start ups

I do read business related blogs. After all, I am also in business. I want to pass along what I find useful or interesting. I figure that if you find the business information helpful then you will take a look at the legal information. I also hope that the information creates a stronger business for you. With a stronger business, the more need for a lawyer.

MSNBC has a rather lively business blog, YOUR BIZ. What I like is it has a good tone - no business professor lecturing - and it is directly targeted towards small businesses. Here are the recent posts as of today:

• Take my blog, please
• Home-based entrepreneurs get their 15 minutes
• Size 2 is better for you
• Santa's looking for a few good American elves
• E-mail made me stupid

I think the Internet can do one thing very well if we know how to use it. That thing is getting us together with like-minded people from different places. We learn there are others like us out there doing what we want to do or what we are doing. Then it lets us communicate with those people. I think anyone who is wanting to start their own business, is starting their own business or has their own business can learn something at The Indie Business Blog. I cannot copy and past their latest posts, but I do suggest this as a good start: The Power Of One.

Or the limited liability company's operating agreement? Or a partnership agreement?

First and foremost, these documents set out how the legal entity will operate internally. Think of them as a blueprint or like a disk operating system. I used the analogy to tailor made goods in an earlier post. The by-laws set out the rights and responsibilities of the owners to one another and to the business. The by-laws need to meet the needs of the owners and the business.

Secondly, the agreement - if it is any good - sets out the process for splitting up the business. For a bit more on this topic you might want to read Like a marriage, a new business partnership needs a 'pre-nup' written by an Illinois attorney and published in The Napierville Sun.

You want to start a business. You read everything you can about starting a business. You probably have read enough about needing a business plan. Well, you do need a business plan. Whether you have a business plan is one of my first questions for clients wanting to start a business. So, now I offer more reading on business plans: this is a search page for business plans under Blawger. Which means you may get some irrelevant posts from law related blogs on business plans but Blawger gives a pretty good preview so separating wheat from chaff is not too hard.

I usually discuss prenuptial agreements on my Indiana Divorce and Family Law Blog. I use Google news alerts to keep track of news on prenuptial agreements and that is why I am writing about them on this blog. The latest alert came laden with references to stories from the business page. This might be a trend as an earlier post here mentioned. Certainly, it is good for the business writers to acknowledge the importance (and impact) of family law on businesses.

The New Hampshire Business Resource has a fairly good article Protecting your business assets with a ‘prenup’. I do take issue with part of the following paragraph, though:

Stock in a family business owned by one spouse is marital property, and absent a valid prenuptial agreement would technically be subject to division under New Hampshire’s statutes. As a practical matter, however, it is unlikely that a court would order one spouse to transfer shares in a closely held business to the other spouse upon divorce, since judges and marital masters are mindful that post-divorce joint ownership of a business venture is unlikely to succeed. Accordingly, the court is likely to award all shares of stock in a closely owned family business to the spouse related to that family.

After nineteen years, I think that anyone can say what any judge will do about any matter in any particular case. Judges in divorce cases think that if both parties are equally angry then they have done a good job. What makes a prenuptial so useful is removing the surprise inherent in any judge's decision of what makes an equitable division of property.

The law require three things for starting a corporation:

1. Corporate by-laws.
2. Articles of Incorporation.
3. An Employer Identification Number.

I suggest a fourth is necessary from the business side of things: a business plan.

How to get these things done? First, option has you doing all the work. You cna find corporate by-laws online by just googling the term. Indiana Secretary of State has a online method ff starting new companies here. You can go to irs.gov and get a EIN number. You will also be trying to get your business up and running at the same time. And what is an incorporator? Why do you need a resident agent?

You can go with a company who may or may not employ a lawyer, offering low cost incorporations in Delaware or somewhere exotic for some very low fee. I am not sure I understand the allure of these companies. Your corporation will be governed by the laws of the state in which you incorporated and you will be in Indiana. What happens if a question comes up about the corporations law in this other state? Either you find an Indiana lawyer licensed in that other state and knowledgeable about the other state's corporations law, or you hire an attorney in that other state.

