Startup Kit -- Deluxe Edition

CHECKLIST FOR OFFICE LEASES

1. Space:

(a) What is the rentable square footage?
(b) What is the usable square footage?
(c) Is rent based on usable or rentable square footage?
(d) Verify square footage number provided by the landlord.

2. Permitted Uses of the Premises:

(a) What uses of the premises are permitted?
(b) Is the permitted use clause broad enough for possible changes in the business?
(c) Is the permitted use clause broad enough for potential assignments or subleases?
(d) Can the use clause be drafted to include “any lawful purposes”?
(e) Can uses be changed with landlord’s consent, which consent can’t be unreasonably withheld or delayed?

3. Primary lease term:

(a) What is the commencement date of the lease?
(b) What happens if the space is not ready on the commencement date? Is there rent abatement, monetary damages, right to cancel the lease, or other remedies specified?
(c) What is the termination date?
(d) Does the landlord have the right to terminate early without cause?
(e) Does the tenant have the right to terminate early by payment of a fee?

4. Rentals:

(a) What is the base rent for the primary term?
(b) Are there escalation clauses?
(c) Are there cost of living increases?
(d) Is there a cap on any rent increases?
(e) Is there a reasonable grace period and written notice before a late charge is imposed?

5. Common area maintenance, HVAC, and Operating costs:

(a) What does the tenant have to contribute for common area maintenance, ventilating, heating, air conditioning, and other building operation costs?
(b) Is there a cap?
(c) Can the amount be increased each year?
(d) Real estate taxes and other impositions:
     (i) Does the tenant have to pay a portion of the real estate taxes?
     (ii) What increases over base year are allowed?
     (iii) Is there a cap on tax increases?
     (iv) Does the tenant have to pay increased taxes that may occur on sale of the building?
(e) Are there any special provisions or exceptions on the payment of these expenses?
(f) When is payment due?
(g) What detailed reports does the landlord have to provide the tenant showing the actual expenses?
(h) What audit rights does the tenant have to review the landlord’s books and records?
(i) Are there provisions made for weekend and holiday service? What are the charges?
(j) Does the tenant have a remedy for service interruption?

6. Tenant Improvements:

(a) What tenant improvements will be necessary?
(b) What is the cost?
(c) How much time will it take to complete the tenant improvements?
(d) Will the landlord contribute to the cost for the tenant improvements?
(e) What approvals will be necessary?
(f) What permits will be necessary?
(g) Does the landlord or the tenant own any improvements?

7. Repairs and replacements:

(a) What responsibility does the tenant have for repairs or replacements?
(b) What responsibility does the landlord have for repairs or replacements?
(c) At the end of the tenancy, is tenant’s obligation to return the premises in same condition at the beginning of tenancy, excluding (1) ordinary wear and tear, (2) damage by fire and other unavoidable casualty, and (3) alterations previously approved by landlord?

8. Utilities:

(a) Direct supply or individually metered?
(b) Method of computing payment?

9. Assignment and subletting:

(a) Is the landlord’s written approval required?
(b) What standard is there for approval? absolute discretion? reasonable approval?
(c) Does the landlord have the right to cancel the lease if notified of a proposed assignment of sublease?
(d) If the assignment or sublet is at a higher price than the base rent, who keeps the excess? or what split is there?
(e) Can the lease be assigned to affiliates of the tenant without landlord approval?
(f) Can the landlord terminate the lease if the stock ownership of the tenant changes?

10. Subordination and attornment:

(a) All present or future mortgages?
(b) Execution of estoppel certificates required?
(c) Tenant agrees to attorn to landlord’s successor in interest?

11. Destruction:

(a) Is there a right of cancellation for the tenant in the event of destruction?
(b) What obligation does the landlord have to rebuild?
(c) Does the tenant share in any proceeds from insurance?

12. Indemnity and Disclaimer:

(a) Indemnity mutual or tenant only?
(b) Waiver of claims mutual or tenant only?
(c) Waiver of subrogation?
(d) Landlord liability limited to interest in property?

13. Default:

(a) Does the tenant have a cure period after notice of a breach?
(b) What remedies are available for breach?

