Starting a business comes with plenty of enticing decisions: the name, the location, the product, the look of the place. Deciding what happens if the partners stop speaking rarely generates the same enthusiasm. But those early conversations can help prevent expensive problems later.
For Gary Schuster, a partner at J&G Law, business formation begins with two questions: “Are you doing this alone or with somebody?” and “Do you have an accountant?” The answers help establish everything from the appropriate legal structure to how owners will share responsibilities—and profits.
“I want the accountant to set it up correctly from the get-go,” Schuster says. Whether the business will have employees, own property, or offer a retirement plan can influence that advice. An attorney and accountant working together can help owners make informed decisions before they start spending substantial money.
Choosing the Right Structure
A fundamental decision is whether to form a corporation or a limited liability company (LLC). Both can help separate business liabilities from personal assets. Operating as a sole proprietor leaves the owner without that legal separation.
An LLC offers flexibility in arranging ownership, voting rights, and the distribution of profits. Schuster, whose practice includes arts and entertainment law, offers a hypothetical example: A musician wants to record an album, and a relative agrees to finance it. An LLC can accommodate an arrangement in which the relative supplies the funding while the musician receives most of the profits.
But forming an entity online does not necessarily complete the job. Schuster says owners sometimes overlook additional requirements, including New York’s LLC publication requirement and the need for an operating agreement. The latter is especially important when multiple owners are involved.
Having the Hard Conversations
“How much money are you each putting in? What happens if you need more money?” Schuster asks. Equally important: “What are your work obligations?”
He recalls a diesel repair business where one partner worked in the shop daily while the other considered himself the outside sales representative. They had never agreed on that division of labor.
“Who’s going to handle the marketing? Who’s going to do the bookkeeping?” Schuster says. Owners should establish whether the venture requires a full-time commitment or allows them to pursue other work.
An agreement can also address disagreements, departures, disability, death, and offers to buy the business. “You don’t want to wake up in the morning and find that your partner has sold his interest to somebody else,” he says.
Schuster compares the planning to a prenup and a will. Owners may resist discussing unhappy possibilities while they are excited about their shared future, but a written agreement gives everyone something concrete to consult.
“It’s very helpful to have that on paper so that you can hold the other guy accountable,” he says.
Keeping the Protection in Place
The work continues after formation. Owners need appropriate licenses, contracts, and insurance. Hiring employees introduces payroll obligations and questions about worker classification. “Mischaracterizing an employee as an independent contractor is extremely risky,” Schuster says. For payroll, he recommends a payroll company: “You don’t need to become an expert in that. You should just hire one.”
Maintaining the distinction between business and personal finances matters, too. “Keep the accounting separate, no commingling of funds,” he says. Owners should also sign documents in their business capacity, using their title.
For entrepreneurs watching every dollar, legal planning can feel like an expense to postpone. Schuster recommends bringing an attorney in “before you start to spend a lot of money.” “I think all of this should be discussed and agreed upon before you really start,” he says. “And it’s good to have it on paper.”
Produced by the Chronogram Media Branded Content Studio.
