9 Questions to Ask Your Attorney When Starting a Business

If you are starting a new business, there are a few questions to ask your attorney up front:Woman with question mark on blackboard

Q:  Does it matter what kind of entity to make it?

A:  It depends on your goals.  The most common choices are C corporation, S corporation, limited liability company, general partnership and limited partnership.  Each has its advantages and disadvantages.  Some give you greater control, some give you greater asset protection, some give you tax advantages and some give you greater flexibility.

Q:  What state should I form it in?

A:  It depends, again, on your goals.  If you are building something up that will one day need venture capital financing, you may be better off in Delaware.  If you are starting a business that will stay local, your own state might be best.

Q:  What papers do I need?

A:  Different entities have different paperwork needs.  For example, the basic documents for a corporation are a certificate of incorporation filed with the state, bylaws that are not, many pages of corporate resolutions, a stock ledger and stock certificates, plus a couple of tax filings.  On the other hand, general partnerships can legally exist with no paperwork at all (although most lawyers would not recommend that).

Q:  I will be working with a partner.  Do we need to do anything special?

A:  You can probably benefit from a shareholders or partnership agreement.  These documents address a number of common situations such as control of the business and restrictions on transfer.

Q:  I will be working with my spouse.  Do we need to do anything special?

A:  You should talk this over with both your business attorney and estate attorney.  Your particular circumstances may create reasons to structure the ownership and operation in particular ways.  For instance, it may be best to put the business in only one of your names or in a trust.

Q:  How do I show that I have put money in to the business?

A:  You may need to issue stock certificates, or may be able to be done as a book entry.  It depends on the choice of entity, whether you have partners and other factors.

Q:  What kinds of regulations apply to starting my business?

A:  For some businesses, none.  For others, local business permits.  For still others, federal, state or local licenses.  Your attorney should be able to give you general guidance.

Q:  How soon can we get going?

A:  Most businesses that do not have special regulations can be formed within a few days, depending on the backlog in your state filing office.  If you need special approval, it depends on how long the regulators take.  Also, businesses with complicated capital or ownership structures can take longer to document.

Q:  How much will it cost?

A:  Ask this up front.  Some lawyers charge by the hour.  Others will do basic work for a fixed fee, then add on fees for extra bells and whistles.  There are also online services that can do basic business formation with off-the-shelf documents.  Since your business is not off-the-shelf, though, you are better off having a lawyer at least take a look to make sure you are covered for what you want to do.

Confidentiality Agreements and Nondisclosure Agreements: What Do They Mean?

Non-Disclosure-AgreementEveryone wants to keep private information private. Businesses want to keep their confidential information confidential. Yet the nature of our commercial world means that people and businesses must disclose this kind of information from time to time. To protect sensitive information, people can sign documents called “confidentiality agreements” or “non-disclosure agreements” (so-called “NDAs”).  These agreements, which are sometimes included within employment agreements or other documents, have certain standard provisions.

  1. Defining Confidential Information.  What is it you are trying to keep confidential?  Is it material related to a particular project, or anything you consider to be a trade secret?
  2. Information That is Not Really Confidential.  Information is not really confidential if it is already in the public domain, or if the receiving party already knew it from a non-confidential source.  The NDA should carve it out of the definition.
  3. If the Law Requires Disclosure.  If the party receiving the information has to disclose it by law or to a regulatory body, then it should not get in trouble under the contract.  Some NDAs protect the disclosing party by requiring the other party to seek a protective court order, at the disclosing party’s expense, and only disclosing as much as is legally required.  Sometimes, though (like with certain law enforcement requests under the USA Patriot Act), the other party is not even allowed to tell the disclosing party that the government is seeking the information.
  4. How Can Confidential Information Be Used?  If one company is contracting with another to perform a service, then confidential information can usually be used only for performing that service.  If an employee is signing on to an NDA, the information can usually be used for anything related to employment.The range of options depends on the situation.
  5. Who Can Know Within the Company?  Often, NDAs provide that companies can pass on information to employees, contractors, officers, directors, attorneys and accountants on a need to know basis.  Individuals signing a confidentiality agreement may be able to disclose information to their immediate family members as well.  Many NDAs provide that the receiving company is responsible for any unauthorized disclosure, and some go so far as to require each recipient to have signed either an NDA or a corporate document by which it agrees to be bound by the terms of NDAs the company signs.
  6. If There is Intellectual Property.  If some of the confidential information relates to products being developed, or if the NDA is with a person or company who is being retained to help develop a product or something else that might generate intellectual property rights, the disclosing party needs to be protective.  Some NDAs prohibit reverse engineering, for example, while others assign to the disclosing party any rights to products developed using its assets or confidential information.
  7. How Long Does It Last?  It is unusual for confidentiality agreements between businesses to last forever.  Most often, they last for the term of the agreement, plus one to three years.  Beyond that, businesses simply cannot monitor compliance, and the confidential information may become stale over time (for instance, should parties really be concerned about monthly financial information from four years ago?).  With confidentiality in employment agreements, though, the contracts generally do not specify an end date.  It depends on all the facts and circumstances as to how long a confidentiality agreement should continue.
  8. How to Enforce It.  Confidentiality agreementscome beforea court much of the time through one party seeking an injunction or temporary restraining order:  trying to stop another from disclosing information in violation of the agreement.  NDAs often have language that seeks to relieve the disclosing party from some of the procedural headaches that go along with an application to a court for injunctive relief.

Confidentiality agreements are an important part of today’s business world.  Many of us will seek one or be subject to one over the course of our careers. In order to evaluate them, having an outline of the major provisions is a good first step.