The 10 Legal Commandments of Entrepreneurship

“Stained Glass Window Full of Light and Color” by Stock Photos for Free from Flickr (Creative Commons License)

Since becoming a lawyer in 2011, I’ve had the privilege of working with businesses on a variety of legal issues. Looking back at some of the most cringe-worthy moments I’ve experiences I’ve had and heard about from other business and intellectual property lawyers, I’ve come up with a list of the 10 legal commandments of entrepreneurship:

1. Thou shall have a business entity.

When you start a business, create a business entity – an LLC or corporation. Your accountant can tell you which option is best for you. By separating the business from your personal assets, you limit your personal liability if the business is sued. If you open a business without an entity (aka a sole proprietorship), you don’t have this layer of protection.

2. Thou shall maintain your corporate veil.

Creating a business entity is how you begin to limit your liability, and you perfect that protection with a “corporate veil.” This means having a separate bank account and credit card for the business, and the business accounts pay for business expenses and your personal accounts pay for personal expenses. This creates a clear delineation between where the company ends and the person begins in terms of your finances. If the company is sued and loses, it’s clear which assets belong to the company and your person assets are protected.

3. Thou shall have a signed contract at the beginning of a business relationship.

When you are hired by a client or hire someone, start with a signed contract. A contract is a relationship-management document. It is your master document that puts everyone on the same page regarding their responsibilities. This will help you avoid confusion and resolve problems. When a client comes to me with a problem with a customer, I often start by asking “What does your contract say?”

4. Thou shall be thoughtful and careful about looking online for a contract template.

Looking at templates online is a good place to get ideas about terms you might want to have in your contract, but don’t indiscriminately use any contract you find. You don’t know where it came from or whether it’s suitable for your needs.

5. Thou shall take the time to fully read and understand a contract before signing it.

Never be afraid to ask questions or request changes when considering a contract offered to you. Don’t sign anything you don’t understand, because if you sign it and later regret it, you may be stuck with it.

6. Thou shall respect others’ copyrights.

Do not use others’ work without permission. Create your own original content. It’s ok to be inspired by and quote others, but add something to the conversation. If we’re talking about images, do not pull any image you find using a regular Google search. Seek out sources that provide licenses for use, including images available under Creative Commons. If there is an image you want to use that’s not available, contact the copyright holder and ask for permission. To date, I’ve never had anyone say, “No.”

7. Thou shall check the USPTO before branding a company or product.

When entrepreneurs think “branding,” lawyers think “trademark.” The United States Patent and Trademark Office (USPTO) has a database where you can see what company names, product names, and logos others have applied for and registered for their products and services. You don’t want to fall in love with, or invest a lot of time and money in, a branding idea to find out that it’s already been claimed by someone else.

8. Thou shall outsource your taxes.

Every entrepreneur needs an accountant. Let them do what they’re good at.

In the time it would take you to try to do your own taxes, you could make more than enough money to pay an accountant to do your taxes for you.

9. Thou shall consult thy attorney.

Even when you want to do things yourself, talk to your lawyer to make sure you’re not setting yourself and your business up for future problems. My most cringe-worthy moments as a lawyer have been problems clients created for themselves that we could have helped them avoid completely if they had told us what they were thinking about doing. It is easier and cheaper to prevent legal problems than to fix them.

10. Thou shall act with integrity.

Put your energy into your own business, creating quality products or services for your audience.

You don’t need to stoop to bad-mouthing the competing, using trademarks that are confusing similar to others, or ride other’s coattails by doing things like using a web domain that will allow you to pull an audience based on someone else’ popularity (e.g., cybersquatting). Be so good at what you do that you don’t need to use others to make a name for yourself.

One last note: If you’re an entrepreneur, don’t be afraid to ask for help. Accountants help you make money, lawyers help you keep it, and your peers will share their experiences so you can learn from them. If you are an entrepreneur, or have plans to become one, I hope you have people around you who can help you be successful.

If you want additional information about the legal dos and don’ts of starting and running a business, I maintain a mailing list where I share my thoughts about being a lawyer/entrepreneur, updates about projects I’m working on, upcoming speaking engagements, and I may provide information about products, services, and discounts. Please add yourself if you’re interested. You can also contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn.

