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Setting Up a New Business Checklist

by Practical Law
 Related Content
Maintained • USA (National/Federal)
This Checklist is a general guide outlining business and legal issues to consider before
establishing a new business. Issues addressed include selecting legal structure, financing,
choosing a business name and location, hiring employees, obtaining licenses and permits,
supply chain issues, advertising and marketing, intellectual property, and insurance
considerations.
Entrepreneurs, startups, and established companies must each consider many of the same
business and legal issues before setting up a new business. This Checklist provides
counsel with general guidance about some of these issues to facilitate more detailed
discussions with business owners and management about setting up a new business in the
US.
 For additional considerations about setting up a new business outside of the US,
see Establishing a Business in . . .: Country Q&A Tool.

Develop a Business Plan

 At the outset of a new business venture, clearly define the business' objectives in a
concise, dynamic business plan to better communicate these goals to key stakeholders, including:
 lenders and equity investors;
 customers;
 suppliers and distributors;
 management; and
 employees.
 Include in the business plan:
 an executive summary;
 a description of the products or services to be offered;
 a summary of the business' history, management, and goals;
 a profile of the target customer;
 an analysis of the competition and market trends;
 advertising and marketing strategies;
 a list of assets, liabilities, budgets, and time lines; and
 a forecast of sales growth and profits.
 Before disclosing the business plan to outside parties, ensure that a confidentiality
agreement (also called a nondisclosure agreement or NDA) is signed to protect sensitive business
information like:
 marketing plans;
 budgets;
 customer and vendor lists; and
 other intellectual property (IP).
For additional information about confidentiality agreements, see Confidentiality and Nondisclosure
Agreements Toolkit.

Select a Legal Structure

One of the most important decisions in forming a new business is selecting the appropriate
legal structure, which impacts choice of entity, management, liability, taxation, financing,
 and other key issues. After consulting with counsel, management may decide that it will
operate a new business as a division within the existing company or as a new legal entity.
Three common types of business entities are:
 Limited partnerships.
 Limited liability companies.
 Corporations.
For additional information on selecting a business entity, see Choosing an Entity
Comparison Chart (DE). For information about choice of entity tax issues, see Practice
Note, Choice of Entity: Tax Issues.
For information on forming a legal entity, see Practice Note, Forming and Organizing a
Corporation, Forming an LLC Checklist, and Forming a Limited Partnership Checklist. For
information about setting up and managing a corporate subsidiary, see Practice Note, Best
Practices in Corporate Subsidiary Management. Because formation of an entity can trigger
a filing under the Hart-Scott-Rodino Act, see also Practice Note, Determining HSR
Reportability of an Entity Formation.
The new business also may consider entering into a joint venture with another party to
spread costs and risks and improve access to financial resources. For information about
entering into a joint venture, see Practice Note, Joint Ventures: Overview and Forming a
Joint Venture Checklist. For information about compliance with antitrust law when forming a
joint venture, see Joint Venture Antitrust Compliance Checklist.

Finance the Business

 Depending on the type of business entity selected and its financial goals, finance the
business by:
 obtaining loans from a bank or other lender (see Practice Note, Lending:
Overview);
 issuing short-term or long-term debt securities (see Practice Note, Debt
Securities: Overview). To compare basic features of debt securities and syndicated loans,
see Practice Note, Debt Finance: Debt Securities Versus Syndicated Loans ; or
 issuing equity securities (see Comparative Analysis of Methods of Accessing
the Equity Capital Markets: Chart).
Factors affecting the choice between debt and equity include:
 The company's need to retain control over the business. If retaining control is a
concern, but the company is unwilling or unable to take on debt, the company may consider raising
capital through a minority investment (see Practice Note, Minority Investments: Overview).
 The company's existing capital structure. If the company already has a lot of debt, is
subject to restrictive financial covenants, or does not want to provide a guaranty or other credit
support, it may only be able to obtain funding through the issuance of equity.
 The company's status as a reporting company versus a non-reporting company. If
the company has already completed an initial public offering (IPO), it has much more flexibility in
raising capital than a private company.
 The availability of debt versus equity financing. Lenders may be unwilling to lend to
the company, or suitable investors may be difficult to find.
 The costs of issuing debt versus equity. If lenders are unwilling to lend to the
company, the interest rate offered may be too expensive. The proposed terms of equity investors may
be too onerous. In addition, the costs of conducting a public offering typically exceed the costs of an
unregistered offering, unless the company is already a reporting company. For additional information,
see Practice Notes:
 Deciding to Go Public;
 Unregistered Offerings: Overview; and
 Follow-on and Secondary Registered Offerings: Overview .
 Tax considerations (see Practice Note, Debt v. Equity: US Tax Classification of
Securities).

