The 10 Legal Commandments of Entrepreneurship

December 13, 2017 by 7 Comments

“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 Twitter, Facebook, YouTube, or LinkedIn.

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Know the Fine Print – Dispute Resolution

April 3, 2016 by 1 Comment
Fine Print by CJ Sorg from Flickr (Creative Commons License)

Fine Print by CJ Sorg from Flickr (Creative Commons License)

Every contract needs a dispute resolution clause – every contract. It’s something you should look for in every contract you read. If you’re given a contract to sign that doesn’t have one, I strongly recommend adding one in. That’s what I would do.

The dispute resolution clause in a contract is the how-we’re-going-do-deal-with-problems provision. It lays out how and where problems will be resolved when they occur.

How Problems will be Resolved
There are three main ways people general resolve problems in a contract:

  • Mediation: Hire a mediator to help you resolve the problem – more likely to results in “splitting the baby” and not a winner and loser.
  • Arbitration: Hire an arbitrator (or panel of arbitrators) to hear/review your arguments and make a decision. (This is what they used in Erin Brockovich.) Sometimes arbitration is faster and more cost effective than litigation, but not always.
  • Litigation: This is the traditional civil lawsuit. This is what I recommend for most contracts I write for clients.

You’re not limited to only these three options. You can have anything in your dispute resolution clause as long as it’s legal. So if you want to resolve disputes by throwing darts or Rock-Paper-Scissors-Lizard-Spock, you can.

Where Problems will be Resolved
The dispute resolution clause should specify in which county and state disputes will be resolved. If you’re writing the contract, you want the opposing party to have to fight you on your turf if there’s a problem. This is why most contracts I write for clients require them to resolve all disputes in Maricopa County, Arizona and that all parties agree to that jurisdiction. Without such a provision, you may find yourself having to travel to fight disputes in the opposing party’s state, and possibly needed to employ a local lawyer for additional assistance.

Which Law Applies
The laws in each state are slightly different. This is why it’s imperative that your contract state which state’s law will govern the contract for all non-federal claims. Federal claims (like many intellectual property issues) are governed by federal law. You don’t want to have a dispute within the dispute about which law applies to the state-law claims.

There may be other provisions in the dispute resolution clause like a requirement to notify the other party in writing if you believe they’ve breached the agreement and a set time in which they have to cure/fix it before you can take further action against them. Another clause to look for is a provision that requires the loser in a dispute to pay for the winner’s attorney’s fees. I like to add this into contracts I write. It makes people think twice before going after the other.

Next time you buy a ticket for a show, professional sports, travel, or sign up for an account on a website – read the fine print. See what the dispute resolution clause requires. You’ll quickly see that whoever writes the contract, does so with their (or their client’s) best interests (not yours) in mind.

If you need help writing or reviewing a contract, speak to a business lawyer about your needs and options. If you have questions about contracts that you want to discuss with me, you can contact me directly or connect with me on Twitter, Facebook, YouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

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Working with People who Don’t Understand Copyright

August 24, 2015 by 2 Comments
Sentinel vs. Jawa (88/365) by JD Hancock from Flickr (Creative Commons License)

Sentinel vs. Jawa (88/365) by JD Hancock from Flickr (Creative Commons License)

Here’s the scenario: You are a newly hired third party content creator for a company. You learn that your client has a habit of copying pictures from Pinterest or Google Images searches without verifying that they are allowed to use the images on their website and/or social media posts. They want you to do the same. What should you do?

Option #1: Your Client Needs an Education about Copyright
Some people truly believe they can use any image they find on the internet, particularly if they give an attribution and a link back to the original. There are so-called “gurus” who will tell you this is ok. It’s not.

What your client is likely doing is committing copyright infringement. Inform your client that he/she is running the risk of getting a cease and desist letter, a bill with a license, or a lawsuit. In the worst-case scenario, they could face a lawsuit for $150,000 per image they use, plus attorneys’ fees. Tell your client to thank their lucky stars they haven’t faced one of these consequences yet and advise them that the prudent thing to do would be to replace all images on their site with pictures they can legally use.

Use this an a teaching experience to educate your client about the importance of asking permission, using Creative Commons, and possibly exploring whether what they are doing in some situations qualifies as fair use.

Option #2: Your Client Understands but Disregards Others’ Copyright Rights
Fire your client.

This person is obviously an idiot. No money is worth being affiliated with this company. Run away as fast as you can.

Footnote: Every company should have a “No Jerks” rule when it comes to employees and clients. If you find someone violating this rule at a genetic level (not just having a bad day), cut all ties with them immediately.

The same rules about copyright that apply to your website also apply to your social media posts:

Whenever I work on a contract for the relationship between a company and an outside content provider, I always recommend that my client require an indemnity clause that will protect them if they are accused of intellectual property infringement based on material provided by the other party. Your contract is the master document for your working relationship. It should clearly define the parties’ obligations to each other which should include deadlines and deliverables and also how you will resolve problems when they occur.