Entrepreneurship, Business Contracts, & Self-Awareness

Meditation by Moyan Brenn from Flickr (Creative Commons License)

Meditation by Moyan Brenn from Flickr (Creative Commons License)

As a lawyer I am in a problem-solving industry. I much prefer to be on the problem prevention side than having to help my clients clean up the mess they find themselves in, but I try to help when and where I can.

The last few months have been particularly frustrating. I’ve seen multiple situations where problems could have been prevented if the people involved had fully thought the situation through, called a lawyer to help them record their agreement in writing (and had the provisions they didn’t think about in advance), and signed their contract. Let me be clear – I’m not mad at my clients or prospective clients. I give them credit for realizing they are in over their heads and asking for help. The frustrating part is knowing that they are in difficult situations that could have been prevented.

Well written contracts are business gold. They put everyone on the same page from the beginning of the relationship and they outline how the parties will deal with problems when they occur.

I wonder what some people are thinking when they work without a contract or with a poorly written contract.

  • “We were too excited about the project to worry about a contract.”
  • “We were on a deadline.”
  • “I didn’t think we needed a contract.”
  • “The template I found online looked good enough at the time.”
  • “Hiring a lawyer is too expensive.”

All of these are crappy excuses not to have a contract or to have an ineffective one. A responsible entrepreneur is thoughtful enough to know what their needs are including an awareness that they will be dealing with more pain if they have to clean up the mess compared to doing it right the first time. And if the person you’re working with doesn’t understand the value of having a legally sound contract written by someone who knows what they’re doing, I would have serious reservations about working with that person. I thoughtful entrepreneur knows it is a better use of their time and money to hire someone to draft a contract at the beginning of a project than to try to do it themselves and have to hire a lawyer later to clean up the mess they created for themselves.

More entrepreneurs need to hear and to realize, that even though they might be running a solo shop, they never have to deal with a situation alone. They don’t have to have all the answers all the time. It’s ok to ask for help. In fact, it’s a sign that you are a good entrepreneur when you play to your strengths and you let other people use their best skills on your behalf. This requires a high degree of self-awareness and humility.

Gary Vaynerchuk and his team made an awesome video about self-awareness as an entrepreneur. I regularly watch it as part of my journey as a business person.

This is an area where I have substantial interest – both as a lawyer and an entrepreneur. If you want to chat more about this topic, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn.

Who Really Owns Your Content?

ZombieGrafitti by RhodanV5500 from Flickr (Creative Commons License)

ZombieGrafitti by RhodanV5500 from Flickr (Creative Commons License)

If you outsource any of your content creation (blog, photos, videos, etc.) you need to read this.

A lot of business professionals have the misconception that if they pay for something, they automatically own it. If your marketing department or employees create your content, that’s true. The company will own the copyright in (and actually be the author of) everything your employees create within the scope of their employment.

That is not always the case when you use third party contractors to create content for your company. If you don’t have a contract with your independent contractor, the law says the contractor owns the copyright in whatever you’ve hired them to create. You only get an implied license to use the content. The contractor can stop you from using the content in a different way than the original project.

If you find yourself in that situation where you thought you owned the contract but you only had a license and you wanted to become the copyright owner, you would need to have the contractor sign a copyright assignment to give it to you. This is a contract that must be in writing. And since the contractor owns the copyright, it’s his/her prerogative to charge whatever they want to assign it to you. So that means they can basically make you pay for the same work twice.

So how do you avoid being in this situation? When you work with independent contractor, you need a solid contract for each project that explains what you’re hiring them to create and who will own the final product. Many contractors I’ve worked for have requested contracts that state that the hiring company only owns their work product when the company has paid its bill in full. If the company doesn’t pay its bill, the company doesn’t own the content and the contractor has legal recourse to prevent the company from using their work.

Legal Side of Blogging Book CoverIf you work with independent contractors on a regular basis, consider having a lawyer create a contract template for you to ensure that the document is complete and that all your interests are protected.

