When you start a business, legal issues can seem complex, even scary. Business Law Basics will help you ask smart questions and get the right advice. This simple guide will show you everything you need to know about:
You'll also learn the basics of partnership and corporate structures, license and regulation essentials, employment issues, legal aspects of buying and selling, common pitfalls, international business issuesand more.
Each of the books in the Crash Course for Entrepreneurs series offers a high-level overview of the critical things you need to know and do if you want to survive and thrive in our super-competitive world. Of course, there's much more to learn about each topic, but what you'll read here will give you the framework for learning the rest. Also, the co-authors' website, expertbusinessadvice.com, offers expanded support for entrepreneurs and is updated daily.
Among them, Scott L. Girard, Jr., Michael F. O'Keefe, Marc A. Price, and Mark R. Moon, Esq. have successfully started 20 companies in a wide variety of fields. Their individual experiences are just as varied. Scott, a combat veteran who has served in Iraq and Afghanistan, was formerly vice president of Pinpoint Holdings Group, Inc. Mike founded O'Keefe Motor Sports in 2004 and grew it into the largest database of aftermarket automotive components in the world. As vice president for marketing of Bracemasters International, he grew his company's website viewership by 17,000% in two years. Marc has launched seven companies of his own and has collaborated with the Federal government, U.S. military, major nonprofits, and some of the largest corporations in America.
Business Law Basics is also coauthored by Mark R. Moon, Esq., a founding and currently the managing partner of the Moon Law Group, P.L., in Tampa Bay, Florida.
About the Author
Mark R. Moon, Esq., a founding and currently the managing partner of the Moon Law Group, P.L., in Tampa Bay, Florida.
Read an Excerpt
What Is Business Law?
Do I Need a Lawyer?
The short answer? You bet!
LAWYERS SOMETIMES GET A BAD RAP. We've all heard our share of lawyer jokes. But as an entrepreneur, you'd be silly to buy into the common stereotypes that have accumulated over centuries. Smart entrepreneurs view attorneys as a valuable resource and one of their most significant allies in starting, growing, protecting and ensuring the successful lives of their businesses.
So what are lawyers good for?
Lawyers are good for a number of things, some of which are less obvious than others. Most people think of attorneys when they are contemplating starting a new business, when creating and reviewing contracts, and of course when they need protecting in the event of a legal issue.
However, there are many more duties a business owner can ask an attorney to handle. The possibilities are almost endless, but include these:
Monitoring and fulfilling ongoing filing requirements, depending on what type of business you have
Ensuring compliance with any regulations that apply to your company
Keeping you current on product liability developments and coverage
Serving as your Registered Agent, which means they act as a designated recipient of all Service of Process (SOP) communications in the event of a legal action or lawsuit
Preparing fundraising documents, such as private placement memoranda
Ensuring your Intellectual Property protection, which can be extremely important if you or your business have a unique idea or product not currently available in the marketplace
Conducting litigations, making real estate and equipment arrangements, etc.
Making collections on invoices, drawing up template agreements your non- legal associates can use with proper training and guidelines
Scanning trade news and alerting you to any emerging issues you need to anticipate
Helping you set up document and data archiving and protection resources
Connecting you with useful business contacts in the attorney's practice or even social circles
If you are still dubious, just ask self-employed and small business owners what kinds of support they get from their attorneys. You'll hear some amazing stories.
But I can't afford an attorney. I need that money for more important things!
Yes, legal costs can mount up, but it's often true that those sums are a fraction of what you could pay or lose without the benefit of competent legal advice. You are probably gifted and well grounded in your core business. Don't assume that that naturally qualifies you to be a legal expert, even in your own industry sector's affairs.
And if your start-up is the first one you've launched, you may learn a lot from your seasoned attorney's broad view of other small businesses and their successes and failures. You may have many governmental responsibilities to fulfill as well: Depending on what type of business you are currently operating or starting, you may owe information to various units of government and others. You cannot afford to make mistakes through ignorance or inexperience in these areas.
But what are the risks of skipping steps usually handled by attorneys?
