If you have that entrepreneurial spirit and you decide to start a business,
congratulations! This is an exciting decision. I am sure you have thought
all about the products or services you want to offer and the ways you
can cultivate clients. Many people start businesses with little or no
capital, so it can be a challenge to prioritize expenses. Starting something
new is exciting, but it is important to look ahead to ensure that your
hard work is protected. There are a few major shortcuts that you should
avoid when starting, and three essential steps to starting a new business.
ONE. Set yourself up as a legal entity with the Secretary of State. Choosing
the appropriate entity, like a Limited Liability Corporation (LLC), can
give you the protection you need and can keep your personal assets separate.
Setting up a “Doing Business As,” or DBA, with your local
town or city, does not provide sufficient protection.
TWO. Have a well drafted Operating Agreement and Partnership Agreement. Going
into business is an exciting venture, especially when you have a partner
who is sharing in the excitement…and the work. It is important
to discuss what happens among the partners in the event of death, disability,
or dissolution of the partnership. The best time to make these decisions
is during the “honeymoon phase,” when each partner has equal leverage.
THREE. Keep a separate bank account and keep personal finances separate. This
might be the most crucial step and will not cost you any money, unless
of course, you “co-mingle your assets.” Co-mingling is a buzz
word when it comes to business finances. It often means that you swiped
your business debit card at the grocery store or the dry cleaners. It
also means you have your mortgage payments or your gym memberships deducted
monthly from the business account. Maybe you wrote a check to your spouse
or to your kids that was not for payment of wages. It doesn’t matter,
right? After all, it is all your money, right? Wrong. Often business owners
are not well-informed and treat the business account as a personal account.
This can be an expensive mistake to make.
In a recent decision, the Suffolk Superior Court found an LLC’s owner
personally liable for its’ company’s breach of lease agreement
and awarded the plaintiff over $87,000 in damages. Under a “piercing
the corporate veil” theory, an LLC’s owners can be found to
be personally liable if they disregard the corporate form by intermingling
personal and business assets, failing to observe corporate formalities,
or failing to keep corporate records.
Contact Sharna Favuzza at 781-914-3778 for a complimentary consultation
and start your business off right.
Case: Caruccio v. Alves’ Boston TKD, LLC, et al./Suffolk Superior Court/2016-CV-02855