10 Legal Tips for Starting Your Own Business

Whether the result of the recent recession or the desire by baby boomers to embark on a new professional path, new business startups are growing fast.  Here are 10 legal tips for entrepreneurs who are striking out on their own for the first time:

Choose the right entity.  Decide if you will be operating your business as a sole proprietorship, partnership, LLC, C Corp or S Corp.  Each has its own advantages and disadvantages when it comes to business structure and asset protection; consult with a Creative Business Lawyer™ to determine the best fit for you.

If you give advice, get insurance.  Many professional who leave the corporate world to start their own consulting business may want to look into liability insurance to protect themselves from lawsuits based on claims of faulty advice.

Create good contracts.  Getting paid is often a problem for new startups; be sure to get agreements in writing and enforcements for failure to pay.

If you have a partner, get a buy-sell agreement.  A buy-sell agreement will spell out what happens in case a partner wants to exit or dies unexpectedly.

Know employment laws.  Many startups hire contractors to get up and running quickly; however, you need to be aware of legal definition of a contractor versus an employee so you don’t run afoul of the IRS.

Get the right documentation.  Legal documentation for startups is important to have in place as the company grows, and includes customer contracts, confidentiality agreements, offer letters and more.

Be aware of trademark issues.  You don’t want to be in business for a few years and find out the name of your company or your best product is already trademarked by someone else.  If a name is important to your company or product, protect it.

Put legal disclaimers on your website.  Make sure your business website has Privacy Policy and Terms of Use pages that detail the rights and responsibilities of each party.

Employment agreements.  Not every employee you hire will necessarily be with you for the long run.  Protect your business with employment or independent contractor agreements that include non-competes and other stipulations that govern the relationship.

Hire a good Creative Business Lawyer™.  At some point in your new business life, you will need good legal advice.  Because we stay proactive in your business (not just reacting to problems when they come up, but helping you to structure your business smart right from the beginning),   a Creative Business Lawyer™ can be the most important advisor you have on your team.

Whether you’re starting or already running a business, the best time to hire a lawyer is before you need one. Having a business attorney that understands the individual needs and unique circumstances of your company is key to helping your business thrive and prosper. If you are interested in learning more about legal protection strategies for your business and how we work with you as a partner in protecting your company, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

Asset Protection for the Small Business Owner

According to the U.S. Small Business Association, small businesses create almost two of every three jobs in the U.S. every year, and half of working Americans are either owners or employees of a small business.

The SBA advises entrepreneurs to seek counsel while in the initial phases of getting a business off the ground. As a small business owner, you are subject to the same laws and regulation as a large corporation, so it helps to have a Creative Business Lawyer® by your side as you begin your new venture to provide experienced legal advice on:

  • Operating agreement
  • Legal partnership agreement
  • Articles of Incorporation
  • Bylaws
  • Operations Manual
  • Funding your business
  • Insurance for yourself and your business
  • Tax strategies for your business (and your family)
  • How to set up your employee/independent contractor relationships
  • The best ways to protect and capitalize on your intellectual property

Failure to plan—especially for small business owners—can have disastrous consequences for both your family and your business. If you have chosen to combat economic conditions by creating your own small business, remember that going from being an employee to being “The Owner” brings with it many changes, not the least of which are changes in your estate plan.

Small business owners tend to be less liquid than traditional employees, putting much of their earnings back into the business for growth, which means estate planning for business owners requires a different strategy than for other families. A Creative Business Lawyer™ can help you develop strategies for protecting your business and your family for the long-term.

If you’re a small or mid-size business owner, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

6 Legal Snares That Can Sink Your Startup

Entrepreneurs often make up in enthusiasm what they lack in business experience, but passion alone is not enough to ensure the success of a startup.  If you’re starting a new business, you need to watch for the following six legal snares that could potentially sink your startup:

  1. Lease agreements. A commercial lease is much different than a residential lease, and unlike renting an apartment, renting office space is something that should be negotiated.  There are clauses in commercial leases that could make you responsible for a share of the building’s operating expenses, or use restrictions that may limit how your business can grow.
  1. Entity selection. Choosing how you will structure your business legally and financially should not be done without the help of a Creative Business Lawyer™, who can help you understand the advantages and disadvantages of operating as a sole proprietorship, limited liability company (LLC) , S-corporation, C-corporation or partnership.  Putting the wrong structure in place could cost you plenty to unwind it if it doesn’t support the growth of your business.
  1. Partnership agreement. If you have a partner in your new venture, you will need a partnership agreement that spells out how profits and losses are allocated and other important issues to create a viable framework for operating the business.
  1. Intellectual property. Every business will have some type of intellectual property to protect via a patent, trademark or copyright.  However, before you throw money at IP protection, consult with an attorney to determine the right IP strategy considering what needs to be protected and the financial resources you have available.
  1. Insurance. Typically, you will likely need general liability insurance as well as property insurance for your new business.  Depending on the nature of your business, the officers and directors of your company may also need insurance to protect them from business liability (D&O insurance).  You will need to check your lease agreement for any insurance requirements as well.
  1. Employment Matters. Your biggest risk in business often comes from working with your own team.   You will need to be familiar with both state and federal employment laws that will govern your relationship with employees and independent contractors.

