New Business Owner? Avoid These Common Startup Mistakes

The startup life can be exciting and for many the learning curve is huge. In the midst of growth and opportunity, many entrepreneurs make costly legal mistakes which can be easily avoided with the proper preparation. Here are some of the most common legal missteps made by businesses in the startup phase:

Not Drafting a Clear Founder Agreement

A crystal-clear agreement between co-founders before you start making a profit (or losses, as the case may be) will prevent financial misunderstandings about who gets what and when. Decide early on how profits will be distributed and losses made up to avoid much bigger conflict down the road. Use the “Agreement Process” (part of our LIFT Foundation System) to determine how you handle the hard issues, right up front, before you make big investments.

 Starting as a Sole Proprietorship

Sole proprietorships are easy to set up but expose you to personal risk and potentially higher taxes. Consider an LLC or S-Corporation to protect your personal assets and possibly even reduce your tax burden.

Ignoring Securities Laws When Issuing Stock

They say it takes a village to raise a child. The same adage applies to startups. If you want to issue stock to those who’ve helped you along the way, heed all state and federal securities laws. Contact us before you issue any stock, so we can get you set up right.

Not Having Enough Employment Documentation

Every startup should have a set of comprehensive employment (or independent contractor) agreements in its arsenal. Avoid the high cost of resolving employee conflicts in court by making sure your policies and agreements are absolutely clear, and that you’ve properly categorized team members as either employees, or independent contractors. If you aren’t sure, contact us.

Neglecting IP Protections

Your intellectual property is an asset, and should be protected from day one. That means trademarks registered, and copyrights filed. If you aren’t sure what needs protecting, contact us to get an audit scheduled.

Failing to Develop a Tax Strategy

If you’re not making a lot of money, why worry about taxes, right? Think again. Work with a tax advisor to develop a tax strategy, and don’t wait until tax season to do so! We meet with our clients’ and their tax advisor at least annually in the Fall to begin identifying the tax opportunities that must be planned for well before year end.

Negligent Naming

Before you register your name or your domain, make sure there aren’t any trademarks or similarly named companies already using your name.

Not Having Clear User Agreements

Don’t launch your website without getting terms of use agreement and privacy policy in place and on your site. We can help with that too.

Perhaps the biggest legal mistake a startup can make is not having good legal counsel. Don’t wait until it’s too late to hire an attorney to help you avoid sticky situations. Having a trustworthy and experienced attorney in your ring from day one will help you start-up with the solid foundation you need for success.

Startups can be risky ventures, but with sound planning, you can beat the odds. If you want to avoid the costly legal mistakes many startups make, begin by sitting down with a Business Lawyer. As your Business Lawyer, we can establish a sound legal, insurance, financial, and tax system for your business so you can focus on running your growing startup.

This article is a service of Gratia P. Schoemakers, Estate and Business Attorney. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today at 832.408.0505 to schedule.

Ten Common Money Pits Even Brilliant Entrepreneurs Fall Into

If you’re relying on your top line to grow your wealth, you could be missing out on easy opportunities to save money and improve profits, independent of your revenue.

Many entrepreneurs waste precious time and money by falling prey to these common mistakes. However, there is no need to sacrifice, work harder, or take on new financial risks when they can be easily avoided.

  1. Not Monitoring Your Credit Score

Discrepancies in your credit score can cost you thousands in interest rates and premiums. Monitor your credit report every six months for accuracy.

  1. Scrimping on Productive Expenses

Differentiate between wasteful consumption expenses and rainmaking expenses that can pay big returns—you can’t afford to scrimp on those.

  1. Relying on Investment Advisors

Commissioned advisors want to keep your assets under their control. Stay conscious of this bias. And, consider having us, as your objective trusted advisor who is not paid a commission, review all investments before you make them.

  1. Reactive Tax Planning

During tax season, your accountant’s focus is on filing returns, not strategizing. Meet off-season at least once to prepare a proactive—not reactive—tax strategy. And always get projections before the end of the year so you can strategize end of year tax decisions.

