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How is a startup different from a small business?

On Behalf of | Jun 29, 2020 | Business Law |

While startups are oftentimes also small businesses, the two terms are slightly different.

What constitutes a small business may be in the eye of the beholder, but many Massachusetts residents probably would think of a family-owned local establishment as opposed to a company being traded on the public market.

A small business may or may not be trying to grow. It may require outside investment to stay afloat, or it may be able to operate at a profit. It can be a new enterprise, or it can be a firm that has been around for years or even decades.

A startup, on the other hand, is a business which has just begun its operations and almost my definition will either have to grow or fail. Having just entered the market, a startup will not bring in enough revenue to keep operating without some help from outside investors.

Usually, the founders of the business will contribute the funds to keep the business operating. They may also try to attract venture capitalists or even their loved ones to invest funds in the business. Of course, taking out a loan from a bank is always an option as well.

A startup is going to face a number of legal and financial issues. For one, the founders will have to decide how they want to organize their business.

For instance, they will need to decide whether incorporating or forming a limited liability company is the way to go.

They will also need to make sure that the founders’ relationship with each other, especially in the event of a dispute, is clearly set out.

Moreover, the business will need to carefully review lots of different contracts, with employees, with creditors and investors, with customers, with insurance carriers, with vendors and with others.

The market in the greater Boston area is ripe for a successful startup. However, those choosing to take this risk should be sure they understand all the legal details involved.