6 Key Legal Questions For Business Startups In Arizona

Expert Business Attorneys Share Questions To Consider If You’re Planning To Start a Company In Arizona

If you are looking to start your own business in Arizona, you probably know that there is a lot of work that goes into the planning phase, long before you open for business. Planning the ins and outs of what you’re going to offer and how, marketing strategies, etc., takes time and effort. When the planning is done, you can rightfully feel excited to finally begin operating your business. Before you do, though, here are six questions you should seriously consider for your business startup.

1. What Kind Of Entity Should I Use For My Business?

This is the first question because the answer to this one will shape a lot of the answers to the following questions. You can operate your business through a variety of different entities: partnership, sole proprietorship, corporation, limited liability company, and more. We’ll cover the basics of the three most common types here.

a. Limited Liability Company

This is the most common entity for the average business startup. Without going into all of the legal details, limited liability companies allow you to be taxed like a partnership (usually a good thing) while simultaneously helping you avoid personal liability like a corporation (also a good thing). Limited liability companies in Arizona are governed by Arizona’s Limited Liability Act, which provides certain default provisions for how your limited liability company will be governed. Many of these provisions can be altered in your operating agreement, so getting good legal advice at the organization stage is crucial.

b. Partnership

A partnership consists of two or more people going into business for profit together. Partnerships can be created officially by following Arizona’s partnership laws, as well as unofficially, simply by having two or more people go into business together. In fact, it’s possible you could be part of a legal partnership without even knowing it.

A partnership allows for what is called pass-through taxation, meaning income from the partnership goes directly to the partners, only being taxed once (unlike a corporation where the income is taxed once to the corporation and then again when it is paid out to the shareholders). However, in a partnership, a partner is generally personally liable for the obligations of the partnership, as well as the actions of other partners. Special kinds of partnerships, called limited partnerships, can alter these liability rules.

If you think a partnership might be a good fit for your business, you should discuss your plans with an experienced Scottsdale business attorney who can help you set up the best kind of partnership for your needs.

c. Corporation

Corporations are what many consider the “classic” business entity. A corporation is owned and controlled by its shareholders, who receive distributions from the corporation of the business profits. Shareholders are also protected from liability from actions of the corporation and its employees. Shareholders typically elect a board of directors to oversee the management of the corporation.

Even if you think a corporation is a bit “large scale” for you, this can still be a good option depending on your business. It is also possible to start your business as one kind of entity and later reorganize if that makes sense as your business grows.

Whatever your situation, it’s a good idea to consult an attorney experienced in business entity creation at this stage of your business planning. The various kinds of entities come with their own individual benefits and drawbacks, and you’ll want to operate through the kind of entity that makes the most sense for your business. An experienced Arizona business attorney can walk you through the nuances of each different kind of entity (including ones not explained in detail here) and help you choose the entity best tailored to your business.

2. Who’s Going To Be Running My Business, And How?

This question will be heavily influenced by your answer to question number 1, but generally you will need to decide how and by who certain roles are going to be filled. For example, who will be responsible for the day-to-day operations of your business? Who will be the ultimate decision-maker? Will it be multiple people? If so, how is that going to work?

Starting a business is a huge investment, and you want to make sure that control of the business is in the right hands. A proper understanding of who’s going to be running your business and how will help you operate your business confidently without any unpleasant surprises later down the road. Clearly establishing legal ownership and control of your business is a must, and a quality business attorney in Phoenix can help you set up ownership and control in a way that will help you keep your business running the way you intend it to.

3. How Do I Choose & Protect a Brand Or Trade Name?

Choosing a brand or trade name for your business is an important step for any start-up. Many people planning on starting a new business already have an idea as to what they want for a brand or trade name and may even have ideas and drafts for logos and other identifying information. However, few things can be more disappointing than operating your new business under your dream trade name only to discover later that that trade name has already been registered by someone else.

This is why carefully considering the legal implications of your new business’s trade name or trademark is so important. You want to make sure you’re not infringing on someone else’s intellectual property rights, which can lead to potentially serious legal problems. In the same vein, you want to make sure that your business’s trade name or trademark and other intellectual property is adequately protected. Here again, an attorney with experience in both business and intellectual property can help you find an available trade name or trademark and help you protect it so that your business’s brand remains unique to you.

4. How Should I Handle Adding New Equity Holders To My business?

For any business, bringing on a new equity holder is a big decision. However, for a new business just starting out, that idea may seem like something to worry about later, a decision not relevant yet. The truth is that many businesses do find themselves bringing on new equity holders early on, and good planning from the beginning can make this process much easier.

The questions you want to be asking yourself in relation to this issue is how is this going to happen? Are current equity holders going to have to vote to allow new equity members to join the business? If so, will it require a majority vote? Unanimous vote? How does a new holder’s interest affect the interest of existing holders? These questions and more need to be considered so that if or when the time comes to bring on new equity holders, the process is clear, helping the transition to be smoother.

5. How Should I Handle Equity Holders Leaving My Business?

Just like the question of bringing on a new equity holder, your business needs to be ready to handle how to part with an equity holder. An equity holder might leave your business for a variety of reasons, but you want to make sure that the outcome isn’t a surprise to you and that you can continue running your business through it all.

For example, you’ll want to consider under what circumstances an equity holder can leave your business voluntarily, and what happens to their equity interest when they do. Is the company going to buy it back? Can the leaving equity holder sell their interest to someone else? Similarly, you want to think about what circumstances will lead to an equity holder relinquishing, or being forced out, of the business. What if they declare bankruptcy? What if they are found to be competing with your business? And, in that case, what happens to their equity interest? Also, can an equity holder be voted out? Consider that you will likely want provisions that will protect you from having someone else oust you from your business, but which also allow you the flexibility to sell your interest in your business if you choose to do so.

6. What Kind Of Employee Agreements Am I Going To Need?

Operating a business usually means hiring employees (possibly including yourself) at some point. Depending on the kind of business you plan to operate, you may need different kinds of employment-related agreements. Two major types to consider are (1) non-competition agreements, and (2) non-disclosure agreements.

Most people know what a non-competition agreement is. It’s an agreement where an employee agrees not to compete with his employer after he stops working for that employer. These can be important depending on your type of industry and whether your employees will have access to, or learn, important information which could give them or your competitors an edge against you.

Non-disclosure agreements are agreements where an employee agrees not to disclose certain confidential business information that the employee receives while employed by the employer. This can include client information, business know how, proprietary software or other information and much more. These kinds of agreements can be especially valuable if your business is going to rely on proprietary information or methods to give it an edge in the market. You’ll want this information protected so that it doesn’t get leaked and become available to everyone else operating in your business market.

Starting a business is no easy thing, and doing so successfully is even more work. Asking yourself the above questions will help you get a good legal footing for the operation of your business. However, there a many more legal implications when it comes to opening a new business, and the best option is always to consult with an experienced Gilbert business attorney. The investment you make up-front to ensure your business is built on a strong legal foundation will pay off many times over during the life of your business.

Contact Qualified Business Attorneys In Mesa Or Scottsdale

The attorneys at Denton Peterson Dunn have decades of experience in business law and consulting. We have helped countless businesses get up and running, protect their intellectual property, deal with commercial litigation, and more. We can help you get your business off to the best possible start. If you’re thinking about starting up your own business, please contact us at 480-325-9900 or [email protected] to see how we can make sure your business gets the help it needs from day one.

Brad Denton – Denton Peterson Dunn