Answers to our 11 most asked questions
When you’re a business lawyer, people usually want advice when they meet you at a party. We’ve collected the 11 most commonly asked questions along with their answers. We hope you find your questions on this list. If you don’t, you can always call (214) 418-0258 and schedule a meeting to get to know us and see if we can help you.
How do most new business owners handle the upfront costs prior to funding?
Usually it is a combination of (1) savings, (2) initial investment from friends/family, and (3) working a day job.
Why would I hire a lawyer to do forms for my company, when I can get forms for my company online for a nominal amount of money?
Internet forms do not fit all situations. Often you’ll see this in the disclaimers that are shown to you before you buy such forms. We see lots of issues where online forms were not correct, did not fit the particular situation the client faced or were set up in a way that was unfavorable to our client. While law firms also use forms, an experienced lawyer can tell you what to include and what not to include in your forms.
Should I form my company as an LLC or corporation or something else?
It really depends. There are reasons for each type of structure. LLCs and corporations are very typical. But there are situations where another form of entity makes sense. Only by getting to know you and your situation, as a client, could we determine which is best for you.
I have an LLC (or corporation) so I am completely protected from liability, right?
Not true. In many situations an owner of an LLC or corporation can have personal liability for things connected to the business. Which risks will apply generally depends on the nature of the business and way it is operated. With that specific information, a plan can be made to understand, control and minimize the risk of owner/operator personal liability.
Why is it important to get my own lawyer when I am going in business with someone else?
Your situation is different than that of the other owners. While a lawyer can sometimes get a waiver and work for multiple owners at once, that lawyer should inform you they are not advocating for any one owner in such situation. What if the terms favor your partner? If you have an independent lawyer, they can advise you. If you have a lawyer representing everyone, they will explain it is not their role to do what is best for you.
What state should I form my LLC/Corporation/other entity in?
This is a complex question and really depends on the current ownership of the business, anticipated future ownership and a host of other issues. When we help clients form or grow a company, we typically give fact-specific advice on these issues.
I am going into business with my friends or business contacts. Do I need my own lawyer?
You may wish to consider it. If a lawyer is asked to serve as counsel to all of the owners in a business formation, they may not be advocating for you. They may not be able to explain the pluses and minuses of different negotiation or planning strategies.
I am raising money from my friends and family. I don’t need to worry about securities laws, do I?
Yes, you do. Securities laws typically cover all securities, which often cover ownership interests of small businesses. Typically you must register (with the SEC and/or state) all securities offerings or find an exemption. There is no special free pass for “friends and family” so you need to carefully plan for securities law compliance.
A number of bad things can happen if you don’t comply with securities laws depending on the circumstances, including: (1) giving all of your investors a rescission right (a chance to get their money back with interest), (2) criminal liability, and (3) making it hard to bring in sophisticated investors in the future (they typically avoid companies that have violated securities laws).
When should I start planning to sell my company?
Now. We recommend our clients constantly be thinking about and looking at the possibility they may sell their company at an unknown time. This enhances their options and leads to maximum value in the future. Unexpected offers from third parties can happen at any time. Personal circumstances may change.
A few steps now could lead to major gains in value in the future.
I've met someone well connected and they are going to take a percentage of the money they raise for my company. This is normal, right?
A person that is paid to raise money for your company is considered a securities broker under federal (and typically state) securities law. If your well-connected person does not have a license to sell securities, you probably have a problem. Consult experienced counsel.
For fundraising, it is my understanding that we can do so at will, because we are all employees and it is a private company. I don’t have to worry about securities laws, right?
Not true. Having employees involved and not compensating those employees for fundraising does help qualify for some securities law exemptions. There are, however, a lot of other considerations to take into account. Consult experienced counsel.