3 legal tips that lead to victory
On Aug. 16, 2008, a young Jamaican named Usain Bolt lined up for the men’s finals of the 100-meter sprint at the Beijing Summer Olympics.
His technique had already been honed. His start would be important. And his skill would be crucial.
Blazing down the track, Usain finished the race in 9.69 seconds — a new world record.
Despite his speed, Usain wouldn’t have won the race if he had used a standing start. He pushed off on the right foot and was set to maximize his effort and achieve the desired end.
Business is a race.
You need to start right, have the drive and technique to run the company properly, and have the end in mind. This approach could mean the difference between a successful company and one that stumbles out of the gates and never recovers.
Getting off the line
“Before an idea leaves your head, you should know what your business identity will be,” says Justin Heideman, a partner with Ascione, Heideman & McKay in Provo. “It gives you more direction with regard to an exit strategy, because everyone involved can buy-in before things get going.”
Knowing what your business is helps to get it off on the right foot and puts you on the path to success.
The two most common types of business identity are corporations (more specifically, S Corporations and C Corporations) and limited liability companies (LLCs). When determining what type of business is best for you, the two main areas of consideration are tax advantages and liability advantages.
When thinking of corporations, many Utahns envision tall glass buildings, suits and abbreviations scrolling down the side of a stock market ticker. While it’s true that all publicly traded companies are required to be C corporations, you don’t have to be a particularly large company to be a corporation.
Corporations typically enjoy more tax breaks than LLCs, but they are more complicated to run, have more detailed rules for tax and legal requirements, and require impeccable organization.
LLCs typically enjoy the majority of — although not all — the tax breaks offered to corporations, but they make it easier for a business owner to limit liability. In fact, Justin estimates about 80 percent of the businesses he sets up would be best suited as an LLC.
“The corporate veil is just too easy to pierce,” Justin says. “Most people that run a small business don’t understand the formality of corporations. There is a litany of things you need to do to protect the corporation.”
Which emphasizes the importance of running your company the right way.
Hitting your stride
Improper corporate governance is one of the easiest ways attorneys pierce the corporate liability veil. Corporations — regardless of size — are required to hold numerous meetings, including regular board meetings, annual shareholders meetings and an election of officers. They are also required to keep minutes of these meetings and ratify those minutes.
“They also need really clear books,” Justin says. “There needs to be separate accounts and bookkeeping to make sure everything is done properly.”
Proper governance usually involves the watchful eye of an attorney and an accountant, because missteps can turn into a lack of protection from liability.
LLCs don’t have the legal formality of corporations. They can be more relaxed in some of those areas and maintain the liability protection desired by business owners. However, just because those meetings aren’t required doesn’t mean LLCs can’t benefit from them.
“I still suggest businesses hold meetings and keep minutes because it’s healthy for a company,” Justin says.
It’s all part of hitting the stride to win the race.
While Usain Bolt didn’t have to rely on leaning at the finish line, he still had a clear understanding of where the race ended. Knowing in the beginning where you want to be in the end will help you communicate plans, work together as business associates and avoid complications.
“After you get going, it’s tough to get a business strategy everyone can agree on,” Justin says. “You need to know what everyone on the team thinks right from the start.”
When you do cross the tape, it’s more likely your business will be a winner if you follow these tips. UV
Ascione, Heideman & McKay, LLC is full-service law firm that focuses primarily on business litigation, contracts, real estate transactions and estate planning. The firm’s clients include many established and growing businesses, and it has offices in Provo, St. George and Price.