14. Landlord’s warranties:

(a) Quiet enjoyment of premises by the tenant?
(b) First...

CHECKLIST OF DIFFERENT TYPES OF INSURANCE
AVAILABLE FOR A SMALL BUSINESS

COMPARISON CHART FOR DIFFERENT BUSINESS ENTITIES

Letter Agreement to Maintain Confidentiality of Information

[Name]
[Street Address]
[City, State Zip]

Re: Confidentiality Agreement

Gentlemen:

You have requested information from Newco, Inc. (the “Company”) in connection with your consideration of a possible transaction involving you and the Company. Because we are furnishing such information to you, we are requiring that you agree, as set forth below, to treat confidentially such information, and any other information we or our agents furnish to you, whether furnished before or after the date of this letter (collectively, the “Confidential Material”).

You agree the Confidential Material will be used only for purposes of considering the transaction referred to in the first paragraph of this letter and will not be used by you in any way detrimental to the Company. You also agree the Confidential Material will be kept confidential by you and your agents; provided, however, that (i) any of such information may be disclosed to your officers, directors, general partners, employees, counsel, investment bankers and other of your representatives who need to know such information for the purpose of evaluating a possible transaction between us (it being understood you will direct such officers, directors, general partners, employees, counsel, investment bankers and other representatives to treat such information confidentially), and (ii) any disclosure of such information may be made to which the Company consents in writing.

Without the prior consent of the Company, you will direct your officers, directors, general partners, employees, counsel, investment bankers and other affiliates and/or representatives not to disclose to any person either the fact that discussions or negotiations are taking place concerning a possible transaction or any of the terms, conditions or other facts with respect to any such possible transaction, including the status thereof. The term “person” as used in this letter shall be broadly interpreted to include, without limitation, any corporation, company, group, partnership or individual.

If you or any of your affiliates or agents are requested or required (by oral questions, interrogatories, requests for information or documents, subpoena or similar process) to disclose any Confidential Material, it is agreed that....

RIGHT OF FIRST REFUSAL AGREEMENT

This Right of First Refusal Agreement (this Agreement) is made on the date written below, by and among [Name of Company], a Delaware corporation (the Company), and the parties listed as signatories hereto (the Holders).

In consideration of the mutual promises, covenants and conditions herein contained and for other good and valuable consideration, the parties hereto agree as follows:

1. Definitions. Certain terms used herein are defined as follows:

   1. "Board of Directors" means the Board of Directors of the Company and any committee thereof.

   2. "Immediate Family" means any spouse, child, grandchild, parent, brother, or sister of a Holder.

   3. "Shares" means any shares of capital stock of the Company or any securities convertible into or exchangeable for any class of capital stock of the Company and all securities into which such Shares may be converted or reclassified as a result of any merger, consolidation, stock split, stock dividend, or other recapitalization of the Company, whether now owned or hereafter acquired.

2. Restrictions on Transfer. No Holder may sell or engage in any transaction which has resulted in or will result in a change in the beneficial or record ownership of any Shares held by the Holder, including without limitation a voluntary or involuntary sale, assignment, transfer, pledge, hypothecation, encumbrance, disposal, loan, gift, attachment or levy (a Transfer), except as provided in this Agreement, and any such Transfer of Shares or attempted Transfer of Shares in contravention of this Agreement shall be void and ineffective for any purpose or confer on any transferee or purported transferee any rights whatsoever....

EXECUTIVE SUMMARY

SAMPLE SHORT-FORM BUSINESS PLAN

900 Remington Road

Philadelphia, PA

Phone: (215) 976-4000 Fax: (215) 976-4001
E-mail: mpeterson@aol.com WebSite: www.ppi.com

Picture Perfect, Inc. (the "Company") was founded by an experienced management team to develop and market new types of consumer products in the picture frame, photography products and photo album markets. The Company has applied for patents on several of its new innovative products.

