The document discusses several critical legal considerations that should be addressed in a comprehensive business plan. It notes that legal issues are an integral part of any business and should be considered early in planning. The document outlines several key legal topics that should be covered in a business plan, including corporate structure, licenses and registrations, contracts and agreements, intellectual property, and risk management. Incorporating these legal viewpoints helps ensure all factors impacting the business are considered and saves founders time, effort and money.
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Custom Business Plans: Critical Legal Considerations
1. Custom Business Plans: Critical Legal Considerations
Richard L. Daniels – JD/MBA
OptimalThinking.com
The objective of a top-tier business plan is to achieve the strongest actionable
guide or blueprint for a new business venture. A premier investment plan is an all-
inclusive business plan with an additional purpose: it lays out the case for potential
investors to put their funds to work. Such business plans fully describe the vision of the
owners, the underlying compelling proposition, and all aspects of the organization,
including specific legal implications. Perhaps most significantly, a first-rate custom
business plan unequivocally portrays the company’s commercial viability.
When entrepreneurs and business executives begin thinking about launching a
new company, they usually focus on the overall strategy, company name, finances, and
how to market their product or service. While all these matters are important and part of
business planning, legal considerations are often neglected.
In today’s sophisticated and highly regulated environment, legal issues are an
integral part of any business and play an important role in a well crafted business plan.
Incorporating legal viewpoints into a business plan achieves a number of purposes; it
forces the founders to think through each and every factor that impacts the overall
operation of the business. Considering these legal implications during the development
of the overall strategy and including them in the plan, results in savings of time, effort,
and money.
Legal topics that are best integrated into a comprehensive business plan include:
1) The company’s corporate structure
2) Licensing and registration of the proposed business
3) Contracts and agreements that enable the business to run smoothly and
profitably
4) Development and protection of the company’s intellectual property
5) Risk management
While this is by no means an exhaustive list of the legal issues facing a new
business, it is a good start to assist the founders in launching their venture. Describing
how the proposed company will address each of these areas will make the business more
attractive for investment and assist the founders in implementing the company’s strategy.
Corporate Structure
A threshold question when starting a new business is, “Which legal entity is most
advantageous to the proposed firm?” By answering this question early on, ownership of
the new organization can be settled. The business plan should explain the corporate
structure and why it will be most suitable for the business. Moreover, a narrative of how
the founders have taken the appropriate steps to create the entity, and compliance issues
are usually addressed.
2. Three different entities that can be utilized to structure a new business:
1) Sole proprietorship
2) Partnership or a limited liability company (LLC)
3) Corporation (either an “S” corporation or “C” corporation)
A sole proprietorship is the most cost effective entity and requires the least
amount of legal documentation. However, a sole proprietorship subjects the owner to
personal liability.
If a partnership is utilized, then a partnership agreement must be prepared, setting
forth the responsibilities and potential liabilities of each partner, and whether any partners
are general versus limited partners.
If an LLC is the chosen entity, then additional documents including an operating
agreement must be prepared and properly filed.
Finally, if the proposed business is a corporation, a decision as to whether an “S”
corporation or a “C” corporation is most in line with the business must be made, and
whether the company should be privately or publicly traded. A corporation can be useful
in avoiding personal liability for the founders of the company.
The business plan should describe the chosen corporate structure, explain why it
will contribute to the success of the business, and document the steps that have been
taken to satisfy the legal requirements.
Many entrepreneurs do not plan to operate as a corporation due to the complexity
and start up costs. However, once the business is successful, transitioning to a corporate
structure can be contemplated within an updated business plan.
License and Registrations
In order to operate legally in most forums, licenses and registrations are required
by various governmental agencies. Understanding these legal obligations prior to writing
a business plan requires the founders to think about their business from a practical
standpoint. Documenting the legal requirements that must be met in order to conduct
business proves to investors that the founders have executed due diligence. This vital
requirement of a professional business plan, not only attracts investors, but also serves as
a guide to the founders before the company even opens its doors.
Contracts & Agreements
Companies need numerous agreements and contracts to operate optimally. The
strategy and operations of the new organization determine which contracts and
agreements are needed. The drafting of these contracts and agreements is a key factor in
the success of the business. Baseline considerations include:
• leasing space versus buying property to house corporate offices
• the key executives necessary for the success of the business
• sales and distribution channels to deliver the products or services
3. The above list represents just a few of the central questions that need to be addressed.
Once these determinations have been made in conjunction with the company’s overall
strategy, the business plan should reference important terms of these contracts and
agreements.
Development and Protection of Intellectual Property
In today’s very complicated commercial environment, it is crucial to determine
which intellectual property (IP) is necessary for the proposed business, and confirm
whether it can be owned and protected. New companies must file patents on new
technologies, ensure their proposed brand, company and domain names are available and
are protectable by trademark. These steps are essential to determine if the proposed
business is viable. For example, if a patent cannot be issued on an underlying technology,
then the proposed business may be of no value.
Once the IP is developed and protections are in place, the business plan should include a
summary of the IP as a business asset. Inclusion of the IP summary comforts investors
that the company’s valuable IP is safe. There have been too many situations where
companies have failed to secure their IP, resulting in a great deal of time and money to
rebrand and develop new IP. These unnecessary delays and costs are always considered
and addressed in a first-rate business plan.
Risk Management
It is important to factor in the types and limits of insurance necessary to protect a
new business. Additionally, when entering into contracts with third parties such as
product manufacturers, raw material or component part suppliers, or other vendors who
may subject the business to future liability, the insurance needs should be thoughtfully
considered and addressed in contracts. A description of the types of insurance required,
including their limitations, demonstrates the forward thinking of the founders. They have
considered potential liabilities and have put in place protections against these
contingencies.
Conclusion
A comprehensive business plan is critical to operate and grow a new business, and
obtain necessary funding. A top-notch business plan enables the founders to thoroughly
present their vision, both internally and to prospective investors. By including relevant
legal considerations, the founders demonstrate the maturity and business savvy to impress
existing and potential stakeholders.
. . .
Richard (“Rich”) L. Daniels is an experienced legal executive who provides strategies
and solutions to maximize business operations, mitigate risk, and minimize costs. As a
distinguished member of the OptimalThinking.com business plan writing team, he
4. develops revenue streams by structuring business plans and contracts to the best
advantage of clients.
For more information about custom business plans from OptimalThinking.com, visit
https://www.optimalthinking.com/business-writing-services/business-plan-writing-
service/ or call 1-424-204-6133.
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