Select a Business Name

 Legally clear a new business name before its first use. Preliminary name clearance
involves:
 checking name availability with relevant secretary of state databases
(see Practice Note, Forming and Organizing a Corporation);
 performing a trademark search for the name at the state and federal levels;
 conducting internet searches to disclose common law uses of the same name
or similar names; and
 verifying name availability with domain name registrars.
 If the preliminary search does not reveal any obvious conflicts, as a best practice,
consider engaging an outside vendor to perform a comprehensive search (see Practice Note,
Trademark Searching and Clearance).
 Once the business name is cleared for use, protect it by:
 filing the name with the relevant secretary of state office;
 registering the name as an internet domain name (see Internet and Email
Risk Toolkit);
 filing an application for federal or state registration of the name, if it will be
used as a trademark or service mark (see Registering a Trademark Checklist); and
 filing applications for foreign trademark and service mark registrations in key
international markets, if the new business plans to operate outside of the US.
 Consider whether the following additional filings are necessary:
 fictitious name filings, like registering "doing business as" (or DBA) names
where relevant (see Registering to Do Business Under an Assumed Name Checklist); and
 foreign qualification of the business, if it will conduct business in states
other than its state of formation (see Practice Note, Forming and Organizing a Corporation:
Post-Incorporation Logistics).

Choose a Business Location

 When choosing a business location, consider:
 proximity to customers, suppliers, and distributors as well as competing
businesses near the proposed location;
 minimum business requirements, like office square footage, accessibility to
public transportation, and parking facilities;
 whether to buy real estate (see Purchasing and Selling Commercial Real
Estate Toolkit). For information about obtaining a real estate loan, see Practice Note,
Commercial Real Estate Loans: Overview;
 whether to rent real estate (see Office Leasing Toolkit);
 real estate, sales, and other tax considerations (see Real Estate Ownership:
State Q&A Tool: Questions 4, 10, 11, and 20 and Real Estate Leasing: State Q&A Tool:
Questions 10, 11, and 12);
 compliance with local zoning and other regulations (see Practice Notes,
Purchaser Due Diligence in Commercial Real Estate Acquisitions: Use and Compliance
with Laws and Commercial Real Estate Loans: Due Diligence: How to Determine
Compliance with Laws);
 availability of qualified employees and the going rate for wages;
  state or local laws regulating various employment-related issues like wage
and hour (see Wage and Hour Laws: State Q&A Tool), paid and unpaid employee leaves
(see Leave Laws: State Q&A Tool), and new hire requirements (see Hiring Requirements:
State Q&A Tool);
 nexus to state for choice of law and choice of forum; and
 compliance with US international trade laws and local country laws, if the new
business will be located outside of the US (see International Trade Toolkit and Establishing
a Business in . . .: Country Q&A Tool).
 After the purchase or lease of office space, but before commencing operations,
consider the need to contract with:
 architects, designers, general contractors, and builders to modify the office
space (see Practice Note, Standard Construction Industry Documents: Overview);
 facilities-related services like cleaning and gardening; and
 utility companies.
 Consider whether the business needs to lease equipment and a warehouse. For
more information about equipment leasing, see Equipment Leasing Toolkit.

Recruit and Hire Employees

Recruiting and hiring employees creates new legal obligations for the business to consider,
including:
 Complying with federal, state, and local anti-discrimination laws in the hiring,
interviewing, and selection process.
 Satisfying Form I-9 requirements.
 Providing employees with the requisite notices on hiring.
 Properly classifying individuals as:
 exempt or nonexempt employees; or
 independent contractors (see Independent Contractors: State Q&A Tool).
 Complying with employment-related filing, reporting, and insurance requirements.
 Maintaining the at-will status of employees, unless an employment agreement states
otherwise.
 Documenting various aspects of the employment relationship through:
 offer letters;
 employment agreements. To search Practical Law's What's Market database
of contract precedents and deal summaries, see Practical Law's What's Market;
  confidentiality and inventions assignment agreements;
 non-competition and non-solicitation agreements, to the extent allowed by
state law; or
 mandatory arbitration agreements.
 Complying with wage and hour laws, including minimum wage and overtime.
 Determining the employee benefit plans to provide, and administering the payroll and
employee benefit plans (see Practice Note, Employee Benefits Law: Overview).
 Complying with the Employee Retirement Income Security Act of
1974 (ERISA), Department of Labor (DOL), Internal Revenue Service (IRS), and Pension Benefit
Guaranty Corporation (PBGC) rules and regulations.
 Drafting and maintaining employee policies or an employee handbook
(see Employee Handbook Toolkit).
 Posting required workplace posters in the office.
(See Practice Note, Employment Law Issues for Startups, Entrepreneurs, and Growing
Businesses: Overview.)

Obtain Business Licenses and Permits

 Based on the nature and location of the business, determine whether licenses and
permits are necessary under:
 federal law for businesses that are federally regulated; and
 state and local laws and regulations, which vary by jurisdiction.
 Consider whether additional licenses and permits are necessary to comply with
federal, state, and local environmental regulations (see Practice Note, Environmental Law: Overview).
 For tax filing and reporting purposes, apply for an employer identification
number (EIN) with the IRS.

