Starting a business

Starting a Business

  • Considerations for Business Name:

    • Check the availability of a good domain name for a website.

    • Ensure the name is distinct enough to avoid trademark infringement.

  • Business Location Options:

    • Decide between having a physical office location or operating remotely.

    • Consider the trend shifting towards more remote businesses.

  • Physical Presence:

    • Determine whether to:

    • Purchase a location.

    • Rent a location.

  • Communication Options:

    • Decide on communication methods such as:

    • Landline

    • Cell phone

    • Google Voice number

Business Registration

  • Register the business to appear on Google Maps, etc.

Choosing a Business Entity

  • Business Entities Overview:

    • Consider different types of business entities including:

    • Sole Proprietorship

    • General Partnerships

    • Limited Liability Company (LLC)

    • Corporations

    • Understand that most types require filing with the Secretary of State to validly exist.

  • Formation of LLC:

    • File Articles of Organization with the Secretary of State.

    • In Tennessee, this can be done online in about ten minutes if all information is ready:

    • Business name

    • Address

    • Registered agent information

    • Number of members

  • Articles of Organization Key Points:

    • Example includes specific business entity types, e.g. Professional Limited Liability Company (PLLC).

    • Registered agent can be an individual or a business residing in Tennessee.

    • Duration of the LLC is perpetual unless dissolved.

Business Agreements and Identification

  • Operating Agreements:

    • Partnerships require partnership agreements.

    • LLCs require operating agreements for internal governance.

  • Employer Identification Number (EIN):

    • Necessary for tax identification purposes.

    • Can be obtained online.

    • Must designate a responsible party (often using a Social Security number).

    • Not necessary for sole proprietorship unless dealing with certain tax matters.

  • Tax Licenses and Registrations:

    • Application for relevant tax licenses is essential.

    • Health department inspection may be necessary for certain businesses.

    • Almost all businesses require a business tax license, often at the county level.

    • LLCs must also handle franchise and excise taxes.

Opening and Managing the Business

  • Additional Steps:

    • Obtaining necessary insurance.

    • Opening a bank account for the business.

    • Choosing software for accounting, payroll management, and business operations (e.g. QuickBooks).

    • Consider trademark registrations if necessary.

  • Annual Responsibilities:

    • File annual reports to keep the LLC active by April 1 each year.

Planning for Business Continuity

  • Exit Strategy Considerations:

    • Consider scenarios if unable to run the business, such as:

    • Selling the business.

    • Involuntary transfer of interests due to bankruptcy, retirement, or incapacity of owners.

  • Planning Decisions:

    • Restrictions on transferring business interests.

    • Methods of valuing interests for sale.

    • Designate successors in the case of incapacitation.

Nonprofit Corporations vs. For-Profit Corporations

  • Formation Process for Nonprofits:

    • Similar to for-profits, starting with filing Articles of Incorporation.

    • Initial meeting required to appoint the board of directors and adopt bylaws.

  • 501(c)(3) Status:

    • Apply to the IRS for tax-exempt status.

    • Organization must be for charitable, educational, scientific, or religious purposes.

    • Upon dissolution, remaining assets must go to another charitable organization.

  • Limitations on Nonprofits:

    • Cannot engage in political campaigning or partisan activities.

    • Must not benefit private interests or individuals (excess benefit rules).

    • Must have conflict of interest policies in place.

  • Public Charities vs. Private Foundations:

    • Public charities raise funds from diverse sources and must pass a public support test (often from many contributors).

    • Private foundations have more restrictions and derive funding from limited sources, such as one family.

Creditor-Debtor Relationships

  • Distinction Between Secured and Unsecured Debt:

    • Secured Debt:

    • Involves collateral guaranteeing the loan (e.g., a car).

    • Unsecured Debt:

    • Based solely on the borrower’s promise to repay, without collateral.

  • Mechanics Lien:

    • A legal claim against a property that can be made by anyone providing labor or materials for that property.

    • Must be filed within a statutory time limit, such as 90 days in Tennessee.

  • Garnishment:

    • Court order allowing a creditor to collect a debt by seizing the debtor’s property (such as wages).

    • Employers must comply without retaliating against the employee.

Suretyship and Guarantees

  • Suretyship:

    • A third party promises to be liable for the same obligation as the debtor.

  • Guarantee:

    • A third party is liable only if the debtor defaults.

  • Release Conditions for Sureties/Guarantors:

    • Material modifications to the original loan agreement without their knowledge.

    • Surrender of collateral, or full payment of the loan.

Real Estate Mortgages

  • Definition of Mortgage:

    • A written instrument securing a debt with real property.

    • Must address key terms such as interest rate, payment term, and obligations for insurance and maintenance.

  • Foreclosure Process:

    • Legal process through which a lender can repossess a loan-secured property if the borrower defaults.

    • Lenders must follow statutory notice requirements.

  • Options to Avoid Foreclosure:

    • Forbearance: Temporary postponement of payments.

    • Workout agreement: Contractual agreement to avoid foreclosure while negotiating terms.

    • Short sale: Selling property for less than owed on the loan with lender approval.

Sample Questions and Answers

  • Question 1: Can Allison start a nonprofit corporation as the sole owner/director?

    • Answer: No, because the formation of a nonprofit corporation requires at least three directors.

  • Question 2: What should Molly do if Ben refuses to pay for contracting work?

    • Answer: File for a mechanics lien for unpaid labor and materials for property improvements.