I have said for many years that the reason for lawyers is so that people like you do not spend your time in a courthouse. The same idea applies here. What makes life easier for us in a business start up situation. You will find it a more efficient use of your time to turn over to a lawyer the tasks of getting the Articles of Incorporation done and getting the EIN number. Just as if you have downloaded those corporate by-laws and read them can lead to more efficiently using the attorney's time. (By the way, let me say that my view is that online bylaws are only good as a starting point. Think of the difference between wholesale and retail. Online bylaws epitomize wholesale when what you need is not only retail but tailored work. Bad bylaws pose a grave danger to any corporation.)

Having an attorney on hand at the start can get you through the meeting of incorporators and first meeting of the corporation so that the corporation begins its life in full legal propriety.

And why is all this so important? Erroneously setting up the corporation can rob the shareholders of what they wanted: protection from personal liability.

The Small Business Administration has courses on starting a business and business plans here.

Small Business Lending Corporation has a page on Developing a Business Plan.

I got to admit I have read bits and pieces and a lot about The Cluetrain Manifesto and I am still not sure how to put it all into effect for my business. If you are going into business or have a business, then check out this site.

Today, I found a new franchising resource: FranchiseBrief.com. I have not examined the site in any depth but it seems fairly sober in its approach. The site also has a blog here.

Frannet says it is the franchise connection. This appears to be a for-profit site, so take that into consideration.

Entrepreneur magazine has its site here. It has free tools but you need to sign up for them. So so if you are interested in franchising and/or starting your own business.

I cannot emphasize enough that there are dangers to franchising. Franchise circulars may meet the legal criteria and still not tell the whole story. Get all the information you can before even looking at the franchise circular.

If you have an employees, you got to worry about withholding taxes. The IRS has a page on this subject that ought to be read by anyone starting a business who will have employees.

In my opinion, a business needs a lawyer before starting the business. If for no other reason than helping decide on what type of business entity the business should use. That is, will the business be a corporation, sole proprietorship, limited liability company, or a partnership. I was looking at the Indiana Secretary of State's site yesterday and its description of the different business types inspired this post. This link will take you to the same page. Ia m reading this and trying to figure out what any layperson would get out of this mess of abstractions. I do not think very much. Sit down with a lawyer, put forward what kind of business you want, and out of this conversation should come a decision on the best form for your start-up company.

When starting a Limited Liability Company (LLC), you need three things:

1. An operating agreement.
2. Articles of Organization.
3. An EIN number.

You can do this for yourself and hope for the best, or you can consult an attorney. Of course, I suggest consulting an attorney.

Of the three things listed above, I must admit that preparing the Articles and getting an EIN number are things that can be done without a lawyer. The Articles of can be found on the Indiana Secretary of State's site via this link (it is in PDF format). An EIN number can be gotten from the Internal Revenue Service through this link. That said, get an attorney to make sure you got the job done right before filing the documents with the Indiana Secretary of State and the Internal Revenue Service, respectively.

Where I think a potential LLC needs an attorney is in selecting the business entity and in drafting the operating agreement. The Indiana law setting out the statutory requirements for a LLC can be found here. Yes, one can download LLC operating agreements from the Net or buy them at Office Depot (or some other office supply store) but who is going to make sure that these forms do two important things: 1) comply with Indiana law; and 2) meet the needs of the business? About the first one, read through the Indiana LLC statute (see the link above) while reading the form obtained from the Net or the store and make sure it does match Indiana law. I suggest that is not a wise use of a businessperson's time.

As for number two, let me tell a story. Two fellows go into business and then the business sours. The LLC operating agreement came off the Internet, and then the thing was signed without any changes other than adding their names. The operating agreement does not address certain matters. The parties cannot agree on settling these matters and litigation looms. Without reaching a courtroom, the parties have incurred legal bills going into the four figures and rising. The lawyers agree on one thing: a "real" operating agreement would have cost a whole lot less and solved the problem without any litigation. I suspect any claim of no litigation but having seen the operating agreement, it certainly would made a very short case. In the end, call it another penny-wise, pound-foolish example.