There are a number of common business mistakes made by foolish entrepreneurs. One common error is selecting the wrong type of business entity or filing status for a new business. This mistake can end in much more labor-intensive document preparation and filings, unnecessary expenses, complicated and timeconsuming reporting requirements and potentially unpleasant tax implications.
Another common mistake hurts business owners who improperly formulate employment, confidentiality and non-disclosure agreements. These documents, more than any others, can prevent associates, among others, from "biting the hand that feeds them." That hand is yours.
Imagine hiring and training someone who then decides she will go out on her own in your neighborhood and start a competing business.
Or what if you hire a salesperson whom you pay to build a large book of business and contacts, but who then tries to blackmail you into paying him more or threatens to take that business and relationships across town, to the competitor?
What about when you try to raise capital to start or grow a business, and you are making your rounds visiting different financial resources, sharing your vision and strategies. Do you want to make sure that these individuals can't make your idea theirs?
Couldn't happen to you?
You might feel like your tiny start-up business is too small to attract legal problems. Not so! A gentleman I know very well decided he wanted to become a partner in a local landscape company. He met with the owner and decided not only to become a partner but to invest a large sum of capital. So the two men drafted a very basic hand- written contract. It wasn't witnessed by anyone. There was only one signed original, and it was kept at the company.
The money was used to buy more equipment and to pay some outstanding payroll obligations. The company continued to operate for nearly a year while the two partners went door-to-door, earning new customers and renewing residual business. After watching the business grow compared to the previous year, my friend began to question why he wasn't earning more from the business's activity. As you can imagine, things got extremely nasty. The original owner finally said something like "Screw you. I don't owe you anything. Don't come around here again."
Then when my friend began asking to see their agreement and financial records about his investment, the original owner said, "I destroyed the contract and I'm not paying you anything. If you don't like it, sue me!" Unfortunately, this eye-opening experience taught my friend some of the hardest lessons of his business life. He spent a year working for next to nothing and lost his entire investment. There had been real documentation supporting his claim to owning part of the business — but it was gone. The only recourse he had was to launch a costly legal battle that he probably would have lost. In the end, he wrote off his loss and moved on, but not without a bruised ego and a significantly depleted bank account. Oops.
So what am I saying?
Just remember that starting a small business on a shoe-string budget is not a unique circumstance. I speak for most entrepreneurs. We've all been there. The start-up game involves a lot of difficult decisions, usually choosing among many things, all of which you need. But it's about trying to properly identify what items are the most important related to the stage of the business development process you are currently in.
It is critically important to build a rock-solid foundation for your business. That includes setting up the most appropriate type of entity and business structure, organizing the company to bring on employees and investors, protecting whatever secret sauce you plan on taking to market, and a formidable list of other things. You do need solid legal representation to survive and succeed.
The Many Faces of Business Law
Take a mini-tour of the business law landscape and see where your company's needs fit in.
ALMOST ANYTHING AND EVERYTHING you can think of in the legal field will probably fall under the umbrella of business law in one way or another. It's one reason many lawyers are drawn to the practice.
For example you might be thinking, "Aha! What about divorce or family law?" Well, that area is often very relevant in small- and medium-sized businesses, in terms of their legal representation. Imagine a family business start-up where the husband and wife both have ownership. If the marital bliss ends, and the couple divorces, what happens to the business? A cluster of legal issues will need addressing. And that's just one example.
There are many attorneys who specifically identify themselves as business attorneys. So what do they do? Most likely, they work in a few of the various categories I'll discuss below. To find out, just ask them or research their background. Do not get confused by titles or advertised practice areas like corporate or business. It is more important to know basically what advice you want. With that defined, you can decide if a particular attorney is qualified. If you are not sure, just ask the attorney and check references. If you want to dig deeper, you'll find numerous industry and jurisdictional-specific books with information and names of attorneys, with checklists or other references on the specifics of what you want to do.
Some of these categories are more common than others and are more closely associated with a traditional business lawyer, while others are quite specialized. Before we get started, please let my lawyerly mind point out that many, many books focus on small sections of each of these specialties. This list is not comprehensive and is only intended to give you an overall view of the range of topics you will find expertise in.
