Privacy Policy).

GROWTH

As a company establishes itself and grows, new paths present themselves. These paths may take the form of new geographical regions or channels (e.g., international expansion, retail stores, or Internet presence); new partners, joint ventures, or strategic alliances; and/or business acquisitions. Each of these strategies comes with risks and opportunities in your relationships with customers, employees, strategic partners, joint venture partners, investors, and vendors.

The most critical aspect of moving forward in the growth phase is to clearly document key business relationships in written contracts. Contracts set forth roles, responsibilities, and expectations in a relationship and offer significant protection against liability that may arise in these relationships. Key terms, such as limitation of liability, indemnification, dispute resolution, assignability of rights, non-solicitation/non-compete, and choice of law and venue, define the "rules of engagement" and reduce the likelihood of escalation in disputes and litigation.

Growing companies also find that they have created or are creating Intellectual Property (IP) that is critical to their competitive advantage and value. You should take proactive steps to register this IP and keep it inside the company, thereby retaining its value to the business. The first step you should take is to determine what IP exists in your company in the areas of trademark, trade dress, trade secret copyrights, and patents, and then pinpoint the best ways to protect each of these forms of IP through legal registrations or contracts. Often, ownership of IP rights is omitted from key contracts with employees, contractors, and suppliers, resulting in the company’s loss of valuable rights and IP assets.

The growth phase is also a great time to consider your current business operations and the associated legal needs for the company’s future. Providing a roadmap for the company based on your business strategy and exit plan, an audit enables you to prioritize the legal steps required to build value into your business for the future.

MAINTENANCE

In the maintenance phase, your business has reached a certain level of maturity and stability. You have developed key, long-standing relationships. You have leveraged critical intellectual property to provide a competitive advantage. Plus, you have policies and procedures, as well as employment manuals, to drive a productive workplace.

Companies in this phase often find themselves on the defense, fending off competitors that seek to take advantage of their brand name/trademark, employees, and customer base. At the same time, business owners continue to seek new relationships that will strategically grow the value of the company as the owners plan for succession and exit in the future. You might be cultivating key employees or executives who will purchase the business, contemplating a merger or acquisition involving a competitor, or licensing or developing new technologies or IP to enter new markets. In this phase, it is also important to revisit your current contractor, leasing, and employee relationships to ensure they are working for the company in the best manner possible.

EXIT PLANNING

Exit planning is the culmination of all the previous business phases, allowing you, the business owner, to capitalize on your hard work. However, exit planning should not be thought of as an individual transaction but rather as a process that leads to a transaction. The process involves three primary components:

As you begin to think about transferring or selling your business, you should consider succession, retirement, and estate plans, as well as corporate maintenance and documentation. Getting your company in order before you sell, with organized contracts, policies and procedures, protected assets (both tangible and intangible), and clean financials, will result in a more efficient due diligence and transition process, whether the buyer is a family member, employee, competitor, or other third party.