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Challenges in starting a business

November 19, 2012
The Daily News


Staff Writer

IRON MOUNTAIN - Are you planning to start a business?

Article Photos

Iron Mountain-based attorney Peter Ryan, left, reviews business law with legal assistant Karen Ward.

There are many challenges involved in starting a new business, but potential entrepreneurs can be better prepared for those challenges if they have an adequate understanding of the law.

"A lawyer can help potential business owners sort it all out," said Iron Mountain-based attorney Peter Ryan. "They can offer practical advice."

First off, lawyers can help entrepreneurs decide which type of business entity to form: a C corporation, a subchapter S corporation, a limited liability company, a partnership, or a sole proprietorship.

"They all have their benefits and their drawbacks," Ryan explained. "It just depends on the individual business plan and idea."

For example, a limited liability company operates like a corporation, but it does not have to issue stock or file annual reports.

Lawyers can also come into play once entrepreneurs select their entities. At that point, appropriate documents must be filed with the state and the Internal Revenue Service for taxation purposes.

Ryan said that certain entities can obtain pass-through tax status, which allows the business' taxes to "pass through" to the individual owner's or owners' tax returns. This can be advantageous if the business does not turn out to be as profitable as hoped.

"Many businesses fail," he added. "Often, people under appreciate the risk."

On a similar note, Ryan would recommend that entrepreneurs meet with a lawyer regarding business loans.

"Borrowers are not informed most of the time," he said. "We can help you understand lenders, loan availability, and implications for borrowers."

Ryan pointed out that one issue that entrepreneurs might not fully understand is the concept of personal guarantees for business loans.

"They (personal guarantees) are beyond collateral, maybe a personal bank account," Ryan explained. "People might not realize that if the business fails and the loan isn't paid back, the bank can go in and grab the money out of that account."

According to Ryan, other issues in which lawyers can be of assistance to businesses include contracts, lawsuits, and government regulations.

Government agencies such as local health departments, the Food and Drug Administration (FDA), the Environmental Protection Agency (EPA), and the Department of Environmental Quality (DEQ) have certain rules and regulations for certain types of businesses.

"Building a business is a lot harder than it looks from the outside," said Ryan. "It's important to look first before jumping in."

Nikki Younk's e-mail address is



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