Five Entrepreneurial Legal Blunders

Ronda Higgins Thornton - Attorney and Business Consultant

There are several legal pitfalls that business owners can fall victim to that can make the difference between a successful business and one that fails. However, with a little foresight and planning you can protect your business and limit your liability. The following are legal considerations that should be taken into account when starting and operating a business: 

Every business should file with the Secretary of State. When filing, you will usually need to reserve your company name and choose an appropriate entity type for your business. Choosing a business structure should not be taken lightly as each type has important legal and tax ramifications. You have a choice between the following types of business structures: sole proprietorship, partnership, limited partnership, corporation, a limited liability company, non-profit corporation, and a cooperative. Generally, you want to choose the best structure based upon how much control and exposure to liability you wish to have. For instance, sole proprietorships generally afford you the greatest flexibility and least formality but expose you to a greater degree of liability. On the other hand, a corporation generally protects the business owner from personal liability but may result in the payment of higher taxes and require greater formalities, including but not limited to forming a board of directors, creating an articles of incorporation and filing a separate tax return for the business.

If you are entering into business with a partner or group of investors, you want to clearly discuss the expectations of these business relationships with the parties involved. Specifically, what their roles and contributions to the business will be. In addition, you will want to discuss the division of assets and financial responsibilities of the each party involved and upon agreement, put the information in writing. A clear understanding of these matters becomes the foundation for how your business operates when your business exceeds sales expectations, when you have an offer to purchase the business or even when filing a business bankruptcy. These general principles are applicable when establishing business relationships, including those with vendors, manufacturers and even clients.  

The addition of new employees is usually a sign that your business is doing well.  Give some thought to the duties that you want your employee to ultimately be responsible for and the overall business environment you would like to create. With this information you should create accurate job descriptions as well as an employee handbook that establishes personnel related policies, including but not limited to tardiness and harassment reporting procedures. This allows you to provide applicants with a clear understanding of your expectations and establishes a structured environment. Further, you will want to ensure compliance with federal and local non-discrimination statutes when advertising and interviewing applicants.  Generally, it is against the law to consider factors such as age, race, and sex when making employment decisions. Additionally, once you have hired an employee, make sure that you have obtained an employer identification number (EIN) and are compliant with federal laws regarding minimum wage, tax withholding, citizenship, and posting required employee notices. Finally, you should ensure that you are registered with the appropriate state agencies and are paying unemployment compensation and carrying the appropriate amount of worker’s compensation insurance. 

You have worked hard to develop your company’s brand. Trademark and copyrights are intended to protect that hard work. Your company’s name, logo, brochures, inventions, video/audio recordings, and website content should all be registered.  Intellectual Property law can be complicated but the basics are as follows:  

a. Copyrights are to protect original works such a website content, audio/visual recordings, and brochures.  These things become copyrighted works at the time of creation; however, taking the additional step of registering them with the U.S. Copyright Office creates a public record and puts others on notice, thereby resulting in greater legal protection for you. 

b. Trademarks are designed to protect symbols, logos and names that distinguish a business.  This prevents a bottling company from making a similar cola product and placing the Coca-Cola logo on the product to fool or confuse unsuspecting customers.  Note, however, that it does not prevent the bottling company from making their own cola product but rather from the unauthorized use of the Coca-Cola logo.  

c. A patent is designed to protect inventions and prevents others from making, using or selling an inventor's product or ideas.  Trademarks and Patents must be registered with the US Patent and Trademark Office and normally require more extensive application submissions and longer timeframes for approval.  Along the same lines, you will want to do you some preliminary research and ensure that your ideas and works are not duplicative, resulting in an infringement upon the intellectual property rights and protections of others.   

You want to ensure that the employees and vendors that you have trained and introduced to your business model do not become your new competition or worse that they woo your established customer base away from you without your knowledge. Your customer lists, manufacturing techniques, suppliers and processes are all trade secrets that should be protected. A non-disclosure or confidentiality agreement prohibits employees from discussing, selling or otherwise sharing information with others outside of the company. In addition, you may also consider a non-compete agreement. There are multiple types of non-compete agreement, ranging from those that prevent an employee from working for a direct competitor to those that prohibit an employee from starting a competing business for a specified period of time or in a particular area. Keep in mind that you must be reasonable. Agreements that are too overreaching and unreasonably limit an employee's ability to appropriately earn a living will likely not be upheld in court.  

The above listed guidelines can easily be implemented with a little planning. You should consult a qualified attorney for additional information on these as well as additional protections that may be appropriate for your business. 

 

 

 

Attorney and Business Consultant, Ronda Higgins Thornton is the owner of EEO Consultations, LLC, a legal consulting firm specializing in labor and employment matters, and providing assistance to individuals and businesses nationwide.  Contact Ronda.