The picture frame, photography products and photo album markets have annual sales in excess of $15 billion, expected to grow to $20 billion by 2001. The picture frame industry is dominated by three large players (Burnes, Fetco and Carr) and smaller niche players (Malden, Advent). Photo albums are made and distributed by many of the same companies. Large retail chains as well as specialty boutique stores are the primary purchasers of picture frame and photo albums.

The photography products industry consists of numerous companies large and small (Kodak, Fuji, Arrelle). The Company, however, will be focussing on photography products for general consumer orientation (as opposed to professional photographers).

The Company plans to develop and market comprehensive innovative product lines to intelligently compete in all three areas, with the goal of obtaining significant and profitable market share.

The Company was formed in August 1997 by four individuals with significant experience and contacts in the various relevant industries. Since that time, the Company has (1) designed four new picture frame products, (2) designed two new photo album products, (3) lined up several distributors, (4) made product demonstrations to Macy’s, Nordstroms, Wal-Mart, JC Penney, and other major retailers, and (5) implemented manufacturing contracts.

The Company’s products are intended to be innovative and interesting. The Company has designed a new series of frames, the DateFrame™ picture frames, which incorporate a feature that displays the date when the picture was taken on a built-in mechanism in the frame. The Company has a patent pending on this product line. The Company has also designed picture frames and photo albums, samples of which are available on request. The Company plans to develop a broad based product line to penetrate the market.

The Company intends to use a combination of employees and distributors for marketing its products. The Company founders have extensive relationships with major prospective chain stores and distributors, which should facilitate marketing. The Company has also been developing distinctive packaging and logos to achieve brand recognition for its products.

The Company projects that sales and profits will be as follows, all as further detailed in more extensive projections and underlying assumptions available upon request:

1. Contracts

¨ yes ¨ no Are all of the company’s important agreements in writing?

¨ yes ¨ no Are there good form contracts in place?

¨ yes ¨ no Do the contracts provide for disputes to be resolved in courts in the city where the company’s principal office is located?

¨ yes ¨ no Is there an attorney’s fees clause in each contract?

¨ yes ¨ no Does the contract say that amendments to the contract may only be made in writing?

¨ yes ¨ no Are there provisions in the company’s standard form contracts regarding limiting the company’s liability?

¨ yes ¨ no Is the company complying with the terms of its contracts and leases?

2. Corporate Minute Book

¨ yes ¨ no Do the Articles of Incorporation provide for sufficient authorized number of shares?

¨ yes ¨ no Is a copy of the Articles in the Minute Book?

¨ yes ¨ no Is a copy of the Bylaws in the Minute Book?

¨ yes ¨ no Are there minutes for all meetings of shareholders?

¨ yes ¨ no ....

Stock Ledger
and
Capitalization Summary
of
[_________________]

The AllBusiness.com Practical Guide to Starting a Business

Sole Proprietorship
General Partnership
Limited Partnership
C Corporation
S Corporation
Limited Liability Company

When starting out, it is important to determine what form of business will work best for your specific situation. Based on potential liabilities, tax status, ease of starting up and attracting investors, you can elect to do business as a sole proprietorship, form a general partnership, form a limited partnership, incorporate or form a limited liability company. The type of business you are starting and your future goals and aspirations for the company will be factored into your decision along with your need to raise capital.

Here, we outline the possible ways in which you can elect to structure your business, including some of the advantages and disadvantages of each form. Since every business venture is unique onto itself there is no blueprint formula that every owner of any one specific type of business to follow. Tax and liability issues, for example, will be determined in part by your own personal assets.

Sole Proprietorships

The most common and simplest form of business is a sole proprietorship. Many small businesses operating in the United States are sole proprietorships. An individual proprietor owns and manages the business and is responsible for all business transactions. The owner is also personally responsible for all debts and liabilities incurred by the business. A sole proprietor can own the business for any duration of time and sell it when he or she sees fit. As owner, a sole proprietor can even pass a business down to his or her heirs.

In this type of business, there are no specific business taxes paid by the company. The owner pays taxes on income from the business as part of his or her personal income tax payments.