If you need a legal resource for laymen on this topic, I recommend my book, The Legal Side of Blogging: How Not to get Sued, Fired, Arrested, or Killed. It covers a lot of the major issues that apply to copyright and the internet. If you want to chat more about this topic, feel free to connect with me on TwitterFacebookYouTubeLinkedIn, or you can email me.

Please visit my homepage for more information about Carter Law Firm.

Thoughts About Effective Contracts

Signing Paperwork by Dan Moyle from Flickr (Creative Commons License)

Signing Paperwork by Dan Moyle from Flickr (Creative Commons License)

Some people think contracts are intimidating and others find them mind-numbingly boring. In general, I like working with contracts. I know this makes me sound like a big dork, but it’s true. I get to help my clients protect themselves and write for a living – two things I enjoy.

When it comes to contracts, some clients hire me to review an existing contract and some hire me to draft a contract from scratch. Here’s one thing I learned in law school and have verified to be true in practice: the person who writes the contract, does so in the best interest of their client. So when you read a contract, think about which side wrote the first draft because I will guarantee it’s biased in their favor.

For example, I’ve written plenty of contracts for situations where a business hires an independent contractor to work on a project. The contract verbiage can be very different when I’m representing the business than when I’m representing the contractor. This is why a lot of lawyers want to be the side that writes the first draft of a contract because they want to write in their client’s favor and negotiate from there.

Recently, I’ve worked on a few contracts that reminded me how important it is to still be reasonable when writing contracts. If your contract template is too biased in your favor, or doesn’t give the other side any sense of security in the relationship, you may have a hard time finding people who are willing to sign it.

I’ve seen this in particular to contract provisions about changing or terminating a contract. There are times, like when you’re a long-term service provider, where you need to be able to change the terms of the original agreement to reflect changes in the industry, your services, or your rates and it would be bad business practice to let the customer change the agreement. In some circumstances, the contract says that the provider can make any changes at any time and if the customer doesn’t like it, they can take their business elsewhere – very take it or leave it. Other times, it’s prudent to specify under what circumstances changes will be made, how much warning the customer will have prior to changes going into effect, and how that notification will be delivered.

I prefer to think about contracts as relationship management documents.   When you’re writing or reviewing a contract, think about the expected lifespan of your relationship with the other side and how you want to feel about that relationship at the end of the day. And remember that contracts are binding documents so it’s important that your contracts reflect your needs and protect your interests. This is one of the times where it’s important to make sure you have an accurate document before you sign it because you may not be able to change it later if you realize after the fact that you’ve made a mistake.

If you want to chat more about contracts, you can connect with me on TwitterFacebookYouTubeLinkedIn, or you can email me. You can also subscribe to the Carter Law Firm newsletter.
Please visit my homepage for more information about Carter Law Firm.

What Happens to your LLC when you Die

Headstone View by Augapfel from Flickr (Creative Commons License)

Headstone View by Augapfel from Flickr (Creative Commons License)

When you own an LLC or part of an LLC, you own property. This is property that will be part of your estate when you die. If someone came to me and said their business partner just died and they’re not sure what that means for the business, I would initially have two questions.

  • What does your operating agreement say in regards to this situation?
  • What does the deceased’s estate plan say happens to their portion of the business?

Hopefully both of these documents exist and give clear instructions. If you don’t have an operating agreement and the person didn’t have an estate plan, their portion of the business will pass to their relatives like the rest of their estate per that state’s law. Most likely, if the person was married, their portion of the business would go to their spouse. If they didn’t have a spouse, it would go to their kids. If they didn’t have a spouse or kids, it would go to their parents.

When I draft an operating agreement for LLC owners, I make them answer the hard questions like what happens if an owner dies or gets disabled and document their plans for addressing those situations at the beginning of their business relationship so they won’t be scrambling when they find themselves facing these issues.

If you are a sole LLC owner, you don’t need an operating agreement that tells you how you’re going to run the business, but you may want one to thoroughly document what you want to happen to the business when you become disabled or die. Make sure you document the pertinent information like where keys, passwords, and bank accounts are so your employees or loved ones can take over or wind up the business.

