Business Law 101 / Starting a Business from Scratch

By Albert L. Kelley

Starting a business from scratch is an entrepreneur’s dream. However, it requires an amazing amount of planning, work, and faith.  Of course, this column cannot discuss how to start every type of business, but  there are certain actions which are common to almost any type of business.  

Every scratch business starts with planning.  Planning is not a short term activity.  It is a continuing activity, that only begins at the outset. If it is not done, the business will fail.  I know of no successful business that didn’t start with a basic plan.  I am assuming you have an idea what type of business you want to create.  First you must know whether the principles of the business are required to have certain status, degree or training.  As an example, while it may sound obvious, only lawyers may own a law firm.  If it sounds obvious, why is it an issue?  Perhaps a lawyer wants to make his non-lawyer wife a shareholder in his law firm.  It would not be allowed.  Or what if a lawyer and accountant want to start a law firm to help form new companies.  This would also not be allowed as the accountant (even a CPA), although a professional and relevant to business formation, is not a lawyer.  Nearly all professional companies can only be owned by people holding the appropriate degrees.  But this also has importance for other businesses. Construction companies have to have a contractor; real estate companies must have a broker. For many businesses, no training is required.  There are no required degrees or education to open up a retail store, or a restaurant, or a dog walking business.  If the business requires a status that you do not have, change the type of business you want to create.   

The next decision is the type of business entity you want to use.  There are numerous types of business entities to consider, but the five main entity types are sole proprietorships, partnerships, C-corporations, S-corporations, and Limited Liability companies.  Each type has its advantages and disadvantages.

Many small businesses operate as sole proprietorships.  They are the easiest form of business.  The entity does not need to register with the Department of State unless they intend to use a business name other than the owner’s name; there are no special filings with the IRS.  All income and expenses are listed directly on the owner’s personal tax return. This has two benefits- first, you do not need to pay an accountant to prepare a corporate tax return and a personal tax return.  Second, corporate tax returns are due on March 15, while personal tax returns are due on April 15. So a sole proprietorship has an additional month to prepare their tax returns. Finally, as the sole proprietor, the business owner answers to himself.  

But as with the number of advantages, there are at least an equal number of disadvantages.  As a sole proprietor, the capital of the company is limited to the personal savings of the owner, or what the owner can borrow.  Also, the owner has full liability for anything that happens.  If someone has a slip and fall in the shop, the owner is personally liable for their injuries.  While that can be compensated with insurance, if the damages exceed the insurance limits, everything the business owner owns is subject to seizure (except homestead property). Finally, as a sole proprietor, the business owner may have to work longer hours without someone else to take over occasionally.

Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University.  He is also the author of “Basics of Business Law” “Basics of Florida’s Small Claims Court” and “Basics of Florida’s Landlord-Tenant Law” (Absolutely Amazing e-Books). This article is being offered as a public service and is not intended to provide specific legal advice.  If you have any questions about legal issues, you should confer with a licensed Florida attorney.

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