Sole proprietors need to comply with licensing requirements in the states in which they are doing business as well as local regulations and zoning ordinances. The paperwork and formalities, however, are substantially less than that of corporations, allowing sole proprietors to open a business quickly and with relative ease (from a bureaucratic standpoint). It can also be less costly to start a business as a sole proprietor, which is attractive to many new business owners who often find it difficult to attract investors.

Advantages of a Sole Proprietorship:

• A sole proprietor has complete control and decision-making power over the business.
• Sale or transfer can take place at the discretion of the sole proprietor.
• No corporate tax payments
• Minimal legal costs to forming a sole proprietorship
• Few formal business requirements

Disadvantages of a Sole Proprietorship:

• The sole proprietor of the business can be held personally liable for the debts and obligations of the business. Additionally, this risk extends to any liabilities incurred as a result of acts committed by employees of the company.
• All responsibilities and business decisions fall on the shoulders of the sole proprietor.
• Investors typically won't invest in sole proprietorships.

Note: If the business is conducted under a fictitious name it is up to the sole proprietor to file all applicable forms under the fictitious name or under "doing business as" (DBA). This, however, does not mean that the business is a separate entity from a legal standpoint. The sole proprietor remains liable even if he or she is doing business under a fictitious name.

Most sole proprietors rely on loans and personal assets to initially finance their business. Some will elect to incorporate once the business has started to grow while other business owners maintain their sole proprietorship for many years.

General Partnerships

General partnerships consist of two or more partners who are both responsible for the business. They share assets, profits, liabilities and management responsibilities for running the business.

General partnerships are typically formed by individuals. They are taxed in the same manner as a sole proprietorship, meaning each partner includes business income on his or her personal income tax return. Each partner can also deduct pro rata losses from the business on his or her own individual tax return.

While general partnerships provide a means of raising capital more quickly and allow several people to combine resources and expertise several problems commonly occur including:

• Partners having different visions or goals for the business
• An unequal commitment in terms of time and finances
• Personal disputes

For these, and other reasons, general partnership agreements should be drawn up carefully with legal counsel and signed by all partners. Additionally, there should be a means of dissolving the partnership in the case of death, disability or if one partner wants out of the business for any other reason.

General partnerships can be less expensive and require less paperwork and formalities than forming a corporation, but the partnership agreement is a key element and should be drawn up with due diligence on the part of all parties.

Advantages of a General Partnership

• Shared financial commitment
• Ability to pool resources, expertise and utilize strengths
• Limited start up costs
• Few formalities (mostly applicable licenses)

Disadvantages of a General Partnership

• Partners are generally personally liable for business debts and liabilities
• Each partner may also be liable for debts incurred by decisions made by, and actions taken by, the other partner or partners
• Disagreements in management plans, operational procedures and future vision for the business
• Difficult to attract investors

General partnerships can thrive when each partner brings a specific strength to the business. If each partner takes on a defined role and there is general agreement on the business plan, goals and visions from the onset, a partnership can be advantageous. Work can get done more quickly and having several partners involved will increase the potential for acquiring resources and attracting backers. The success of such an endeavor depends largely on the personalities of the parties involved.

Limited Partnership

A limited partnership differs from a general partnership in the role and responsibilities of the partners. The limited partners typically provide capital and help arrange financing while not taking an active role in running the business.

They do, however, receive a share of the profits for their involvement as limited partners. The general partner in a limited partnership runs the operations of the business.

Most states have statutes that regulate and define the obligations and responsibilities of partners in this type of business arrangement. You are required to file with your secretary of state and must also file various reports.

The key to this partnership agreement is found in the area of liability, which falls on the general partners, and typically not on the limited partners. For this reason individuals are reluctant to be general partners. The general partner of a limited partnership can itself be a corporation or LLC to mitigate liability issues to the promoters of the limited partnership. This, however, does not mean that a limited partner cannot be part of, or have a vote in, major decisions that affect the partnership.

A limited partnership can be attractive for a limited partner who can provide funding but not expertise and does not have the time to devote to being a hands-on part of the business. Taking on the financial risk of his or her investment but not the liability risk, is also more attractive to a limited partner.

For tax purposes, a limited partnership typically works like a general partnership in that it is a pass through operation with profits passing through to the partners who then include their allocated income on their personal tax returns. Limited partnerships are often formed to acquire, operate and hold real estate.

