OK, you’ve finally started your business… now what?
After you formed a corporation or an LLC, there a few other items on your “to do” list in your first six months of operation in California.
Business Plan
One of the initial tasks for a new business is the development of a business plan. A business plan details the business, including its product or service, market, people and financing needs.
For the new business, a well-crafted business plan helps the owner(s) determine the feasibility and desirability of pursuing the steps necessary to start a business. Business plans should be customized to the specific business situation and should emphasize the strengths of the proposed venture; it should also speak to the potential problems and challenges to be faced.
Owners’ Agreement
If you have a business partner or co-owner, you must create an operating agreement (for LLCs) or shareholders agreement (for corporations). These documents detail who owns what part of the firm, how profits and losses will be divided, and the designation of roles and responsibilities. Moreover, these owners’ agreements may include the following:
- The contributions or the amount of money that each owner is investing;
- Responsibilities and the accountability or metrics to be used;
- Details of disputes resolution;
- The process for updating the owners’ agreement;
- What happens when an owner wants to leave the company, dies, or becomes disabled and unable to work;
- When an owner divorces; or
- When an owner goes bankrupt.
Website
If your business is going to have a website and/or an app, be sure you have properly written Terms of Use (or Terms and Conditions) that state the legal agreements for the use of your site. Include user responsibilities and limitations, along with a Privacy Policy that describes the way in which user data is collected, used, and protected.
Client Contracts
A well-written client contract can be essential for a successful working relationship with your customers. Include these important sections: scope of work; terms of payment; the project timeline and milestones; a termination clause; confidentiality and non-disclosure clauses; liability and dispute resolution; and client responsibilities. A comprehensive client contract protects both you and your customers with legal security to both parties.
Taxes
Depending on the type of work you’ll be doing, you may need to register to collect sales tax. The California Department of Tax and Fee Administration’s website allows you to complete your CDTFA business. You can register online for a permit, license, or account for Sales and Use Tax and most of the Special Tax and Fee programs. Using the CDTFA’s online services, you can file a return, make a payment, submit a claim for refund, file an appeal, and other functions.
Obtaining an EIN
Your business must have a federal Employer Identification Number if any of the following are true:
- You have employees;
- You must pay employment, excise or alcohol, tobacco, and firearms taxes; or
- You withhold taxes on income, other than wages, paid to a non-resident alien.
If your company doesn’t need an EIN for federal tax purposes, you can still obtain one for banking and state tax purposes.
IP Protection
Intellectual property (“IP”) can be one of your company’s most valuable assets. This term includes the original concepts, designs, discoveries, inventions, and creative work generated by your employees. You should determine if you have tangible assets that should be protected.
Insurance
Almost all California employers must participate in the state's Unemployment Insurance (UI) program by paying payroll taxes. Unemployment insurance covers employees in all industries, including non-profit agencies, Indian Tribes, state and local government agencies, some domestic employees, and school districts. Employees are also covered if they work for employers that have at least one employee who earns at least $100 in each calendar quarter.
Depending on your business structure, location, and employees, you may consider disability insurance and health insurance. Disability benefits allows short-term wage replacement to individuals who must take time off work due to illness or injury, pregnancy, childbirth, surgery, or alcohol or drug rehabilitation.
Note that disability benefits doesn’t provide job protection, but a position may be protected through other federal or state laws such as the Family and Medical Leave Act (FMLA) or the California Family Rights Act (CFRA).
A new business owner may also want to consider some other types of insurance protection for your company. For example, errors and omissions (E&O) insurance is liability insurance that protects your business from claims of mistake or services you failed to provide. E&O insurance protects your business from customers’ claims of negligence, malpractice, errors, or omissions you allegedly made while providing a professional service. This insurance helps pay for your legal fees and any damages owed or settlements.
In addition, Commercial General Liability (CGL) insurance protects business owners against claims of liability for injuries that occur on the business’s premises, property damage, from products, and personal and advertising injury, such as slander and false advertising.
Onboarding Process
If you are hiring employees, you’re prone to make errors that will impact your business significantly in the future. Require your new hires sign an offer that memorializes acceptance of the position at your company. And make sure the offer letter says if it’s contingent on passing a background check and drug test.
Your new hire packet should include the company’s employee handbook, as well as an explanation of their benefits (e.g., health insurance, retirement plan, vacation time, and sick leave.
Next, review company policies and procedures with them. Give your new employees their job description and review it with them together to eliminate any questions about their responsibilities. Also have them fill out other new employee forms, like an equal opportunity data form, employee contract, W-4 and I-9 forms, a nondisclosure and noncompete agreement, and a direct deposit form.
Takeaway
The list is long and fairly complicated, but it is manageable with the help of an experienced California attorney. Roughly 80% of business relationships fail, so it’s imperative that you start off on the right foot. Contact Eanet, PC for help as you get your new business going.