What’s the Most Important Thing I Should Do When Starting My Business? Pt. 4

Item #4 in the Legal Checklist for Startups is to define your “where.” This doesn’t just mean figuring out what state you want to work in, there are more intricate details that you’ll have to work your way through.

You “where” can be broken down into three parts.

1. Where do you want to work?
2. Where do you want to register your business?
3. Where will your customers be?

Let’s take a look at each part in more detail.

“This doesn’t just mean figuring out what state you want to work in, there are more intricate details that you’ll have to work your way through.”

WHERE DO YOU WANT TO WORK?

First, where do you want to work? We’re not just talking about what city or state you want to work, we’re talking about your specific location. The main options here include retail space or office space.

If you are selling hard goods, then you will more than likely need a retail space. Operating your business out of a retail space opens up your business to potential liabilities if someone gets injured in your store, so you’ll want to make sure proper legal protections, like insurance, are in place.

You’ll also need to think about a commercial lease and negotiating that lease. Another factor that you’ll obviously need to consider for any retail location is advantages and disadvantages of that space. For instance, do you want to be in a location with a lot of pedestrian foot traffic? If so, monthly rent will probably be much higher than a place that is off the beaten path.

When selecting a retail space, it is important to weigh the pros and cons and estimate the eventual impact on your business.

If you are in the service business or another profession industry, you may not need a retail space and opt for an office space instead. There are a few factors to consider when selecting an office space that will affect your legal and financial decisions.

For instance, do you need a space for a large group, or just a few key individuals? How much do you want to grow your team? This is a decision that will be affected by defining your who, which we talked about in the previous section.

If you’re going to have an office, will a virtual office suffice? Virtual offices can be a great way to keep expenses low while maintaining the benefits of a physical office space. A virtual office is a place where you can receive mail or rent out conference space while working remotely from your home or other office location.

Speaking of other office locations, coworking spaces are growing in popularity. Coworking spaces can offer a great environment for collaboration and can lead to random interactions with other small businesses. Many coworking spaces also have private offices within the larger coworking space, so you can have the privacy of a personal office with the benefits of a coworking space.

If you do want your own private office, you need to consider potential liabilities if someone is injured at your office. You’ll  also have a commercial real estate lease to consider. If you have a long-term commercial real estate lease, it is not uncommon for landlords to ask for a personal guarantee, especially for new business owners. If your landlord requires a personal guarantee, it is imperative that you fully understand the agreement and what it means for your personal finances.

WHERE SHOULD YOU REGISTER YOUR BUSINESS?

The second part in defining your where is figuring out in which state you want to register your business.

We previously mentioned that if you are interested in starting a large corporation that you may want to register in Delaware. Many businesses register in the state of Delaware because of their specialized business courts and other advantages for large corporations. But if you have no intentions of growing that large, you may not need to go through all the trouble to register in a different state. Registering in your own state is likely to be perfectly sufficient.

In most instances, registering in the state where you live and work makes the most sense. But with all major business decisions, it is never a bad idea to consult with a professional.

WHERE ARE YOUR CUSTOMERS?

The third part of defining your where is to determine where your customers are. If you are a small retail business, your customers may only be in your state. But it is becoming more and more common for businesses to interact with customers in other states and even in other countries.

If you are selling a product or service across state lines, you could become subject to the laws of those other jurisdictions.

For example, if you’re selling a product out of Colorado to people in other states, there is a possibility that you could get sued in those other states because you’re choosing to do business in those states. The law will say you’re purposefully availing yourself of business contacts in those other states.

We’ll later talk about determining your industry-specific regulations. If you’re doing national or international business, you’ll need to think about how laws in those areas could potentially affect your business.