As a paralegal working in corporate law, understanding business fundamentals is essential to support both startups and the attorneys assisting them effectively. By exploring the following key questions, you can gain a solid understanding of a startup’s background, ensuring thorough and proactive legal support.

1. What Are the Different Types of Businesses?

To provide practical assistance, you need to understand the various types of business structures and their implications. These are the most common types:

• • Sole Proprietorship: A single individual owns and operates the business. It is the simplest structure but offers no personal liability protection.
  • Partnership: Two or more people share ownership. Partnerships can be general (equal responsibility) or limited (one partner has limited liability and involvement).
  • Limited Liability Company (LLC): Combines a corporation’s liability protection with a partnership’s tax benefits.
  • Corporation: A separate legal entity that provides liability protection to owners (shareholders) but is subject to more regulations.
  • Nonprofit Organization: Operates for charitable, educational, or other exempt purposes, and profits are not distributed to owners.

Knowing the differences helps you anticipate the client’s filing requirements, liability considerations, and tax obligations.

2. Who Will Own the Business?

Ownership structure is foundational to understanding a startup’s operations and governance. Ask:

• • Who Are the Stakeholders? Identify key individuals involved:
    • LLC: Members and managers.
    • Corporation: Shareholders, directors, and officers.
    • Other Key Players: Authorized representatives, significant investors, and key employees.
  • How Will Ownership Be Divided? First, you must understand the ownership division and how different divisions can have different consequences. For example, if you want a women-owned business, at least 51% of the company must be owned by women.

Clarify percentage ownership and how decision-making rights are allocated among stakeholders. This will help align the client’s goals and help draft agreements.

3. What Is the Jurisdiction of the Business?

Jurisdiction is the state a business is formed, or registered in as a foreign entity, and determines the entity’s legal obligations and regulatory compliance. Some considerations include:

• • Where Is the Business Formed? Understand the state laws governing business entities, such as registration requirements and annual filings.
  • Will Foreign Registration Be Necessary? If the business operates in multiple states, ensure compliance with foreign registration requirements.
  • Will You Need an Out-of-State Registered Agent? Identify whether a local registered agent is required to accept legal documents in other states.

4. What Will Be the Principal Business Activity?

Understanding what the business does is critical for ensuring compliance with industry-specific regulations. Reflect on:

• • What Products or Services Will It Offer? Familiarize yourself with the market and any regulatory requirements.
  • Are Specific Licenses Required? Research and confirm whether the business needs professional or operational licenses.

5. Will There Be Employees?

Employment considerations impact many legal aspects of the business. Ask:

• • How Many Employees Will the Business Hire? This affects obligations like payroll, taxes, and benefits.
  • What Are the Local Employment Laws? Be aware of laws governing minimum wage, overtime, and anti-discrimination policies.
  • Are Employees in one State or Various States? For each state you have an employee in, you will also have compliance obligations for those states.

6. When Will the Business Commence?

Timing affects legal filings and planning. Consider:

• • What Is the Planned Start Date? Determine when the business intends to launch to ensure timely filings.
  • Is There an End Date? While rare, knowing if a business has a defined duration can help plan for dissolution or renewal.

7. What Is the Long-Term Vision?

A clear vision influences the startup’s legal strategy. Reflect on:

• • What Are the Long-Term Goals? Determine whether the business plans to expand, seek funding, or maintain a small-scale operation.
  • Are There Plans for Future Growth or Funding? Identify whether the entity intends to attract investors or transition ownership, as this impacts agreements and ownership structures.

Definitions to Enhance Understanding:

• • Stakeholders: Individuals or entities with an interest in the business, such as owners, investors, or creditors.
  • Jurisdiction: The legal authority under which the business operates, typically determined by state or federal laws.
  • Foreign Registration: The process of registering a business in a state other than the one where it was initially formed.
  • Registered Agent: A person or company authorized to accept legal documents on behalf of a business.

By asking these essential questions, you’ll deepen your understanding of a startup’s foundational elements and ensure you provide accurate and efficient legal support. This proactive approach will enhance your skillset and strengthen your value as a paralegal, making you an indispensable part of the legal team.

____________________________________________________________________________

This Blog was written by the Harbour Business Law Team

DISCLAIMER: This blog is for educational purposes only and does not offer nor substitute legal advice. This blog does not establish an attorney-client relationship and is not for advertising or solicitation purposes. Any of the content contained herein shall not be used to make any decision without first consulting an attorney. The hiring of an attorney is an important decision not to be based on advertisements or blogs. Harbour Business Law expressly disclaims any and all liability in regard to any actions, or lack thereof, based on any contents of this blog.