Identify Suppliers, Distributors, Logistics Providers, and

Customers
 Depending on the type of new business and the kinds of goods and services
provided, identify and contract with:
 suppliers. For key legal and commercial issues to consider when drafting a
supply agreement, see Supply of Goods and Services Agreements Toolkit;
  distributors. For an overview of the laws governing the commercial
distribution relationship between suppliers and distributors and key issues to consider
when drafting a distribution agreement, see Practice Note, Distributors and Dealers;
 logistics providers. For more information on logistics providers, see Practice
Notes, Logistics: Freight Forwarding and Logistics: Transportation Service Providers
Overview; and
 customers. For some of the main issues to consider when drafting a sale of
goods agreement, see Drafting and Negotiating a Sale of Goods Agreement Checklist.
For a discussion of the antitrust risks in establishing supplier, distributor, and customer
relationships, see:
 Practice Note, Exclusive Dealing Arrangements .
 Practice Note, Most Favored Nation Clauses .
 Practice Note, Customer Loyalty Programs in the US .
 Practice Note, Vertical Price Restraints .
 Entering into a Minimum Resale Price Maintenance Agreement Checklist .
For a broad overview of the commercial supply chain, distribution channels, and key supply
chain legal issues, see Practice Note, Supply Chain Overview.
Businesses often use letters of credit to finance transactions with their suppliers,
distributors, and customers. For more information about the letter of credit process,
see Practice Note, Commercial Letters of Credit.
Some businesses sell or assign their receivables to factoring companies, see Practice
Note, Fundamentals of Factoring.
For a general discussion of other types of credit support, see Practice Note, Credit Support
in Sale of Goods Transactions.

Develop Advertising and Marketing Strategies

Comprehensive advertising and marketing strategies:
 Promote new business success.
 Increase brand awareness of the products and services offered.
(See Advertising and Marketing Toolkit.)
Some elements of a successful advertising and marketing program include:
 Product packaging that complies with product labeling laws (see Practice Note,
Product Labeling and Product Labeling Checklist).
 Traditional print and media advertising (see Practice Note, Advertising: Overview).
 Direct marketing (see Practice Notes, Direct Marketing and CAN-SPAM Act
Compliance).
 Sponsorship arrangements (see Practice Note, Sponsorship Arrangements in the
US).
 Sales promotions, contests, and sweepstakes (see Practice Note, Sales Promotions,
Contests, and Sweepstakes and Sales Promotions, Contests, and Sweepstakes Checklist).
 A website (see Practice Note, Setting Up and Operating a Website: Contractual
Issues (International)).
 Online advertising and marketing, including social media (see Social Media Usage
Toolkit).
 Mobile apps (see Practice Note, Mobile App Development and Distribution).

Acquire and Protect IP

Many new businesses create IP to be used in connection with the manufacture, marketing,
advertising, and sale of their goods and services, including:
 Trademarks.
 Copyrights.
 Trade secrets.
 Patents.
Before exploiting IP, these assets should be:
 Cleared for use.
 Protected.
Businesses should conduct a freedom to operate review before launching any new
product, process, or feature, ideally early in the development and design phase. To ensure
that patent protection remains available for a business' innovations, the patent application
process generally should begin before any public disclosure of the information (see Practice
Note, Patent Portfolio Development and Management and Standard Document, Corporate
Patent Policy). Further, when sharing any proprietary information, parties should enter into a
nondisclosure agreement.
For an overview of the principal categories of IP under US law and related practice
considerations for acquiring, maintaining, and protecting IP, see Practice Note, Intellectual
Property: Overview.

Evaluate Insurance Needs

 All new businesses need insurance. Factors to consider when deciding what insurance to
buy, and how much is necessary, include the scope of:
 Exposure to suppliers and customers.
 Activities of employees and independent contractors.
 Corporate activity, including inherently dangerous activities.
At a minimum, the new business should consider obtaining the following types of insurance
coverage:
 Commercial general liability, including property damage, personal injury, and
advertising injury.
 Workers' compensation and employer liability.
 Key man or key person.
 Insurance for ERISA fiduciaries, including:
 ERISA bonds;
 fiduciary liability insurance;
 errors and omissions insurance; and
 directors and officers liability insurance.
For more information about insurance for ERISA fiduciaries, see Practice Note, Insurance
for ERISA Fiduciaries. For more information about insurance coverage generally,
see Insurance Policies and Coverage Toolkit.
END OF DOCUMENT

RESOURCE ID 3-581-0705DOCUMENT TYPE Checklists

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PLC US Labor and Employment, PLC US Law Department

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Practice notes
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Checklists
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Supply of Goods and Services Agreements Toolkit • Maintained
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