To avoid the courtroom, build business with a plan

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					                    Finance
To avoid the courtroom, build business with a plan
Experts warn of the lasting difficulties for companies that made some early, but costly, errors
                                                                                                                                                                                          Avoiding some common
              BY MARTIN C. DAKS                                                                                                       Some missteps can also land an entrepre-
A SAGGING ECONOMY that’s spurring more
                                                                    Legal Issues
                                                                                                                                 neur in front of a judge, Pinto said.                    legal, financial blunders
companies to slash head count may drive an              referring to tax and other issues that may keep                               For example, it may be natural for a business       Stevens & Lee P.C.’s Richard J. Pinto shares some
increasing number of people to strike out on            venture capitalists from investing in a business                         owner to want to brag about his or her develop-          suggestions from his list of top 10 legal mistakes
their own, if recent history is any guide.              organized as a limited liability company.                                ing company during a road show or an investor            made by entrepreneurs:
      But entrepreneurs that do not start off           “Don’t wait too long to set up your corporate                            pitch, but overstating the enterprise’s potential or            ■ If you’re working for someone else, they
with proper legal planning stand a good                 structure, but don’t rush into it without speak-                         making misleading statements about a business            may own your discoveries. So, before you quit
chance of striking out, even if they’ve got a           ing with a qualified adviser.”                                           plan could be considered an act of fraud, which          your day job to launch your own business, be sure
good concept, according to some experts.                     After an appropriate corporate structure                            could create serious problems, Pinto said.               you really own any intellectual property or other
      “One group of entrepreneurs I know of             is implemented, a company’s owners should                                     “A person can get in trouble even if the            inventions you plan to use.
worked hard to build their business, and signed         resist the urge to shower stocks on friends,                             statements were made in good faith, without                     ■ Don’t lose out on your ownership inter-
up investors,” said Richard J. Pinto, a share-          family and employees, Pinto said.                                        an intention to deceive,” he said.                       ests. Talk to a professional before issuing stock or
holder in the Princeton                                      “Are you handing out shares in exchange                                  Even if a business is successful, an entre-         signing any contracts. You could be signing away
office of Stevens & Lee P .C.,                          for work that was delivered in the past, or for                          preneur that skips over filing may find herself          your company without knowing it.
a law firm that also offers                             services expected to be rendered in the future?”                         on the losing end of a lawsuit, Pinto said.                     ■ Think about tax consequences. A federal
business and consulting                                 he asked. “If you set up a vesting schedule —                                 Staying on the right side of the law means,         Section 83(b) tax filing made within 30 days of
services. “Eventually, the                              where the individual’s rights are earned over a                          for example, that “every assumption or projec-           granting a stock that’s subject to vesting may let
investors gained control of                             period of time, instead of immediately — based                           tion” that a business owner makes should be              the recipient pay taxes on the grant-date value of
the business, and sold it for                           on achieving milestones, or length of employ-                            balanced by a cautionary statement explaining            the stock, with any future appreciation taxed at
about $20 million. But the                              ment, you create an incentive, and make it                               that the claims or projections are based “on             potentially lower capital gain rates. Early in the
founders walked away               Richard J. Pinto     more likely that all of your stakeholders will feel                      explicit assumptions and the occurrence of               game, talk to a certified public accountant or tax
with nothing, because of the terms of the con-          they’re being treated in a fair manner.”                                 certain conditions,” Pinto said.                         lawyer about this and other issues, before they
tract they signed with investors.”                           Morristown attorney Robert Frawley                                       An entrepreneur that blabs too soon or              become major problems.
      Pinto related this story as he spoke with         works with new and existing businesses, and                              too much may also talk himself right out of                     ■ Hire experienced advisers. A good lawyer,
about 22 entrepreneurs and investors at a               he offered similar advice.                                               business, he said.                                       for example, will know the venture capital players
meeting of the New
				
DOCUMENT INFO
Description: [...] it maybe natural for a business owner to want to brag about his or her developing company during a road show or an investor pitch, but overstating the enterprise's potential or making misleading statements about a business plan could be considered an act of fraud, which could create serious problems, Pinto said. Staying on the right side of the law means, for example, that "every assumption or projection" that a business owner makes should be balanced by a cautionary statement explaining that the claims or projections are based "on explicit assumptions and the occurrence of certain conditions," Pinto said.
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