Business Basics and Law — An Introduction

  1. Value provided: goods, services, partnerships
  2. Organization entity type and location
  3. Governance (management), including risk management, protection, and legal compliance
  4. People
  5. Ownership and financing
  6. Accounting and taxes
  7. Assets (including intellectual property)
  8. Starting your own business?
  9. When to hire an attorney
  10. Conclusion
  11. Additional resources

1. Value provided: goods, services, partnerships

This would be part of your business plan and is not related to law but I don’t like to leave important things out. So here we recognize that providing value is a business’ first priority (elsewhere, I refer to this as business needs and mission, one of my Four Platforms to Connect). To create or continue a business, it needs to provide something of value. Often this value is in the form of goods (products) or services, provided to customers or clients (individuals or organizations). But in general the concept is providing value to individuals, organizations, or even society.

2. Organization entity type (and location)

Entity formation and consideration of entity type and location is an important business consideration. An entity is often desirable and gets “personhood” within the legal system. An entity can enter into contracts, open bank accounts, receive payments, and pay taxes. Creating an entity also reduces personal legal liability (of owners and managers) for acts done by the organization, facilitates investment or financing, and has other benefits.

  • A for-profit organization is (you guessed it) designed to earn a profit for the owners. The company and owners will pay their taxes on that profit (as a general principle).
  • A non-profit organization is designed to do something for a greater public good, and not to enrich individuals. Thus, a non-profit may be exempt from taxes, might be allowed to receive charitable donations (for which donors could get a tax deduction). In exchange for these nonprofit benefits, the organization may need to file financial documents with the government which may be made public (e.g. IRS 990 or NYS Char 500), and also comply with other rules.
  • Sole proprietorship (actually this is not an entity type, but reflects a choice not to create any type of entity, and just do business as an individual)
  • Nonprofit
  • C-corporation (incorporated, Inc.)
  • S-corporation (an election of a small business c-corporation to be taxed a certain way which might be beneficial for some small business owners)
  • Limited Liability Corporation (LLC)
  • Professional Limited Liability Corporation (PLLC) (for example, in NY “professionals” like lawyers and doctors can form a PLLC, but not an LLC)
  • Partnership
  • Limited Liability Partnership

3. Governance (management) (including risk management, protection, and legal compliance)

The organization needs to be governed (managed). In a sole proprietorship this is simple, the individual decides what to do and then does it.

  • Bylaws
  • Articles of Incorporation
  • Charters
  • Policies
  • Standards
  • Procedures
  • Guidelines
  • Manuals
  • Owners
  • Board of Directors (Board of Trustees, Trustees, etc.)
  • Chief Executive Officer, Executive Director
  • Other officers of the corporation and senior management
  • Middle management
  • Lower level management
  • Employees, contractors, interns, etc.
  • How to best fulfill the organization’s mission (for profits need to generate revenue)
  • Protection of the organization and risk management, to include cybersecurity and cybercrime prevention
  • Legal compliance, to include registration, licensing, taxation, consumer protection, employee protection, cybersecurity, and privacy.
  • Do you need a cybersecurity policy for your startup and you can’t afford expert assistance? See my free cybersecurity policy.

4. People

People work in organizations, manage organizations, and are subject to being managed. As we think about laws and issues relating to people, we should consider compensation, contract, employment law, anti-discrimination laws, and privacy.

5. Ownership and financing

An organization may need money (capital or financing) to start, grow, or continue its operations.

  • Personal or organizational loans or financing
  • Pre-seed financing
  • Seed financing
  • Crowdfunding
  • Angel investors
  • Venture capital and private equity
  • Series A round (then, B, C, etc.)
  • Initial public offerings (IPOs) (offering public shares in the company, and subject to securities laws).

6. Accounting and taxes

Lets just say that accounting and taxes are really important.

  • Tracking funds helps with making good business decisions.
  • Organizations need to protect from internal and external theft and fraud. Good accounting helps.
  • When more than one person or organization is involved, all parties want to ensure they are getting their fair share of the profits, and that the accounting is transparent and accurate.
  • The government is always involved, and they want to be sure taxes and filings are being made, and are accurate.

7. Assets (including information assets and intellectual property)

Businesses need to consider their assets and value, which will include:

  • The ability to provide value
  • People (To be clear, people are not “owned” assets of an organization. But having the right people — treated properly — are essential for organizations)
  • Physical assets (buildings, equipment, vehicles, inventory, goods, etc.)
  • Information assets (computers, data, networks, etc.)
  • Intellectual property (copyright, trademark, patent, trade secrets — see my articles on those topics).

8. Starting your own business?

If you are considering starting your own business, or doing periodic evaluation of your business, perform some risk analysis. Consider what input is needed (money and time), what are the chances of success (and failure), and what happens if your new business does not succeed (fails).

9. When to hire an attorney

Unfortunately, hindsight is often the best judge of whether you needed to consult an attorney, find the right attorney, or listen to the attorney’s advice.

  • What decision am I making that affects law and the future of my business?
  • What are the risks?
  • What are the potential threats (negative events)?
  • What are the potential harms from those threats? How costly might they be?
  • What legal actions or results might occur?
  • What (if anything) should we do to manage those risks? Try to change the terms? Walk away from the deal? Find another way?
  • What are the costs for managing that risk? Cost vs. benefit analysis.

10. Conclusion

Understanding business law basics is important for anyone running, creating, or thinking about creating a business. Law never operates in a vacuum, so I try to put everything within the perspective and priorities of what businesses need to think about.

11. Additional resources

This article was originally published on my website at https://johnbandler.com/business-basics-and-law/ where I also include links for additional reading, and it may be more current and with improved formatting.
Copyright John Bandler all rights reserved.
Posted to Medium on 9/17/2022 based on my earlier article on my website. Last updated here on 9/17/2022.

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John Bandler

John Bandler

Cybersecurity, cybercrime prevention, privacy, law, more. Attorney, consultant, author, speaker, teacher. Find me at JohnBandler.com