Law in the Marketplace: Tips when starting up

Published: 2/3/2020 8:51:59 AM

Today, I’m resuming “Law in the Marketplace,” a business-focused column I wrote for the Monitor in the 1990s.

If you have business or tax questions you’d like me to address in this monthly column, call me at (603) 856-7172 or e-mail lawjmc@comcast.net. But please be aware that my goal with this column is not to provide legal advice. Instead, my goal is to give readers a better understanding of an often complex business landscape.

I’ll be writing this column in a Q&A format, so I’d love to hear from Monitor readers. Otherwise, I’ll be framing the column with questions I often hear from my clients.

Q: You and a friend are starting a new business in New Hampshire. What’s your advice for New Hampshire business founders?

A: In this column, I can’t give legal advice, but here are some thoughts:

■Write a business plan. You’ll be amazed at the issues you’ll discover that you’d never otherwise have foreseen.

■Pick a great name for your business. This will almost always mean the name that is best from a marketing point of view. But make sure the name you pick is legally available. To do so, visit Google, the website of the Corporation Division of the New Hampshire Secretary of State, and trademark search function of the U.S. Trademark Office. The Corporation Division’s link is sos.nh.gov/corp_div.aspx. The link to the Trademark Office is uspto.gov/trademark.

■Pick the right New Hampshire business organization form for your business. You can form it as either a partnership, a corporation or an LLC. Don’t form it as a partnership; if you do and if anyone ever makes a claim against it, your own and your friend’s personal assets will be at risk.

Both LLCs and corporations can protect you from this risk. However, corporations are more complicated and less flexible than LLCs legally, and distributions of profits from corporations to New Hampshire business owners are subject to the New Hampshire Interest and Dividends Tax. You can avoid this tax with a properly structured LLC. For all these reasons, an LLC is almost certainly the best entity for your business.

■Before you form your LLC, choose the right federal tax structure for it. The choices are partnership taxation and taxation under Internal Revenue Code Subchapters C or S. The choice is often complex, but the tax stakes can be substantial. So get the help of a tax professional.

■Hire a lawyer with legal and tax expertise to draft an LLC operating agreement between you and your friend. A well-drafted operating agreement will address many important legal and tax issues not covered by the New Hampshire LLC act.

■If your business will be based to any significant extent on trademarks, trade names, inventions or confidential business processes, talk with an intellectual property lawyer about how to protect these assets.

■Right from the start, put aside at least a small portion of your business income in a SEP-IRA or other tax-favored retirement plan. Get the help of a tax professional to pick the right kind of plan.

■If you have an estate planner, ask him or her whether your business formation plans fit your estate plan. And if you don’t have an estate plan, get one. A good time to do so is when you’re starting a business.

■Make sure that from the start, you’ve got all the business risk insurance you’ll need. To meet this need, call an insurance professional.

John Cunningham is a Concord tax and business lawyer. He has published “Limited Liability Company Operating Agreements” and “Maximizing Pass-Through Deductions under Internal Revenue Code Section 199A”. Both are the leading books in their fields.




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