A while ago Forbes published an article titled, “10 Big Legal Mistakes Made By Startups.” It’s quite informative about what you need to do to start a business, but also quite long. We took the liberty of reading it for you and boiling it down to a few of its most important points, and they all come down to one thing: making sure you have the right contracts in place.
Don’t hesitate to incorporate.
In the words of Chris Griffiths from The Globe and Mail, “For most businesses, the question is not if, but when to incorporate.” Be sure to consult a lawyer to help you draft articles of incorporation that are suited to your needs. Standard incorporation documents, such as corporate by-laws, can also be found in Clausehound.com’s Small Business Law Library!
It’s not as taxing as you think.
The way you structure your business can impact the amount of taxes you pay. If done right, you can come away with more money and less worry, especially if your company qualifies as a Canadian Controlled Private Corporation (CCPC). This is because corporate tax rates are lower than personal tax rates, so keeping excess money in the company can be highly advantageous. Keep in mind that these more specific issues of taxation and tax registration should be explored thoroughly with an accountant before making any decisions.
There’s tons of ways you can get qualified advisors involved!
How you structure your business can also determine the amount of liability that rests on your shoulders.
In smaller businesses, shareholders often play a bigger role. By using a unanimous shareholders’ agreement, they can place restrictions upon the powers of the board of directors, though in the process shareholders can take on more liability. Another way to get good people involved if liability is a concern for someone wanting to be on the board is to have them take an advisory role.
If you like it, put a contract on it.
Once the company is established, it’s a field day in terms of hiring. If you find someone you really want you should treat them right and get them settled into the workplace with a proper employment agreement. Businesses have been wrecked in the past over ambiguity about employment status and wages, so sorting that out through highly specific offer letters, stock option grants, and employee handbooks should offer good protection and build better work relationships.
Have standards.
When jumping headfirst into a new business, it’s a good idea to have a standard sales contract or customer agreement to shop around. A sound contract will streamline negotiations with customers—you’ll know exactly what points you’re willing to budge on or not. You don’t have to start from scratch. Find one already in circulation and modify it to make it your own. Consult a lawyer to be sure you have covered the essentials.
These should all be on your checklist.
A new business starts in a very turbulent environment, and setting up solid contracts will help make the whole process easier to navigate.
To see some standard versions of the contracts discussed in this article, visit our Small Business Law Library!