Once you have your estate plan and operating agreement in place, make sure you tell your family and whoever else may need to know where you put it so they can carry out your wishes. My Wills and Estates professor (who is a brilliant estate planning attorney) suggests you put them in a fire-proof and waterproof safe with the door unlocked (or the key in the lock). That way the documents are safe but if a thief gets into your business or house, they will quickly see that it doesn’t contain anything of value to them and leave it.

It’s hard to think about what should happen to your business if you die. If you work in an industry (like law) where a person needs a specific credential to be an owner, you may not be able to keep the business in the family but they could be charged with closing down your operation. Otherwise you will have to decide if you want the business to go to a family member, an employee, or a combination of people. You ultimately won’t have control over whether the business continues to exist, but you can put the documents in place to try to make it happen.

You can connect with me on TwitterGoogle+FacebookYouTubeLinkedIn, or you can email me.
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Please visit my homepage for more information about Carter Law Firm.

Ask the Hard Questions Before Starting a Business

dock at dusk by Scott Ellis from Flickr

dock at dusk by Scott Ellis from Flickr

When business owners are launching their new venture, they can get so excited about launching the business that they don’t put the energy into making sure they have the structure of their business relationship laid out. Why would they want to do that? That sounds really boring and kind of a downer when you think about it.

Even though it might seem boring or superfluous, people who are going into business need to have a meeting of the minds and address some of the hard questions that come with owning a business. It might be the first stressful conversation you have to have and it’s a good way to gauge how well your partner(s) communicate under stress. You might learn that they’re an irrational nutball when things aren’t smooth sailing and you don’t want to go into business with them.

When I’m working with new business owners, here are some of the questions I throw at them to see how well they’ve thought through their plans.

  • When and how much will each owner get paid?
  • What happens if an owner gets divorced? Becomes disabled? Dies?
  • What are each person’s responsibilities? How much can each owner spend without getting the other owner(s) approval?
  • If the owners are deadlocked on a decision, how will you resolve it?
  • What should happen if an owner isn’t performing up to par?
  • What will happen if an owner wants out?
  • Under what circumstances can an owner kick another owner out of the company? What will the process be?
  • What’s the goal of the business, including the exit strategy?

Ideally, these answers should be a part of the owners’ operating agreement if they have an LLC or otherwise documented in a master plan so everyone’s on the same page. Business divorces can be as messy as family divorces, especially when the owners didn’t figure some of these things out in advance.

It’s much easier to deal with these questions when everyone’s happy and thinking about what’s fair and what’s best for the business than to wait until everyone’s pissed off at each other and looking for ways to get ahead or screw over the other owner(s).

Before you start a new business, talk about the hard questions with your potential partners before you launch your venture and consider meeting with a business mentor and/or a business attorney to make sure that you’re setting yourselves up to be a success from all angles from the beginning.

You can connect with me on Twitter, Google+, Facebook, YouTube, LinkedIn, or you can email me.
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Please visit my homepage for more information about Carter Law Firm.

How to Avoid Screaming Matches in Coffee Shops

Office Cleaning Prank Played On Janitor In Frederick Md from Flickr

Office Cleaning Prank Played On Janitor In Frederick Md from Flickr

When you and a friend have a great idea for a new business, you create an LLC.

When you create an LLC, you get super-excited about your new venture.

When you get super-excited about your new venture, you forget to put in the business infrastructure behind the scenes.

When you forget to put in the business infrastructure behind the scenes, you and your partner may have different ideas about how you’re going to run the business.

When you and your partner have different ideas about how you’re going to run the business, you get frustrated with each other.

When you get frustrated with each other, you get into screaming matches at coffee shops.

Don’t get into screaming matches at coffee shops.

Get an operating agreement at the beginning of your business relationship.
This will make sure that everyone is on the same page and you can predetermine how you’re going to address certain problems before they arise.

You can connect with me on TwitterGoogle+FacebookYouTubeLinkedIn, or you can email me.
You can also subscribe to the Carter Law Firm newsletter.
Please visit my homepage for more information about Carter Law Firm.