  1. Using the Wrong Business Structure

Review your business structure with an attorney every three years to ensure your structure is still advantageous.

  1. Monthly Payments on Multiple Loans

Refinancing or restructuring your loans could save interest and potentially even taxes. Pay off your least efficient loan first, and you could qualify for lower interest rates on the rest.

  1. Blind Investing

Invest in what you know. You—not a commissioned advisor—know what’s best for your business. And that requires you to be tracking your financials at least monthly, and likely weekly, to be making wise choices consistently.

  1. Sharing Profits

Profit sharing with employees solely for tax purposes is like giving the IRS control of your money. Don’t spend money to save money. But, do invest money to create more of what you want. So consider profit sharing to motivate long-term growth and legacy of your business.

  1. Funding 401(k)s

Your contributions are tax-deferred, but you have to pay those taxes at some point. Because taxes are expected to go up, you’ll end up paying more to the IRS.

  1. Losing Passion

Losing the passion you have for your business means lost productivity—easy to do when you’re bogged down with daily details and decisions. Take the time to be proactive about your legal, insurance, financial, and tax planning so you can fuel the passion that brought you to this business in the first place.

If you’re ready to be proactive about the financial success of your business, begin by sitting down with us. As your Business Lawyer, we are here to help you implement legal, insurance, financial, and tax systems that will free up your time and money, so you can focus on what matters.

This article is a service of Gratia P. Schoemakers, Estate and Business Attorney. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Call us today at 832.408.0505 to schedule.

Reducing Risk: 3 Business Agreements That Will Decrease Your Liability Risk

Those new to the business world often lack the first-hand experience of initiating and building healthy business relationships. But protecting these vital relationships with carefully crafted business agreements—such as those for co-owners, suppliers, and clients—is essential to growing a new business without the risk of being taken advantage of or of burning valuable bridges. To decrease the risk of liability in your business relationships, here are three of the most common agreements that every business owner should have customized and ready to go.

Owner Agreements

No matter how your business is structured, you need comprehensive owner agreements if you have co-owners, founders, shareholders or partners. Mistakes get expensive if you don’t have solid agreements between the owners when something goes wrong. Agreements should outline the terms and conditions applicable if one owner wants to go his or her separate way. Putting everything in writing will allow you to focus your energy on growing your business instead of on arguing about who said what, when and who was going to do what on which time frame.

Worker Agreements

Team member agreements protect both parties – you and them. These include agreements for independent contractors (think web developers and graphic designers) to clarify the terms and conditions of the work, and who owns the work they are creating as well as employees. Hiring with complete agreements – in writing – will ensure you are both on the same page regarding employment status, performance expectations, and job requirements. Although you should have agreements for both employees and independent contractors, make sure you clearly distinguish who is in what role. You could face tax and other penalties if you improperly classify a worker.

Customer and Vendor/Supplier Agreements

Your customers make your business possible, especially when you’re just starting out. Every sale is essentially a contract between your business and your customer, so make sure you are putting the proper legal protections in place. Terms of service and privacy policies will do some of this work for you, but make sure you consult with a lawyer to determine the specific clauses you need in your client/customer agreements to provide the most protection for the relationship long-term.

Your vendors and suppliers make your customer base possible. They help you meet demand and are instrumental to your business’s viability. Your vendor and supplier agreements should provide both parties with legal protections and make sure your needs are met by the relationship. Vendor and supplier relationships can make or break a new business’s success, so make sure you fortify them with clear, detailed agreements.

If you want to protect your business interests and limit your liabilities, start by sitting down with a Business Lawyer. We are experienced in helping entrepreneurs achieve success through careful financial and legal planning. As your Business Lawyer, we can establish a sound legal, insurance, financial and tax system for your business so you can focus on increasing revenue and enjoy the benefits entrepreneurship.

