Posted on Jun 24, 2015 by Sarah Day Hurley
Anyone who has started a business can tell you that they were surprised at how many legal and regulatory hoops they had to jump through just to open their doors. My husband and I experienced this first-hand when we opened a coffee shop and retail business in Greenville. We’re both lawyers, and we still found the process daunting.
When you start a business, be sure you have the right people in place to help you. A lawyer will be one of them, and here’s a checklist that will help new entrepreneurs stay out of trouble and increase the chances of getting their business off to a trouble-free start.
Protect your intellectual property
Your first priority should be to ensure that you do not infringe upon another’s intellectual property. As you consider what to name your business, or what trade name to use, consult with a trademark lawyer and request a trademark clearance opinion. Problem areas include names that create confusion with another business.
For example, a restaurant called “Shooters” might be considered to be too similar to “Hooters,” and could draw attention from the established restaurant chain.
Similarly, make sure you do not infringe upon another company’s trade dress. Trade dress issues include the design of your logo and signage, and sometimes even the design of your building. Defending claims of trademark and trade dress infringement can be very expensive, and could potentially put you out of business before you even have time to become established in the market.
At the same time, you will need to protect your own intellectual property. Consult with an attorney to make sure you have the appropriate documentation and agreements in place so that your trade secrets don’t walk out the door. This could include lists of customers, recipes, and confidential processes or formulas that give your business an edge over the competition. Trade secrets are a valuable asset, and a proactive approach to protecting your trade secrets is recommended.
Some IP issues may be more challenging as they are not obvious.
For example, if you have a business open to the public, be careful not to infringe on copyright ownership of another by displaying photographs or materials created by someone else without their permission. Similarly, if you play music or have a TV on, you might be required to obtain a license from the musicians who recorded the music or the stations that are broadcasting.
While certain exemptions apply to small businesses, the prudent course of action would be to consult with a lawyer familiar with copyright laws who can advise you on your rights and obligations.
One of your first decisions is to decide whether your business will take the form of an LLC, C or S corporation or another form. The pros and cons of these entities are beyond the scope of this discussion, but questions for your financial and legal advisers should center on treatment of taxes, protection from liability and your long-term plans for the business.
If you have business partners, a key consideration is your eventual exit strategy. You may want to place restrictions on how partners can sell their interests and include a formula for determining a price to buy theirs. One advantage of an LLC is that all of this can be covered in an operating agreement that is tailored to your business.
Be sure you have adequate insurance
General commercial liability and workers’ compensation are obvious areas to cover in insurance, but consider riders that protect from cyberattacks and advertising injury. The latter may protect you if you are confronted with a claim of trademark infringement. Work with an insurance professional who understands your business and industry.
Payroll is a headache
One area where small businesses sometimes get into trouble is by not following the right procedures for withholding payroll taxes. Consider shifting this burden to a payroll service; they are not expensive and it’s a huge headache off your plate. Payroll services are a lifesaver for small businesses.
An employment lawyer may guide you through applicable laws pertaining to hiring, promotion, termination and other matters in relation to your employees. Also, be sure you understand the applicable immigration laws and requirements for verifying legal employment and the employer’s obligations with respect to payment of wages. An employment lawyer can help you develop appropriate policies, procedures and manuals to ensure your business’ compliance with state and federal employment laws.
In addition, a good handbook will set out formal standards of conduct for employees, from hours and vacation policies to prohibitions on bullying and sexual harassment. While the policy won’t necessarily stop a bad employee from misbehaving, it will show a court that you instructed employees on your expectations of ethical and legal behavior.
Use of Independent Contractors
Another area that can get you into trouble is the improper use of independent contractors. Have a written contract with them that spells out the terms of their work and shows clearly that they meet the Internal Revenue Service’s definition of an independent contractor. If you plan to use independent contractors, obtain a lawyer’s advice on how to hire within the rules. You may be surprised at some of the requirements.
Sarah Day Hurley is of counsel in Turner Padget’s in Greenville, S.C. office, where she advises on all aspects of business litigation, including contract disputes, shareholder and partnership disputes, employment issues, intellectual property and construction disputes. Separate from her law practice, she owns a small restaurant and retail business in Greenville. She may be reached at (864) 552-4651 or by email at firstname.lastname@example.org.