Advantages of a Limited Partnership

• Much easier to attract investors as limited partners
• Allows for general partners to use their expertise, make key decisions and manage the business
• Limited partners can leave the business or be replaced without the need for the limited partnership to be dissolved.

Disadvantages of a Limited Partnership

• Filings, formalities and state requirements
• General partners assume personal liability

An interesting aspect of the limited partnership is that partners are able to allocate profits, losses and gains as they see fit, regardless of the equity interest of a specific partner, subject to compliance with tax laws. This too can be attractive to prospective investors.

C Corporation

The most commonly found type of corporation is the C Corporation, which is a for-profit, state incorporated business. Articles of incorporation are filed and appropriate fees are paid to set up a corporation.

The corporation is established as a unique business entity, which takes on a distinctly separate business and tax identity from that of the owners (the shareholders). Separate income taxes are filed (IRS form 1120) and corporate taxes are paid regularly for the business. In return, the business owners are typically removed from personal liability for debt incurred by the corporation. Should the business go bankrupt, or be faced with a lawsuit, the owner's personal assets are protected. This is the most significant reason why many business owners choose to incorporate. Additionally, as a separate entity, a corporation can own property, make business dealings or even sue another business independently of the shareholders.

To establish a corporation, there are several requirements and formalities that need to be addressed. For example, a corporation needs to issue shares to stockholders. In addition, state requirements usually include minutes be taken at shareholder and Board of Director meetings, appointment of officers and maintaining specific records as outlined by the state in which the incorporation documents are filed. The shareholders have ownership in the corporation, the Board of Directors governs the business and elected officers manage the day-to- day activities. Corporations must adhere to corporate tax laws and file corporate taxes regularly. While corporate taxes can be higher, initially they may be lower than that of a sole proprietor who is paying a 28% rate on his or her personal income tax. The first $50,000 is taxed at a rate of 15%.

Advantages of a C Corporation

• The corporation is a separate legal entity, and if it is adequately capitalized and proper corporate formalities are followed, the shareholders should generally have liability protection from the debts and obligations of the corporation.
• Corporations can utilize corporate benefit health plans, which often offer better retirement options and benefits than those offered by non-corporate plans.
• 100% deductible health insurance for all employees as well as group term life insurance up to a specified amount per employee
• If a stockholder dies or wishes to sell out, the corporation continues
• Easier to raise capital as a corporation than as a sole proprietorship or partnership
• Can offer employee incentive stock plans

Disadvantages of a C Corporation

• "Double taxation". This means that besides paying corporate income taxes, any dividends to shareholders are taxed again at the applicable tax rate.
• Formalities and regulations must be followed very closely in conjunction with the laws regarding incorporating in a specific state. Failure to do so can create a situation where shareholders may be held liable.
• Costlier to start than a sole proprietorship or partnership
• More time and effort to maintain

While the idea of "double taxation" is very troublesome to many new business owners, it is not usually significant for small businesses, where it is unlikely that there will be large dividend payouts. Rather, the money is paid out in the form of salaries and benefits. As the owner, you can pay yourself a reasonable salary and handle any number of duties in the corporation. By incorporating, you have the luxury of leaving some of the money in the corporation if you foresee significant personal income from other sources. This way you can reduce your own personal income tax payments.

Taking the time, making the effort and paying the additional expenses to incorporate are usually considered worthwhile by a business that foresees potential liabilities and/or seeks investors.

S Corporations

An S Corporation is initially formed in the same manner as a C Corporation, by filing incorporation documents with the state of incorporation. Once the business has incorporated, the owners may decide to file as an S corporation, within approximately 75 days of incorporating. To do so, they need to file an IRS form 2553. This does not create a separate type of corporation, but changes the tax structure of the corporation.