GP Schoemakers, PLLC offers a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

Why Startups Need Lawyers, Not Legal Templates

When growth and funding are top priorities, it is wise to not let legal soundness fall to the wayside. Not surprisingly, 1 in 10 startups fails due to overlooked legal issues. Without a lawyer looking out for your best interests, it’s easy to miss common legal mishaps that pose a threat to any startup.

Mistake #1: Many startups rely on legal templates easily downloadable online to “cover their bases” and save money. What seems like a wise choice from an economic perspective can lead to significant liability if you don’t know what you are doing. Tax forms and incorporation documents might be free to download, but most entrepreneurs don’t have the legal know-how to be sure the forms are being utilized properly. Minor errors or oversights in those free legal templates can spell disaster down the road in the form of lawsuits or worse.

Solution: Enlist the expertise of an expert, like a Business Lawyer, to act as your trusted legal counsel. Adding this expert to your startup team will do so much more than simply handling legal documents such as terms of agreements, employee contracts, owner and vendor contracts. For a brand new startup it might seem overwhelming to invest in the cost of ongoing legal counsel, but the cost is nothing compared to the cost of losing your business altogether due to simple legal mistakes.

Startups need legal protections from the many risks all businesses face. When your focus is on growth and development, be sure to put developing an ongoing relationship with a trusted legal advisor at the top of the priority list. Online templates are no substitute for personalized legal counsel from a trusted business lawyer who will anticipate issues before they become problems and provide tailored guidance as your startup grows.

If you want to protect your business interests, limit your liabilities, and ensure your business is poised for growth, start by sitting down with us, as your Creative Business Lawyer®. We are experienced in helping new and established entrepreneurs achieve success through careful financial and legal planning. As your Creative Business Lawyer®, we can establish a sound legal, insurance, financial, and tax system for your business so you can focus on increasing revenue and enjoy the benefits entrepreneurship.

GP Schoemakers, PLLC offers a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

The 4 Deadly Legal Mistakes Small Business Owners Need to Avoid

Small businesses dominate the American business landscape, but those that survive several generations are relatively rare.  If you are a small business owner, you need to be sure you are not committing any of these four deadly legal mistakes:

  1. Mixing personal and business finances. If your small business started as a hobby or a sideline but has grown to a point where it is your main source of income, you need to consider forming a legal entity for it, like a corporation or limited liability company (LLC).  Most small business owners choose an LLC for the personal liability protection it provides without the formalities of a corporation.  An LLC also makes it easier for you to transition the business to other partners or future generations and since it is taxed as a pass-through entity, profits are not taxed separately but instead flow through to the owner.
  1. No employment agreements. Employment agreements should be used to spell out expectations, especially in family-owned businesses that may have been funded by one or more family members who expect reimbursement or those who expect a job at the family firm based on nothing more than a familial relationship.
  1. Failure to obtain proper licenses. Most businesses are required to have local, state or federal licenses to operate, with fines assessed for those that fail to get these licenses.  They are generally inexpensive but are often overlooked.  Check with your city or county offices to see if your business requires a license to operate.
  1. No succession plan. If your business has no formal legal entity, it will pass when you do.  Many small businesses fail to last through the first generation due to the lack of a succession plan.  Consult with a Creative Business Lawyer® about creating a succession plan for your small business, so the value you have built over the years is protected after you are gone.

We can help you discover if you have what it takes to start your own business and guide you through the steps to successful entrepreneurship. Whether you are new to entrepreneurship or already operating a business, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.

 

The Family Business: Avoid These 4 Lethal Legal Mistakes

If you operate a family-owned business or are considering starting one up, there are four potentially lethal legal mistakes you should take care to avoid, including:

No employment agreements.  Family members who work together are usually hesitant to confront one another if someone is not pulling their weight.  Having an employment agreement for everyone ensures that expectations for job performance are spelled out and what the grounds are for termination.

