Tag Archives: Small Business Administration

10 Legal Considerations for Entrepreneurs – Part 4

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In Part 3, we covered business licenses and permits, working with employees and contractors, and the importance of written agreements. In this last part of the series, we’ll discuss other issues you should consider to help your business grow

9. Develop a System and Stay Organized.

Although this isn’t technically a legal tip, being organized and having a system in place to handle the operational aspects of your business can save you time, money, headaches and legal issues down the road. Ideally, your business affairs will always be in order so that someone could step in to run if for you if necessary. (Additionally, the more organized you are, the less time your professional team will have to spend sifting through shoeboxes to find crucial information.)      

Have a method to process orders, pay bills, pay employees, pay taxes, maintain your licenses, etc. Set up an accounting and record-keeping system so you can properly account for all business disbursements, payments received, invoices, accounts receivable/payable. Speak with an accountant about the taxes your new company is responsible for paying, and get copies of the IRS’s Tax Calendar for Small Businesses and Publications 334, Tax Guide for Small Business, and 583, Starting a Business and Keeping Records.  Keep important company documents in a safe place and have backup systems in place should anything happen to your physical work space or your electronic record systems.

10. Other Issues to Consider.

Business Plan. A business plan is not only a good idea to help you clearly outline your goals and ferret out potential opportunities, costs and obstacles, but it may be required if your business intends to seek a loan or venture capital funding.  The SBA and organizations specific to your profession/industry can provide helpful planning resources.

Insurance. As an entrepreneur, you should expect the unexpected.  You’ll want (and may be required) to obtain certain types of insurance for your business.  General business policies can cover everything from product liability to company vehicles.  You may want to obtain health and disability insurance for yourself and your employees.  You might also consider a personal umbrella policy.  You and the entity should both be named as insureds on any general liability insurance for the business, and the entity should also be the named insured on all property insurance covering any property owned or leased.  Contact an insurance agent or broker to answer questions and give you policy quotes.

Intellectual Property. Intellectual property — copyrights, trademarks, domain names, patents, trade secrets — can be some of the most valuable assets a company has.  Make sure that any intellectual property you create (or hire someone to create for you) or utilize in your business is properly protected.  You also want to make sure that you’re not infringing on a third party’s intellectual property rights. Consult with an intellectual property attorney to learn more.

Marketing. Getting your business legally sound is very important, but unless you get the word out about your new venture, customers won’t know what you offer or be able to find you. The more professional you look, the more likely customers are to feel comfortable working with you and your new business. All stationary, bills, invoices, etc. should be in the name of the entity rather than in your personal name. You should not use the stationary of the company for personal needs. You may want to have a logo created for your business, and you’ll want to make sure it’s not confusingly similar to anyone else’s logo and that you own the logo if someone else creates it for you. You’ll likely also want to have a website for your company. You should have an agreement with the web designer to ensure that you own the site and content (and domain name). You may also need to include Terms of Use, a Privacy Policy, and/or a Disclaimer on your site. If you are creating promotional materials, you’ll want to be sure you have the right to use images and other content you may want to include. You may want to create a marketing plan to help you develop business and perfect your image.

Support Team. Your new venture will be much more successful if you have a great support team around you. From family, friends and business partners to mentors, advisors and professional service providers, your team can make or break your endeavor.  These people will be your sounding board, your cheerleaders, and remind you that you’re not alone.

Starting a business is a thrilling and slightly overwhelming undertaking, but with a bit of planning (and some key professionals to help advise you), you could be up and running and playing by the rules in no time.

10 Legal Considerations for Entrepreneurs – Part 3

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business-plan-2061633_1920In Part 2, we discussed selecting a business entity, taking advantage of protections provided by an entity, and funding your business.  Now we’ll look at other licenses you may need to run your business, considerations when working with employees and contractors, and the importance of written agreements.

6. Obtain Licenses, Permits & Certifications.

There are numerous federal, state and local regulatory agencies that may govern everything from education to professional licenses and violations. Most businesses need licenses in order to begin operations. Licenses may be required for your city, your municipality, your county and/or your state. Some occupations and professions require a state license or permit as well. If you’ll be running a home-based business, then you’ll need to make sure you’re not violating any zoning restrictions or homeowner association rules.

The U.S. Small Business Administration provides information about industry-specific federal and state business licenses and permits, as well as links to the specific agencies that maintain such licenses and permits.  Many states provide state-specific information and links to helpful business-related registration, licensing, permit and related sites, such as the Missouri Business Portal and Texas Wide Open For Business.  USA.gov provides an A-Z list of all agencies as well as information regarding federal, state and local government.  A list of state regulatory agencies is available at All Things Political.

7. Employees and Independent Contractors.

If you intend to hire yourself or anyone else as a full or part-time employee of your company, then you may have to register with the appropriate state agencies, withhold and pay taxes, verify each employee’s eligibility to work in the United States, obtain workers compensation insurance or unemployment insurance (or both), create an employee handbook, and comply with other employment regulations. Hiring independent contractors instead of employees for your new business may be less burdensome, but working with independent contractors has its own set of risks. For example, if your independent contractor is discovered to meet the legal definition of an employee, you could face a number of costly legal consequences. Furthermore, unless an employee is performing services within the scope of his employment (work-for-hire), it is best (and often required) to have a signed, written agreement transferring rights in intellectual property created by an individual, independent contractor or entity to your business. For more information about hiring employees and working with independent contractors, visit the U.S. Small Business Administration and/or consult with an attorney.