Agency Law This area addresses relationships, asking who can act on whose behalf. What authority do they have? What responsibilities do they have? Who is ultimately liable for an individual's actions, that individual or the business? What can the individual do on behalf of the business? Who can be an authorized agent?
Alternative Dispute Resolution This area focuses on arbitration, mediation, and negotiation. It asks how we are going to resolve disputes. With customers? (Is the customer always right?) With employees? With suppliers? Disputes will inevitably occur; you must plan for them.
Commercial Code This is called the Uniform Commercial Code in the U.S. Typical issues: How do the commercial codes work in your jurisdiction? What protections are built in for your business that you may use? What is the relation of these codes to your business model?
Commercial Crimes The focus here might be on something your company does (or doesn't do) or something that someone or another company does to you or your company. What things are considered commercial crimes in your jurisdiction? Are they the same in every location in which your business operates? Are there any differences if you cross state lines or ship products internationally? Sometimes what is legal and/or customary in one jurisdiction could be criminal in another. For example, bribes, in many countries, are part of standard business and in others, are a significant crime. On another front, your company could need protection from the criminal acts of employees.
Consumer Protection This specialty asks questions like what rules are related to your interactions with the consumers of your product or service. What liability do you have for your products? What if they break? What if they are used improperly? What are the rules you must follow for contacting your customer to collect a past due bill? Are there specific times of day when you may call? (In the U.S., the answer is yes.) Are there required disclosures you have to give? (In the U.S., the answer again is yes.) Do you need to have your products tested before they are imported?
Contract Law Contracts, contracts, contracts! They form the core of most businesses' legal needs. They put understandings in writing. You must know what they actually mean. An attorney will help you to protect yourself and ensure you reach your desired results. The goal is to ensure compliance and adherence to the agreement reached. Contracts are very specific, varying by industry and jurisdiction. This is one of the most important areas in which to have an attorney. Every attorney I know updates his or her notes every time a new case is decided or a new issue arises, to ensure that all clients are protected in that situation in the future.
Corporate Law This very broad category includes the formation, modification, documentation, structure, distribution, compliance and control of organizations, just to name a few topics. It's often used as another name for business law.
Employment Law Think human resources here. This area is also broad. Some typical questions include things like these: Should and can you have the employee sign a non-compete agreement? Can you ask the prospective employee about his personal life in a job interview? How often are you required to give an employee a break? When do you have to pay extra for overtime work? If your employee is hurt at work, how does that affect the business? Can an employee sue the business or you for anything? If it has anything to do with employees, then it is probably in this category and there is probably a rule or a case on the subject. Good advice and a little forethought will go a long way to preventing problems here.
Financial Regulation This covers disclosure, taxes, tracking, and reporting, as well as your interactions with local, state and national government agencies. For some industries, your needs can be quite minimal, rarely going beyond standard accounting and tax practices. In other industries, it can be a major portion of your business model.
Intellectual Property This is the world of copyrights, trademarks, patents, business processes, logos, and secret formulas or inventions. The focus is the protection and exploitation of all of these intangible items.
Insolvency This issue could affect your business, but it also can apply to your customers, suppliers and others. Most people believe this is the end of the road (especially those who played too much of the board game of Monopoly as kids). But I encourage you to view solid advice in this area as a powerful, long-term tool you can use. The list of major companies that have faced some form of insolvency, then restructured and went on to become more successful in the long run, is significant and long. Just look at the automobile or airline industries around the world.
Industry-Specific Laws and Regulations In addition to local rules, your industry may have its own very specific rules or regulatory agencies which you need to comply with. Your attorney can help review your particular sector's governance, identify compliance issues, and help you know what to do about them.
International This area of law includes trade regulations, quotas, tariffs and more, not to mention potentially everything else discussed in this whole book, regarding each individual country you trade in. You must consider risks, opportunities and protections provided to your business in foreign countries. In some cases, your local attorney may recommend a counterpart in another country who can facilitate things on that local front much more expertly and economically.