Mixing family and business finances.  Many family businesses start with loans from various members, and as the business grows, those initial investments need to be protected.  This is the stage when you want to consider setting up your family enterprise as a limited liability company (LLC) or a corporation.  Most small businesses use an LLC structure, which provides liability protection for personal assets and allows for company profits to flow through to owners.

No licenses.  Even if you operate out of your home, you will likely need to obtain a local, state or federal license to operate your family business.  While licenses are generally inexpensive, the fines for not having them can be costly.  You can find out what the requirements are in your area by contacting your city hall or county office.

No succession plan.  Family business feuds can easily occur when there is no succession plan in place.  Also, legally speaking, if a business has not been incorporated or formed as an LLC, the business dies when its owner does.  If you started a family business to keep it in the family, you need to follow through with a formal succession plan.

Having a business attorney who 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.

Avoid These Errors to Improve Your Chance of Succeeding in Business

Did you ever wonder why some startups make it but so many others fail?  If only there were a  magic potion you could drink to give you all the answers.  In the meantime, author   Simon Sinek  suggests that you consider the why, how, and what of your business.  Staying focused on these  questions goes a long way toward entrepreneurial success.

Failing to Know Why Your Company Exists

Why are you in business?  What problem does your company solve?

To do well, a company must be able to convey to consumers why it does what it does.  It needs  to have a believable story that supports its existence.  Businesses with staying power have  compelling stories that their customers believe.

One way to define why your company exists is to identify the points of pain suffered by your  clients or customers.  Does your company help avoid or solve a particular point of pain?  Does it  help to increase other’s’ happiness, peace of mind, or comfort.

Failing to Know or Convey How Your Company Does Business

Once you’ve determined the “why” of your company, next consider how you do business.  What systems and processes do you use to deliver your services or products?

To succeed in business, you must have effective, efficient processes that are in harmony with  your company’s story.  You must also ensure that you can explain your processes to others, so  that when your business grows, managers and employees can duplicate the proven success of  your operation.

Failing to Identify What Your Company Does Well

The third piece of the pie is determining what works—or does not work—for your company.  It  is critical to review your successes and failures regularly and to incorporate what you learn into  your business plan.

Use existing documentation, as well as customer and employee feedback, to identify your  company’s strengths and weaknesses.  But don’t stop there.  Make sure you take this feedback  and build it into your written business plan moving forward.

This article is a service of Gratia P. Schoemakers, Creative Business Lawyer®. We offer a complete spectrum of  legal services for businesses and can help you be successful. We also offer a LIFT Start‐Up  Session,™ which includes employment structuring, financial, and tax systems you need for your  business. Call our office today to schedule your appointment to ensure your business is set up  to succeed.

Could Your Email Form a Binding Contract?

The Internet has changed the way businesses negotiate, review and revise their contracts. Sending emails back and forth can make the process faster and more convenient, but you should be aware that it can also lead to inadvertent liability. The use of electronic evidence or digital data has drastically increased in courtrooms across the country. Thus, before you click “send” on that email, stop and consider the legal consequences. Your email correspondence could be used as proof (or to disprove) the existence of a contract.

According to the Uniform Electronic Transactions Act of 1999, electronic records can form a legally binding contract. The necessary elements of contract formation must be present for the agreement to be binding. This means there must be an offer, acceptance and an exchange of consideration between the parties. However, if the electronic evidence is sufficient to prove that these basic elements have been met, your email exchange could be used to prove that the parties intended to form a contract and to be bound by it.

It is important for business owners to take steps to protect themselves when negotiating contracts by email. Your business should have clear and concise policies regarding email exchanges. All employees should be properly trained on these policies so they understand how to handle their electronic correspondence with other parties.

It should be mandatory for all emails to have a prepared, blanket disclaimer paragraph that is automatically inserted into each email that is sent. The disclaimer should include language that specifically states that the author of the email does not have authority to legally bind the company. The disclaimer should also state that your business does not intend to be bound by an electronic agreement and that any email correspondence should be considered non-binding until the contract has been signed by all parties.