8. Get it in Writing.

Relying on verbal or “handshake” deals may seem appealing, but it’s almost always advisable to have a written agreement in place. Whether it’s an office or equipment lease, an agreement with your business partners, a confidentiality agreement, a contract to provide services to a customer, or an agreement with someone providing services to your business, written contracts set out the details of the transaction, each party’s responsibilities and obligations, and often provide for procedures or remedies in the event something goes wrong. This last part is precisely why it’s advisable to negotiate a deal up front when the parties are happy with each other and excited about the transaction rather than waiting for an issue to arise and attempting to negotiate an agreement when at least one party is soured on the deal.

All contracts related to the business should be entered into in the name of the business and not by you personally. Know that it is rare for anyone to sign the first draft of an agreement.  It is always advisable to have an attorney review (and potentially negotiate) the agreement before it’s signed to ensure that you’re not missing something hidden (or not included) in the fine print.

In Part 4, the last installment in the series, we’ll talk about other issues you should consider to help your business grow.

10 Legal Considerations for Entrepreneurs – Part 2

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In Part 1 we discussed the importance of working with professionals and how to select and protect a name for your business or product. In Part 2, we’ll discuss how to select the right business entity, how the entity can protect you, and how you can fund your business.

3. Decide on the Legal Structure.

Forming a limited liability company or corporation to run your business not only helps to establish credibility for your new venture, but, more importantly, can protect your personal assets from potential future liabilities of your business. There may be tax advantages to forming an entity, and filing in certain states (such as Delaware and Nevada) may provide additional benefits, even if the business is not physically located in one of those states. You should consult with your attorney and accountant to determine the best entity for your business.

Additionally, if your company is minority- or women-owned, you may derive significant advantages from Disadvantaged Business Enterprise (DBE) certification or similar programs. However, many of these programs look to how the business was initially formed and funded, so setting up your entity in line with these programs’ restrictions is extremely important.

If you are starting a business with more than one person, a Company Agreement (also known as an Operating Agreement) or Corporate Bylaws are important documents that will govern how the business is run and outline management plans, voting rights, and profit and loss allocations. Essentially, these documents are prenups for business, and it is best (and sometimes required) to negotiate these agreements at the beginning of the business relationship.

If, in the future, you contemplate any major structural or financial changes with respect to the entity, e.g., you accept any additional members into the entity, a building is purchased by the entity, any major investments are made by the entity, etc., you should contact your attorney before these matters are completed so that any appropriate changes to the entity documents (i.e., the Articles or the Operating Agreement) can be made.

If you are set up as a corporation, limited liability company, or partnership, are a sole proprietorship with employees, or would just prefer not to use your Social Security Number in connection with company business, you will need to apply for a Federal Employer Identification Number (FEIN) from the Internal Revenue Service (IRS). The IRS uses this number to identify your business for all taxation matters, and it is required for businesses with employees.  Some states require businesses to also have a state tax identification number.

If you act responsibly and take a few precautions, a limited liability company or corporation is a major benefit over a sole proprietorship or general partnership.   If you do not form an entity, you could become a de facto sole proprietorship or partnership, either of which could expose you to personal liability for business-related debts and claims.

4. Separate Business From Personal.

In order to benefit from the protections a legal entity provides, it is imperative to keep the entity completely separate from your personal assets and to keep separate, detailed records of all business-related funds and transactions. For example, you should open a bank account and obtain a credit card in the name of the entity (which will usually require a copy of the Articles of Organization/Incorporation and the Federal Employer Identification Number for the business – but you should check with your bank to determine its requirements).  You will likely deposit an initial amount into this account from your personal funds (which is often treated as an initial capital contribution to your company), and any additional monies you put into the business can be treated as loans to the company or additional capital – all of which should be documented.  In the future, all company revenues should be deposited into, and all company expenses should be paid out of, the company bank account.  It is very important that you do not commingle your personal funds with the funds of the business (i.e., you should not pay personal bills out of, or deposit personal income into, the business account), as this could result in “piercing the corporate veil” and effectively make you personally liable for the business as though the entity never existed. You may take periodic distributions out of the entity, but such distributions should be reflected as such on the books and records of the entity.

Note: Even if you have formed an entity, you may still be held personally liable for certain claims, such as claims arising out of an act or omission you, such as your own negligence, fraud or illegal act; claims arising out of a contract, particularly one that was personally guaranteed by you; claims based on the concept of “piercing the veil” of the entity (which usually arise over commingling or diversion of assets); and liability for consenting to or receiving a distribution in violation of the business’s operating agreement or the applicable business entity statute.

5. Speaking of Money…

The initial funding of a business can come from many potential sources, such as personal savings, loans or investments from friends and family, business loans from banks or through Small Business Administration (SBA) loan programs, lines of credit, government backed loans, venture capital, research grants, or third-party investors. Be sure to provide adequate capital for the entity’s intended purposes — and document the capital infusion, whatever the source.

Avoid personal guarantees whenever possible. Act ethically. Don’t attempt to mislead the entity’s creditors about the financial condition of the business. Do not divert assets. If the business looks like it is going down, don’t attempt to lessen your own loss by taking big draws or moving assets out of the entity. That will only help open the floodgates to your personal assets.

Note: If you are raising money for a company, whether through the sale of stock, LLC interests, or LP interests, or bonds, notes, or other debt instruments, you’re selling a “security” under federal and state securities laws — the failure with which to comply may carry criminal penalties. If you fail to comply with the applicable regulations, you could be liable to pay back the investors out of your pocket — with interest. It is highly advisable to consult with an attorney before attempting to raise money for your business.

In Part 3, we’ll discuss obtaining other licenses you may need to run your business, working with employees and contractors, and the importance of written agreements.