One of our primary services is a LIFT Start-Up Session, in which we guide you through the right choice of business entity, location of business entity, start up agreements, intellectual property protection, employment structuring, insurance, financial and tax systems you need to start your next business and succeed right out of the gate.

7 LIFT (Legal, Insurance, Financial and Tax) Prerequisites for Starting A New Business

As lenders ease credit conditions following the Great Recession, new business formation in the U.S. is on the rise. If you are starting a business in 2015, be sure you pay attention to the following prerequisites:

  1. Discuss with legal counsel which corporate structure is best for your business: sole proprietorship, partnership, corporation (C or S), or limited liability company (LLC). Factors involved in making this decision include how many equity holders are to be involved, who is to exercise control over the company and where you are establishing your business entity.
  1. File the proper documents: to form a corporation or LLC, you can file paperwork directly with your Secretary of State’s office and pay the requisite fees for the formation as well as any publication fees providing notice of the formation or you can hire a service to do it for you or you can have us do it for you as part of one of our LIFT Start-Up packages. If you DO do it yourself or hire a service, be sure to understand all of the “additional paperwork” and administrative items you need set up, which do not get filed with the state, including: operating agreement or bylaws, membership certificates or shares, starting agreements, and minutes or corporate resolutions.
  1. Have a Creative Business Lawyer™ prepare a Founder’s Agreement, Operating Agreement, Bylaws or Partnership Agreement that establishes several aspects of the business, including:
  • Names and responsibilities of officers,
  • Issuance of shares or equity stakes,
  • Procedure for annual and special meetings of officers and shareholders,
  • Buy-outs of shareholders or equity holders,
  • Dissolution of the corporation, partnership or LLC, and
  • How to wind down business affairs upon dissolution or termination.
  1. Set up specific bank accounts for the business separate and apart from the personal accounts of any owners or managers.
  1. Get your insurance lined up. Each new business should seek rates for general business insurance, errors and omissions for directors and officers, professional liability insurance, and employment practices insurance. If you have partner(s), you may also want to look into key-man insurance insuring one or both of your lives to provide liquidity to ensure the company can continue to run, even if you don’t.  Ask us for a referral to an insurance agent we trust.
  1. Devise a system with a business accountant or financial manager to handle payroll for employees that includes regular payments to federal, state and local taxing authorities plus to provide regular financial reports to you at least monthly, and ideally weekly so you can run your company by reading your numbers.
  1. Consult with your tax strategist even before you settle on your choice of entity and then when the entity has been created to ensure you are properly strategizing to save as much on taxes as possible. Having multiple entities can be the best tax planning possible.

One of our primary services is a LIFT Start-Up Session, in which we guide you through the right choice of business entity, location of business entity, start up agreements, intellectual property protection, employment structuring, insurance, financial and tax systems you need to start your next business and succeed right out of the gate.

5 Steps to Protect Your Business From a Divorce

With the U.S. divorce rate at around 50% for first marriages and even higher for second marriages, a divorce’s impact on the fate of your business should be cause for concern.  The best thing that business owners can do is take preventive measures to ensure their companies will not suffer from a divorce – either your own or a business partner’s marriage breakdown.  Here are 5 preventive strategies:

Prenuptial agreement – prenups are becoming more popular as baby boomers divorce and remarry late in life, after significant assets have already been accumulated.  You can designate your business as separate property in a prenup if it existed prior to your marriage.  You must have independent counsel to make a prenuptial agreement valid, so don’t try to use one lawyer for both parties.

Postnuptial agreement – these are similar to prenups, but occur after a marriage has already occurred.  The earlier you are able to implement a postnuptial agreement, the better the chances it will hold up in a divorce action.

Trusts – using a domestic or foreign asset protection trust to protect business assets is a common strategy.  Since the business is placed in the irrevocable trust and managed by a trustee, it is considered separate property since you no longer technically own it.

Buy-sell agreement – a buy-sell agreement will specify what happens to a business in the event of an owner’s status change, including divorce.  The agreement can be used to prevent spouses from obtaining ownership or voting rights or specify a pre-determined price to buy out any ownership rights awarded to a spouse in a divorce.

Insurance – you can purchase a life insurance policy that can be cashed in to buy out an ex-spouse’s business shares.

If you are interested in learning more about business asset protection strategies, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

Protecting Your Company From Patent Trolls

The term “patent troll” has entered the corporate vernacular thanks in large part to the ongoing “smartphone patent wars” as well as the increasing number of companies that have begun to take a stand in fighting the malicious behavior of entities that exist solely for filing frivolous patent litigation.