If you want to know more about the complex issues related to copyright and the internet, please check out The Legal Side of Blogging: How Not to get Sued, Fired, Arrested, or Killed. If you want to chat with me about this topic, you can contact me directly or connect with me on Twitter, Facebook, YouTube, or LinkedIn.

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Entrepreneurship, Business Contracts, & Self-Awareness

August 7, 2015 by Leave a Comment
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 Twitter, Facebook, YouTube, or LinkedIn.

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Lawyers Protect you during a Business Divorce

April 28, 2015 by 1 Comment
Pareja (Couple) by Daniel Lobo from Flickr (Creative Commons License)

Pareja (Couple) by Daniel Lobo from Flickr (Creative Commons License)

Over the last six months I’ve worked with a handful of companies that were experiencing major changes in regards to how the company is operating and who the owners are – usually resulting in one or more owners buying another one out. Sometimes the owners realize that they no longer have a shared vision and can work together amicably to resolve the situation so they can each move forward in their professional lives and sometimes it’s quite contentious. I often call the situations “business divorces.”

When these situations happen, it’s helpful to get a business lawyer involved early in the process. You may only need in our consultation to discuss the situation in your proposed plan of action. Your lawyer can act as a neutral third party who doesn’t have invested ego in the outcome of the situation. Invite your lawyer to review your company’s operating agreement or bylaws (hopefully you have these) and remind you of what courses of action you previously agreed upon in this type of conflict (assuming you made these decisions when you started the company) and how to change the status of your business with your state’s corporation commission.

Most business owners I know don’t want to think about the worst case scenario when their businesses are just getting off the ground and everyone is optimistic about the future; however, this is the best time to have this conversation and document it because this is when you are most likely to be thinking about what is fair and what is in the best interests of the company. If you wait until there is a conflict to try to have this conversation, you’re more likely to get into a battle of wills where people are more interested in what they want and/or hurting the other person.

Additionally, if you are going through a “business divorce” expect it to take longer than you’d like. There may be valuations that need to be performed on the company, documents that need to be reviewed by your lawyer or accountant, and a custom contract drafted between you and your future-former-co-owner. This may involve a significant amount of negotiation and revisions.

I actually enjoy drafting these documents to shift the ownership of the company, especially when both sides are represented by counsel. Each lawyer is an advocate for their client’s concerns without it having to be a combative situation. And we can shield our clients from the tribulations that would likely result if they tried to reach a resolution on their own. Ultimately we both want the same thing – a change in business ownership and clients who are satisfied with the outcome.

If you are in a situation where the arrangement with your fellow business owners is no longer effective, please contact me or a business lawyer in your community. If you want to connect with me on social media, you can find me on Twitter, Facebook, YouTube, or LinkedIn.

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Thoughts About Effective Contracts

August 5, 2014 by 2 Comments
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 Twitter, Facebook, YouTube, LinkedIn, 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.

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Crazy Contract Clauses

December 19, 2013 by 6 Comments
M&M by madame.furie from Flickr (Creative Commons License)

M&M by madame.furie from Flickr (Creative Commons License)

I love contracts. I know this makes me a big legal dork, but I love writing them and reviewing them.

A contract is the documentation of how a relationship is going to work and as long as the provisions aren’t illegal, you can put in whatever you want. There’s a lot of room for creativity, and I wish more people would take advantage of it. I was tickled pink earlier this year when I got to use the phrase “sexy bitch” in a contract. Granted, this was a contract between another legal blogger and me, so we had more license to have fun with it once we got the essential verbiage down.

I worked with a woman earlier this year who was writing the terms of service for her website. She was overwhelmed and confused when she read other sites’ terms but relaxed when I explained what all the legalese meant and that she could write terms that were simple and in layman’s terms, similar to what Reddit does. A few months ago I walk talking with a business owner who was frustrated when his co-owner cancelled their meetings. Since they were both fans of craft beer, I suggested they put a provision in their operating agreement that the penalty for cancelling a meeting for a non-emergency would be a growler of beer.

I did some digging and here are some of my favorite crazy provisions I’ve heard about in other contracts.

  1. Michael Jordan’s contract with the Chicago Bulls said he could play basketball anytime anywhere. He could play in exhibitions, pick-up games, etc. Apparently, he is the only player general manager Jerry Krause gave this provision to. I suspect other professional athletes have a lot of limits put on their activities to prevent injuries.
  2. The Houston Astros promised pitcher Roy Oswalt a bulldozer if they won the 2005 National League Series. The Astros won and the team gave Oswalt a Caterpillar D6N XL as promised.
  3. Van Halen’s rider required concert venues to provide the band with a bowl of M&Ms but no brown ones. This provision was quite ingenious. Van Halen’s show was a huge production that used 850 par lamp lights and at the time most venues weren’t used to them. If the band arrived and there were brown M&Ms in the bowl, it showed that the venue may not have read the contract carefully enough and they would do an additional check to make sure everything for the show was put up properly.

I love drafting custom contracts and I encourage people to ask for what they really want and make them their own. If you want to chat with me about this or any other topic, you can connect with me on Twitter, Google+, Facebook, YouTube, LinkedIn, 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.

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