The term “startup” refers to a company in its early initial stages of operation. Startups are founded by one or more entrepreneurs who want to develop a product or service for which they believe there is demand. Startups typically require several years to make a profit, so significant, high-risk investments that are not sure to pay off are typically needed to get one going.
A Florida lawyer consultation with a Florida lawyer would assist a person understand the demands of starting a new business.
In Florida, How Are Business Startups Financed?
Creating a startup depends on small business financing, of course. Startups can be financed in a variety of ways. The entrepreneurs who wish to start a business may finance it with investments of their own personal funds. A startup is often a small business that may not need huge resources for its initial development.
They may obtain their startup funding from other individual investors, so called “angel investors,” who would want an ownership interest of some kind in the business. The entrepreneurs may obtain loans from other private sources, e.g., venture capitalists, crowdfunding, or from government agencies.
Startup lawyers can explain that startups require funding from sources outside the revenue of the business itself, because they have high costs associated with establishing their business and, of course, limited revenue in the early stages.
The very first round of funding is referred to as “seed capital.” These are the initial funds that are used to cover the costs of developing the business idea, including such expenses as creating a business plan, renting space, renting or buying needed equipment, and performing research and development.
People often turn to family members, friends, and colleagues to obtain seed capital because others outside of a personal network may not be willing to take the risk of losing money if the startup is not successful.
Angel investors, who are individuals with a high net worth, may provide seed capital either through loans or by taking an equity stake in the start-up, offering startups better opportunities for growth and development.
Seed capital allows a business idea to advance to a stage where it can attract funding from venture capitalists. Venture capitalists can provide large amounts of financial backing for further development.
A startup generally progresses through four stages of funding, i.e., seed capital, venture capital, mezzanine financing, and an initial public offering (IPO), with each stage building on the success of the previous one.
Commercial banking sources of funds usually do not come into play until a company has started generating significant revenue on a regular basis.
What Are Important Things To Consider When Creating a Startup Business in Florida?
Investors are going to want to see a startup’s business plan before they invest their funds, so the first important step is to create a solid business plan for the new business. The plan should project the business’s activities for the next 3 to 5 years. It should set annual milestones and describe how the business plans to reach these. It should include revenue projections.
The entrepreneurs then want to consult the plan as they go along. They need to review the key elements of their business, analyze them objectively, and work on perfecting their decision-making. This needs to be done on a regular basis.
The federal U. S. Small Business Administration (SBA) provides entrepreneurs starting a small business with many resources to help them establish a startup enterprise. There is a tool to aid them in formulating a business plan. In addition, people involved in a start-up can meet with a mentor or counselor from an SBA partner, e.g., the Service Corps of Retired Executives (SCORE).
A startup then must find a location. This is a more important issue than one might think. Among the factors that entrepreneurs would want to consider are the following:
- Image: The image that the business wants to project and how their location might add to or detract from that image.
- Transportation: The location should serve the convenience of customers in interacting with the business. In addition, the business wants to consider the kind of access that suppliers need to have.
- Employees: The location should provide access to a local labor market that can provide the startup with employees whose qualifications match their needs.
- Future Growth: If the startup expects to grow in the future, the founders want to consider whether their first location enables that growth.
- State and Local Regulations and Zoning Laws: Entrepreneurs want to do thorough research about state regulations and local zoning laws that may affect their ability to do business as they wish in accordance with their plan.
A startup also wants to consider a name that works for its marketing plan and methods.
What Are Some Legal Issues That May Come up When Forming and Operating a Startup in Florida?
Perhaps the most important issue is the business structure that the founders choose for their startup. The type of business structure they choose has a direct effect on how much the partners pay in taxes, the amount of paperwork the business must complete, the amount of control they have over their business, the amount of personal liability for which they are responsible and the ability to raise money.
Florida’s Department of State (DOS) can help founders register their business. Some common types of business structures include the following:
- Sole Proprietorship: This is a business that is not incorporated and is essentially owned and operated by one person. Others may be involved but would have the status of employees. A sole proprietorship is easy to set up and easy to dissolve. The sole owner reaps all the profits, but is also responsible for the liabilities of the business. All business incomes and losses are reported on the owner’s individual income tax return.
- Partnerships: General and limited partnerships are an option. In a general partnership, all partners have the authority to actively manage the business unless the partners have a partnership agreement that provides for something different. Partners in a limited partnership should have a partnership agreement and both limited and general partners.
- Limited partners invest in the business but do not actively manage it. They also do not have liability for the debts of the partnership. The partners each report business income on their individual federal income tax return. Florida law requires limited partnerships to register with the Florida Department of State, Division of Corporations.
- Limited Liability Company: Limited liability companies (LLCs) combine the features of partnerships and corporations. In Florida, LLCs combine the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation. On the federal level, LLCs with more than one member file a partnership return unless they elect to classify as a corporation. An LLC must also register with the Florida Department of State, Division of Corporations.
- Corporation (Subchapters C and S): A corporation is a legal entity that is separate from its owners to whom it offers the advantage of limited liability. Corporations can be parties to contracts, loan and borrow money, sue or be sued. Of course it pays corporate tax on its revenue.
- A corporation must register with the Florida Department of State, Division of Corporations. Florida allows 2 kinds of corporations, the C-Corporation and the S-Corporation. A C-corporation pays taxes on its revenue and assumes liabilities. Up to 75 shareholders can share the income and expenses of an S-Corporation. The shareholders then report the income and expenses of the S-Corporation on their individual income tax returns.
Choosing the right form of business is one of the most important legal issues that arises during the startup phase of business development. There is a complex set of factors to consider when choosing a legal form for a new business. Key among them are tax and liability issues.
Another legal issue is that the founders may enter into a variety of contracts in the course of establishing their business. They may execute leases to rent space, hire employees or consultants, purchase office supplies and equipment. All of these contracts should be drafted by a Florida lawyer to ensure that they serve the startup’s interest.
Protecting any intellectual property that may be key to the startup’s business, e.g., trademarks, copyrights, patents and the like, would also be critical and require the services of a Florida intellectual property lawyer.
Do I Need a Lawyer for Setting up My Startup Business in Florida?
If you are setting up a startup business in Florida, you want to talk to a Florida corporate lawyer. Your lawyer can advise you as to all the tasks you need to complete to begin your startup. They can help you choose the correct legal form and draft the documents and contracts you may need. You will get your startup off to the best possible start with the best legal advice and legal documents.