According to a White House report released earlier this year, patent trolls are defined as:

“Companies that do not make products, but buy up or own patents and sue businesses they claim are infringing on those rights in order to collect licensing fees.”

In the words of President Obama, these entities “don’t actually produce anything themselves,” but instead develop a business model “to essentially leverage and hijack somebody else’s idea and see if they can extort some money out of them.”

The government believes that patent trolls are a drain on the American economy that requires legislative action to level the playing field for innovators.  But waiting for Congress to act is no way to protect your company from patent trolls.

Here are three ways you can take action now:

Prevention.  You can search for patents and trademarks online so you do not introduce anything to the market that already has a patent or trademark.

IP Insurance.  Frivolous patent infringement suits have become so common that some insurance companies offer policies to help protect businesses from patent litigation.

Legal help.  If you receive notification of a patent lawsuit or a letter demanding payment, consult a business attorney before you do anything.  An attorney can also work with you to ensure your patents, trademarks and copyrights are current and identify any areas of concern for management.

If you are interested in learning more about business asset protection strategies, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

10 Legal Myths That Could Get You and Your Business in Trouble

Inc. magazine recently wrote an article that made me realize many business people are flying blind about the legal parts of business.  These are all places you could get in trouble, if you aren’t awake, aware and doing business with your eyes wide open.

Personal assets are protected by the right business entity.  Choosing a corporation or LLC as a business entity provides some asset protection, but if someone is determined to go after you personally, they could pierce that protection easier than you may think.

Patents and NDAs protect intellectual property.  If someone has more money than you do, or is located overseas, they can steal your ideas.

Conversations between lawyers and their clients are always confidential.   Attorney-client privilege is not always absolute.  A judge can pierce this privilege.

Good contracts are complicated.  Quite the reverse – the best contracts are simple and clear.

Your online posts are protected from libel claims.  Even if you frame your post clearly as your own opinion, if someone feels you have libeled them they can sue you.

If someone is injured on your property, you’re liable.  You are not responsible if someone hurts themselves on your property if they were negligent, clumsy, stupid or engaged in a criminal act.  Also — if you were negligent or intended to harm someone, your insurance will probably not cover any damages.

You can’t be sued if you did nothing wrong.  Anyone, anywhere, at any time, can sue you for any reason.  It’s called frivolous litigation, and even if you prevail, you can spend big money getting out of it.

Once you get a trademark, it’s yours forever.  On the contrary, getting a trademark is just the first step – the really important part is protecting that trademark.

You can’t get a DUI on private property.  The fact is, you can be charged with a DUI even if you are sleeping it off in your own car in your own driveway.

Lawyers are a necessary evil only to be used as a last resort.  It is amazing how many people won’t invest a few hundred dollars for solid legal advice that may save them a fortune and lots of pain in the future.

Good legal strategy and planning begins when you start your business, not when you get into trouble.

If you’re a small or mid-size business owner, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

Protecting Your Business From Personal Legal Liabilities

Most small business owners are aware of the importance of protecting their personal assets from business liabilities.  However, the reverse is just as necessary – protecting your business assets from personal legal troubles.

For example, if you are at fault in a serious auto accident that injures someone and you own a business, the assets of that business could be under attack in a personal injury lawsuit unless you have undertaken the proper steps to insulate your business from personal liabilities.  Here are three things you can do to shelter your business today:

List all your assets.  Make a list of all of your personal assets – both business and personal – including any debt that is secured by the asset.  This list will be the beginning of your process helping you to evaluate your exposure to risk.

Look into Umbrella insurance coverage.  An umbrella insurance policy covers any claims against you in excess of your basic insurance coverage limits.  By having umbrella coverage, which is typically, not very expensive, you can ensure any judgments against you are paid before your business is put at risk to satisfy a judgment creditor.   Beware though, this type of insurance typically does not cover actions that are negligent, reckless, fraudulent or criminal.

Consider whether your business entity has extra built in protection. If your business has been set up as a limited liability company (LLC) in a state with charging order protection (and there are 13 states that have LLC Charging Order Protection), you may have extra protection for your business.  If you have an LLC formed in a state with this extra protection and a judgment creditor tries to take your business, they cannot. Instead, all they will receive is a charging order against the business.  This means that they would get distributions only when the other members do, but they would still need to pay taxes on undistributed profits AND they couldn’t even force any profits.  Many creditors would prefer to settle for pennies on the dollar rather than receive a charging order against a business entity.

Best Form of Protection. If asset protection is extremely important to you, consider irrevocable trust planning.  A properly set up irrevocable trust could protect your business from divorce, creditors or even bankruptcy.

If you’re a small or mid-size business owner, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit and we’ll consider the best asset protection strategies for you and your business.