Lastly, if you believe the other party is relying on your email exchanges as the formation of a binding agreement, set the record straight immediately. The faster you clear up any misunderstandings, the less likely you are to be held liable.

Are holes in your legal, insurance, financial and tax foundation causing money to leak out of your business? If you are ready to identify and patch the holes, contact us today for a LIFT Foundation Audit, during which we’ll find the legal, insurance, financial and tax money leaks in your business and create a plan to shore them up so you can keep more money and grow your business with less risk.

What Business Owners Need to Know about Verbal Agreements

It is a common misconception that oral contracts are not enforceable. It is true that certain agreements must be in writing to be enforceable. For example, the statute of frauds requires agreements involving real property, marriage, performance over multiple years and the sale of goods over $500 to be in writing. If an oral agreement does not fall within one of the specified categories, it may be an enforceable contract.

It is significant to note that the statute of frauds does not cover services that cost more than $500. The final determination on whether an agreement falls under the statute of frauds (and therefore requires a written document) falls with the courts. Many courts follow the Uniform Commercial Code’s definition of the statute of frauds.

Before you start making “handshake” deals, remember that you must still have the ability to prove the existence of a contract in court. Having several witnesses to an oral agreement could be an effective way to prove the oral agreement took place. However, having your handshake deal be put into writing is not only the wiser and safer decision, but will save you significant money in the long run if there is a conflict over what was agreed upon.

What if you made an oral agreement that was not witnessed by anyone else? If you immediately took action on your half of the deal, it can be convincing evidence of the contract. Additional proof is if the other party began acting in compliance with its obligations under the agreement.

No matter what, you  will want to keep copies of any correspondence between you and the other party that strengthen a potential claim. This includes emails, letters, receipts or any other documentation that establishes an agreement was reached between you and the other party.

Of course, there is no way of knowing if you will be able to prove the oral agreement was made, so there is always inherent risk. In order to prevent any uncertainty, get the agreement in writing. Even if you believe it is a simple deal and there is a slim chance that anyone will have to prove anything in court, having a one-page contract via email is better than nothing. A written agreement doesn’t have to be complex , it just has to be in writing.

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.  Contact us today to learn more about our LIFT Start-Up process for your business.

These 3 Legal Risks Can Bust Your Business

While there is no such thing as a business with no risk, most savvy business owners look for ways to mitigate risk as much as possible. Being aware of these three legal risks will create an understanding for the future of your business.

  1. Trusting a verbal or handshake agreement. This is more common early in the life of a new business, and generally involves someone the business owner already knows and trusts. New business owners tend to reach out for some help but don’t have the cash to pay for it, so they make a deal for a piece of the business or the deal at hand. “No problem, you think, we trust each other.”  That thinking has landed many an entrepreneur in court, or without a company.  These cases turn into your word against theirs, which usually will not turn out so well for you, especially if your business is successful.  Always, always put agreements in writing.
  1. Unintentionally using someone else’s intellectual property. You have an idea you think is going to revolutionize a market.  You Google it and nothing turns up, so you throw everything you have into the development of this idea. Just as you are beginning to get some traction in the market, you receive a Cease and Desist letter telling you that your company has infringed on an existing patent, trademark or copyright.  If you don’t comply, you’re going to court.  But even if you do comply, you have lost a big chunk of your investment in a company that can go nowhere.  Before you name your company or try to capitalize on an idea, you need to have a Creative Business Lawyer® perform a detailed search so you will know if your name or idea may potentially infringe on an existing trademark or patent.
  1. Engaging in unfair competition. Every state has unfair competition laws, and one of the most common violations is when companies hire a superstar from a competitor and that new hire then brings business from their old company to yours.  This will most certainly land you in the middle of a lawsuit. You can still hire that superstar, but you must make sure that he or she does not use confidential information from their previous company to profit your company.

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. Contact us today to learn more about our LIFT Start-Up process for your business.