282 ENTREPRENEURSHIP
complexity of a negotiation process or alleviate the desire of all parties to achieve the
highest return for the lowest risk.LEGAL AND TAX ISSUES
Experienced legal assistance and advice are critical to financing a new venture and resolv-
ing the legal and tax issues confronting it. Failing to obtain a good lawyer and account-
ant is disastrous, so it’s well worth the trouble of finding such help. Legal and tax assis-
tance is needed for:- The formation of business entities
- Setting up books and records for tax purposes
- Negotiating leases and financing
- Writing contracts with partners and employees
- Advice about insurance needs and requirements
- All litigation
- Regulation and compliance
- Patents, trademarks, and copyright protections
Not all attorneys are competent in all the areas listed, but competent legal counsel
knows its limitations and can bring in experts as required. As in many other aspects of
business, there is no substitute for experience.
The best way to find competent legal service is by word of mouth. Entrepreneurs
should then follow up any recommendations by checking with legal referral services and
personally interviewing lawyers to decide whether they have a good rapport with a par-
ticular attorney and whether this lawyer understands the entrepreneurs’ business needs.
Good legal counsel is not cheap. Rates can run from $90 to $350 per hour. Some
lawyers who specialize in getting new ventures up and running are willing to take equi-
ty in lieu of cash as payment for services.
There is an old saying that “a person who acts as his own lawyer has a fool for a
client,” but some entrepreneurs insist on self-representation. They must then become
conversant with the content and process of the law. A course in contracts and real estate
law is recommended.
Legal Forms of Organization in the United States
In the United States there are five major types of organization: sole proprietorships,
partnerships, corporations, S corporations, and limited liability companies (LLC).
Each has its own characteristics in terms of legal identity and continuity, liability, taxa-
tion, and financing regulations. The permits and licenses required for operation vary by
form of organization.Sole Proprietorship. The easiest organizations to form are sole proprietorships. They
make up the majority of small businesses and self-employed persons. The company is
simply an extension of the owner. For tax purposes, the sole proprietor completes an
income statement (Schedule C), the sole proprietorship is taxed at the individual’s rate,
and earnings are subject to self-employment tax. A proprietorship ceases to exist when