When starting a new business, many entrepreneurs focus on their product or service but overlook the crucial legal steps that protect them from unnecessary risks. In this episode of the Business Law, Estate Planning and Estates Podcast, Thomas LaPorte, founder of LaPorte Law Group, shares essential insights for entrepreneurs looking to establish a strong legal foundation. With more than 25 years of experience guiding individuals, families, and business owners through business formation, estate planning, and probate, Thomas explains how choosing the right structure, managing risk, and documenting agreements can help ensure long-term success.
How Should Entrepreneurs Choose the Right Business Structure?
Thomas emphasizes that one of the first decisions new business owners must make is selecting the proper legal structure. The most basic options include sole proprietorships and partnerships—arrangements where two or more people share profits and losses. However, he explains that more advanced and protective structures, such as limited liability entities, are often better suited for modern businesses.
The limited liability company (LLC), introduced in the mid-1990s, quickly became the preferred option for smaller businesses due to its flexibility and minimal formalities. Beyond LLCs, entrepreneurs can choose between S corporations, which are ideal for small businesses, and C corporations, which are better suited for larger, more mature companies that seek outside investors. Thomas also notes that within partnerships, individuals can serve as limited partners, often in investment situations such as film productions or joint ventures.
Why Is Risk Assessment Critical in Business Formation?
According to Thomas, before an entrepreneur even considers marketing or growth, they must evaluate the risks associated with running a business. Every business interaction involves the transfer of risk—whether through customer transactions, vendor contracts, or compliance with government regulations.
He cautions that product liability, service issues, and contractual disputes can quickly derail a business if not addressed from the start. Business owners must also understand the tax implications of operating a business, as various taxes apply to entities that don’t affect individuals. By identifying and minimizing risks early, entrepreneurs can protect both their business and personal assets.
Why Written Agreements Are Essential for Business Partners
Thomas explains that many business partnerships start with enthusiasm and optimism—the “honeymoon phase.” However, he warns that 85% of business partnerships eventually fail, often due to poor planning and the absence of written agreements. Just as in marriage, a business partnership benefits from a “prenup”—a detailed, written agreement outlining expectations and responsibilities.
During this early stage, partners are typically open to compromise and collaboration, making it the perfect time to define roles, decision-making authority, compensation structures, and spending limits. Thomas stresses the importance of documenting these terms in writing, as verbal agreements often lead to conflicting memories and misunderstandings later.
What Happens When Businesses Lack Proper Legal Paperwork?
A lack of documentation can lead to internal disputes about workload, compensation, and authority. Thomas points out that LLCs and S corporations are popular structures for small businesses because they provide flexibility and clear operational guidelines. In these entities, written operating agreements and bylaws establish responsibilities, decision-making procedures, and accountability.
He adds that one of the most common mistakes new business owners make is signing contracts without proper review. There is no such thing as a “standard contract,” and small details can carry significant legal consequences. By consulting with an experienced business attorney or mentor before signing, entrepreneurs can negotiate better terms and reduce risk without jeopardizing deals.
What Compliance and Government Requirements Do New Businesses Overlook?
Thomas highlights that business owners must comply with various filing, tax, and insurance requirements. For example, any business with employees must carry workers’ compensation insurance, which is mandatory in most states. However, single-owner LLCs or S corporations may qualify for exemptions.
Failure to meet filing deadlines or insurance mandates can result in penalties and liability exposure. Thomas advises business owners to work with professionals who understand local, state, and federal compliance standards to avoid costly mistakes.
How Can Businesses Protect Themselves When Hiring Employees?
Thomas recommends that every company, regardless of size, create an employee handbook or policy manual. This document should outline expectations, legal rights, and workplace conduct. Modern businesses often post their manuals online, but employees must acknowledge in writing that they’ve read and understood the policies.
The handbook should address federal and state leave laws, including family and medical leave, sick time, vacation policies, and distinctions between part-time and full-time employment. Thomas also warns against strict disciplinary procedures that companies may not consistently follow, as these can be interpreted as contractual obligations. Instead, employers should retain discretion in disciplinary matters.
To protect against disputes, Thomas advises companies to include clear language stating that the handbook does not constitute an employment contract. Businesses must also comply with the National Labor Relations Act, which protects employees’ rights to discuss workplace conditions, including unionization, even during work hours.
What Legal Details Do Business Owners Commonly Overlook?
Thomas identifies two critical areas that new business owners often neglect: harassment policies and payroll management. State labor departments and federal agencies like the Equal Employment Opportunity Commission (EEOC) require written sexual harassment policies, which must include clear reporting and investigation procedures.
Employers must maintain confidentiality while ensuring due process for both the accuser and the accused. Thomas explains that overlooking these requirements can expose companies to serious legal claims, particularly those related to age, gender, or discrimination.
He also stresses the importance of payroll compliance. Many states impose severe penalties for late or missed wage payments, including mandatory treble damages and attorney’s fees. Working with a reliable payroll provider is one of the simplest ways to avoid these penalties and maintain compliance.
Building a Legally Sound Foundation for Business Success
Thomas concludes that starting a business doesn’t have to be intimidating—as long as entrepreneurs plan wisely and seek professional guidance. By choosing the right structure, drafting clear agreements, and staying compliant with employment and tax laws, new business owners can set themselves up for stability and long-term growth.
With a thoughtful approach and proper legal preparation, businesses can minimize risks, build strong partnerships, and focus on what matters most—success.