Local Law and Regulation What are the local rules? In the U.S., there can be significant variance from city to city, and county to county, not to mention in multi- or interstate commerce. One of my clients has a tree maintenance firm. His office is located in the unincorporated part of the county (i.e., it's not in a city, so it's subject to county regulations only). The closest city is less than 10 minutes' drive away, yet it requires tree trimmers to carry significantly higher levels of insurance to operate there. Luckily we could discover that for him and protect his business properly. Another client came to see me after he ended up in a bad spot due to an accident that occurred in a certain city. His business was not carrying the required amount of insurance to conduct business there. So this client was potentially facing not only the fallout from the accident, but also personal liability, the revocation of his professional license, and possible civil and criminal fines — all because he did not review the local rules. An attorney can help you determine if there are any local rules that affect your business.
Mergers, Acquisitions, Franchising, Sales and Venture Capital This specialty addresses everything associated with joining a business, acquiring an existing business, franchising or selling your business, and/or financing the startup or growth of your business. These are very specialized areas and vary by industry and size of transaction. You require the aid of an experienced and knowledgeable attorney due to the high risk involved.
Real Estate This includes leases, purchases, sales, and other property transactions. It's one of the most common areas that leads business owners to work with an attorney. Unfortunately, I have met a significant number of clients who initially came in for help because of a commercial lease dispute; upon review it often emerges that the lease is extremely biased against their interests. When asked about it, these business owners say they did not read or review the lease prior to signing, because the landlord told them it was a "standard" lease. Don't make that classic mistake: At least read before you sign, and get help if you question any of the terms.
Taxation This is a very jurisdictionally and industry-specific branch of law. Solid, up-to-date advice can make a significant difference in your business's bottom line and overall success. And don't underestimate the need to heed all warnings and keep excellent records. Far too often, I have seen otherwise successful businesses undone by faulty record keeping and tax audits.(Continues…)
Excerpted from "Business Law Basics"
Copyright © 2014 Scott L. Girard, Jr., Michael F. O'Keefe, and Mark A. Price.
Excerpted by permission of Red Wheel/Weiser, LLC.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
Chapter I What Is Business Law? 19
Do I Need a Lawyer? 21
The Many Faces of Business Law 25
Business Models for Your Legal Representation 30
How Do I Find the Right Attorney for My Needs? 35
What Does a Corporate Lawyer Do? 38
Chapter II Start-Up Activities 41
Choosing the Right Business Entity 43
The Difference Between Copyrights and Trademarks 45
How to Patent a New Product 47
Renting and Leasing Property for Your Business 50
Everybody Wants a Piece of You: Licenses, Regulations and Taxes 55
Insurance-A Risk-Management Tool 59
"The Name's Bond-Surety Bond" 62
How to Reorganize or Restructure Your Business 64
Starting at Step… Two? 69
Chapter III Operating Activities 71
Running the Show: An Overview 73
Internal Documents You Really Need 77
External Documents You Really Need 84
YAY! Regulations! 87
Using Contracts on the Regular 90
The Who-What-When-Why-How of Contracts 93
The Pen is Mightier than the Sword 97
When the Wheels Come Off… 100
Here's a Loan, There's a Loan, Everywhere's a Business Loan! 105
Chapter IV Growth and Exit Activities 109
Using a Corporate Attorney to Ward Off Trouble 111
Checking Out for Departure 114
Check, Please! How to Wind Down a Business 117
Chapter V Common Mistakes 121
Don't Be That Guy or Gal: Ten Common Mistakes 123
Isn't a Ton Made of Chocolate? 126
Product Liability 130
Other Forms of Liability 134
Chapter VI International Law 137
Starting to Think about International Business 139
Working Though Your International Business Plan 142
Nationalization of Businesses 146
Treaties 101 148
Tariffs and Quotas and Trade, Oh My! 151
Immigration Issues 153
Immigration: Opportunities and Challenges 155
Afterword: Where to Go from Here? 161
About the Authors 187