The S Corporation has shareholders and is taxed like a sole proprietorship or a partnership rather than a C Corporation, which is taxed as a separate business entity. Income is passed through to the shareholders who report their pro rata income, or losses, on their individual tax returns. The corporation still files a federal tax return (form 1120S) and possibly a state return as well, if required by individual state law. The S Corporation shows profits and losses as they pass through to the shareholders and the corporation generally does not pay federal income tax as a separate entity. Some states, however, do tax S Corporations in the same manner as C Corporations. Check your state tax laws before electing S Corporation status.

Advantages of an S Corporation

• Corporate losses can be passed through to the shareholders and as the owner (and shareholder) you may be able to take the loss against income that appears on your personal return.
• You can have the protection of limited personal liability without having to pay corporate taxes.
• You can minimize self-employment tax and FICA tax. Profits, as a shareholder, are not taxed in this manner.
• It is easier to raise capital as a corporation than as a sole proprietorship or partnership.

Disadvantages of an S Corporation

• Numerous regulations and requirements that must be upheld by an S Corporation including a limit on the number of shareholders (see list below).
• Like a C Corporation, it can be costly to set up and follow formalities.
• Close scrutiny by the IRS of shareholder-employees, who must receive reasonable compensation (subject to employment taxes) before any non-wage distributions may be made to that shareholder-employee.

Other regulations imposed on S Corporations include:

• All shareholders must be U.S. citizens.
• All shareholders must vote in favor of the S Corporation.
• Benefits such as health or accident insurance for employee shareholders (with at least 2% ownership) may not be deducted by the corporation.

A corporation that plans to pass through dividends regularly to shareholders, may want to elect S Corporation tax status. Also, a business owner who may want to take business losses on his or her own personal tax return, possibly to offset income earned by his or her spouse, may opt for this type of corporation. It is worth noting that if you do set up an S corporation and later decide that there is a better alternative for your business, you can vote to drop S corporation status.

Like other corporations, the S Corporation can limit the personal liability of the owners. Creditors can go after the assets of the corporation and not the owners if there are outstanding debts. It is important, however, that the owner keeps his or her personal financial records and those of the S Corporation completely separate to avoid legal entanglements.

Limited Liability Company (LLC)

The hybrid answer to choosing the form of business for your company may be to go with a Limited Liability Company (LLC), which combines the pass-through taxation of a sole proprietorship, or general partnership, with the limited liability of a corporation. A relatively new form of business, LLCs have become popular over the past ten years. An LLC operates as a separate legal entity, but without being a corporation. Therefore, there are no federal corporate taxes imposed on the LLC as a separate entity. To start an LLC, a member, or members, must file the specific forms with the secretary of state. Information that is required will include the latest date at which the LLC is to dissolve and a statement explaining whether the LLC will be managed by one manager, several managers, or the members.

What makes the LLC unique is that it is formed by members, not shareholders, who draw up an operating agreement to run the business without the structural guidelines imposed on a corporation. This allows for greater flexibility without formalities, such as Board of Director meetings, which are imposed on a corporation. While most LLCs have two or more members, in many states, a single member can now form an LLC as a legitimate business structure.

Advantages of a Limited Liability Company

• Personal liability protection for members
• No need to meet the requirements and formalities of a corporation to maintain the business status
• Members can draw up their own contract, allowing for flexibility in management and responsibilities
• Greater flexible in allocating income to members than in a corporation. For example, an LLC can have various classes of interest while an S Corporation can issue only one type of stock.

Making The Right Choice

Comparisons at a glance:
Form of Business	Tax Structure	Liability
Sole Proprietorship	Pass through	Personally liable
General Partnership	Pass through	Personally liable
Limited Partnership	Pass through	Liability protection for limited partners
Limited Liability Company	Pass through	Personal liability protection
S Corporation	Pass through	Personal liability protection
C Corporation	Corporate taxes	Personal liability protection
Form of Business	Ease of Start Up (Based on paperwork & restrictions)	Ease of Attracting Investors	Ongoing Government Regulations & Formalities
Sole Proprietorship	Easy	Difficult	Few
General Partnership	Easy	Difficult	Few
Limited Partnership	Medium	Medium	Some
Limited Liability Company	Difficult	Medium	Some
S Corporation	Difficult	Easier	Many
C Corporation	Medium to Difficult	Easiest	Many