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Starting a Small Business/Would setting up a business and license be the right path?

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Question
A group of people who have skills in motorcycle riding and are sought out by industry retailers and motorcycle sellers and training facilities, would like to continue providing inspiration, seminars on experiences (non paid to start), attend events on behalf of retailers/gear/clothing in motorcycle industry and support/inspire others to ride. Our first endeavor would be to test riding gear, give feedback and blog about the fit, form and function of the gear, retailers and consumer experience.  Eventually we may want to grow to give tours, and sell merchandise, have paid speaking engagements.  My question is, should we as a group buy a license for our group/business?  If so why? The group is split as to why we would need a license and if so what type.  I am thinking an LLC with the group members as sharing partners would be the right step and to do so now, and amend business plan as we grow and expand on our ideas/enterprise.  Any help, or guidance you can provide would be greatly appreciated.

Answer
Deb,

I think that forming an LLC is the right way to go for your group.  

If you do not form a limited liability entity to conduct your cooperative activities, there is a reasonable possibility that if one of the members of your group becomes liable to someone for something he or she did - or failed to do - related to your group's common activities, then every member of your group could be held personally liable.  Unless there is an entity like an LLC or a corporation to shield the individual members of the group from personal liability, an activity that is undertaken for profit by two or more people is likely to be treated as a general partnership.  Every partner is liable to third parties for ALL liabilities of the partnership, whether or not that partner had anything to do with creating the liability.  

There are a lot of things that can give rise to liability, or at least get you named in a lawsuit.  For example, if you recommend a particular brand of protective equipment and someone relies on your recommendation and they are injured because the equipment failed to work as you described it, they might have enough to bring you into a suit against the manufacturer.

Another drawback from having an informal, undocumented group which may be treated as a general partnership is that there are many unaddressed issues that may be hard to deal with after the fact.  For example, if someone drops out of the group after contributing time and effort, what are his or her rights?  Creating an entity should help you deal with many of those issues.

In your case, it seems like the flexibility of an LLC would be a better fit for your needs than a corporation and would still protect the individual members of the group from taking on liability for the whole group.

I do recommend, though, that you meet with an experienced business attorney to work out the details.  When you have a group, dealing with issues like allocations of profit and loss, distributions of cash, the process of making decisions within the group, and adding and removing members can get complicated.

Starting a Small Business

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David K. Staub

Expertise

I am a business and tax attorney and have spent more than 35 years assisting people in starting a wide variety of businesses. I can answer questions about the basic differences between the various entities available to new businesses, including limited liability companies, corporations, S corporations and partnerships. I can provide guidance in other areas facing start ups, such as hiring employees, signing contracts and obtaining necessary licenses. I can also direct people to sources for answers to specific legal questions which cannot be answered in a forum of this nature.

Experience

I have an extensive practice in the mergers and acquisitions area and have been involved in the tax and legal issues on hundreds of business transactions.

Website
Staub Anderson LLC
Illinois business attorneys

Practice Areas
Business Organizations
-Corporations

-LLCs
-Partnerships

-Joint ventures
Mergers & Acquisitions
-Buying/selling business
Securities Law
Tax Law
Technology Law
-Software licenses
-Development agreements

Trademarks

Organizations
Illinois State Bar Association; Chicago Bar Association (former Chairman of the Corporation & Business Law Committee and former Chairman of the Mergers and Acquisitions Subcommittee; former Executive Committee member, Federal Tax Committee and Chairman of subcommittee on general tax issues); Keystone Foundation (Trustee); Association for Corporate Growth; Midwest Entrepreneur Forum; Midwest Association of Alpha Delta Phi

Publications
Commerce Magazine; YLS Journal; ISBA Section of Taxation Newsletter

Education/Credentials
Harvard Law School, J.D., 1977; University of Illinois, B.S. in Accounting, with highest honors, 1974

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