FAQ

What kind of business entity should I choose when starting a business? 

Depends on what your objectives are for your business. If you want to keep a small business like a one person business or a lifestyle business, forming an LLC is a relatively low cost and easy way that will protect you from unlimited, personal liability. If you want to hire many employees, raise money and build up a sizable business, a Corporation is typically a better choice. See also 


What’s better for my company, a LLC or a Corporation? 

An LLC is 1) typically cheaper, 2)  is a tax “pass through” entity and 3) has less formality requirements such as having a board of directors and going through formal procedures such as holding regular board meetings.  A Corporation is better if you want to 1) raise money 2) build a large company with many employees and investors and 3) get acquired or go IPO some day. 


Should I incorporate when starting a business? 

Depends on your line of business but mostly yes.  The biggest advantage of forming an LLC or a corporation is that you are shield from being personally liable for anything that the business does or causes.  If your business causes damages or injuries, the creditors won’t be able to go after your personal assets.  There are certain professions where the person running the business is always personally liable, for example, lawyers and doctors.  In that case, they are better off forming a partnership or a limited liability partnership if they plan to have partners. If they plan to have a one person business, then having a sole proprietorship vs. incorporating has minimum impact for them. 


What does “limited liability” mean for a business? 

A limited liability company or a corporation shields the owner of the business from “unlimited liability”.  This means, if the business does something wrong, the creditors of the business can only go after the business’s assets, but not the owner’s personal assets such as personal bank accounts or personal property.  This is important because if the business has the potential of a large risk exposure, incorporating into a separate entity and having limited liability for the owners can protect the owners from lots of potential losses and risks. 


What are the key provisions for a business contract with suppliers or vendors? 

Key things to note are: 1) price 2) payment terms 3) warranty 3) indemnification 4) limitation of liability 5) termination 6) term (how long the contract lasts) 7) miscellaneous items such as insurance, force majeure, jurisdiction/choice of law etc.  


What is a Non Disclosure Agreement?  Why must I have one? 

A nondisclosure agreement, aka NDA is an agreement that describes the obligation of a party receiving confidential information from you to not disclose such information to others.  This is important because this is your only effective way to protect your intellectual property and other knowhow confidential information (such as customer information), unless you have a trademark or patent.  Typically a party is required to sign a NDA before you share your confidential information with them. If they don’t want to sign one, then you should limit  your disclosure or discussion to non critical, generic information that doesn’t compromise your IP. 


What are the things I need to protect when starting a business? 

The first thing you need to protect is the company’s assets, both tangible and intangible.  You can put in place measures such as insurance, shareholder agreement and non disclosure agreement.  For intellectual property, also ensure to obtain trademarks, copyrights and patents in a timely manner.  Finally, protect your company from employee lawsuits by putting in place an employee handbook, training about appropriate manager behavior and proper hiring and firing processes. 


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