I guess you could say that these are good uses of our tax dollars.

The Internal Revenue Service has its Tax Information For Businesses page. This page looks like a portal (that is a links page) for businesses wanting tax information and forms. I think three particular pages ought to have general interest. The others may be important to you because of particular interests and should still be checked out. One link of general interest leads to Small Business Products Online Ordering where you can buy IRS products for your business. One thought here - ask your accountant about these products first. The second is Small Business and Self-Employed One-Stop Resource and I think the name says it all. Lastly, I think here is one also of self-evident interest: Starting a Business.

The Indiana Department of Revenue has a links page for business-related issues here. While most times we think of taxes in terms of income taxes and thus the Internal Revenue Service, but that is not always so. Indiana businesses selling things must keep an eye on their sales taxes which are handled through the Indiana Department of Revenue.

First, think hard on this. Ask yourself if you can stand the strain of no regular pay. Ask yourself how you will handle the great likelihood of failure. If you are married, ask your wife the same questions.

Second, you need a business plan. More importantly, you need to do the math behind a business plan. You can find books and materials online about and on business plans. Use them but remember that none of them are perfect. I would also suggest reading Sun Tzu's Art of War to learn something of strategy but that is a particularly peculiar idea of my own.

Third, go get a lawyer and an accountant. The accountant you need for staying abreast of all the tax laws - Indiana and federal. A few words about why you need a lawyer.

I am going to have some posts on setting up particular business types. You can do some of this yourself but this an area ripe for error. Consulting an attorney should get you, budding entrepreneur, to point you want to be: running your own business. Lawyer's ethical rules make us put the client's interests ahead of our own profit. That cannot be said of any company promising you a low cost incorporation. Remember this: you get what you pay for.

Legal issues do not end with starting the business. Government regulations lead to legal services being needed. These should be known before starting the business but some may not become known till after the start of the business. These intersections between government and business include the following: trademarks, copyrights, patents, zoning, property taxes, withholding tax for employees, sales tax, licensing, employment law issues, environmental/pollution/public health issues, immigration and so on. What the business owner should want is limiting the business' exposure to legal issues in a way that will lower the business' profits.

I got to admit that I have an aversion against partnerships. I think most attorneys do not like them. Why? Liability. Law school beats us over the head to avoid liability for our clients as much as possible.

Partnerships ooze with liability issues. From your partner's creditors seizing business assets for his debts to your assets being on the line for business creditors, partnerships just scare lawyers. Maybe a partnership between corporations or limited liability companies or between a corporation and a limited liability company.

With all these problems with partnerships why have one with a spouse? Because partnerships can be implied by actions as well as by a formal agreement. Two spouses start a business and even without a formal agreement, a partnership can be created by their acts. Of course, the husband and wife have probably not even thought of talking to a lawyer about the kind of problems they might be getting themselves into. Why spend good money that could go into the business?

If anything goes wrong with the business, then business creditors can go after all the joint assets. Since most businesses fail, what do you think now of not talking to a lawyer?

What would chatting with an attorney accomplish? I repeat that most attorneys would get the business set up as a corporation or a limited liability company. If the clients were adamantly committed to a partnership, then there would need to be a partnership agreement.

If the clients want to keep the business running as long as possible, they need to consider all of the problems including divorce. I think the equivalent of a prenuptial agreement (or a post-nuptial agreement, if already married) needs to be considered regardless of the business type used by the husband and wife. With a partnership and limited liability company having a written document (and a LLC requiring a written operating agreement) setting out how the business shall be run, incorporating some of the prenuptial/post-nuptial's terms does not seem out of place. Based upon that reasoning, they need a separate prenuptial/post-nuptial agreement if the business is to be set up as a corporation.

Then they need to consider their retirement and estate planning objectives. If the business entity is a partnership or a limited liability company, these objectives need expression in the partnership agreement or the LLC operating agreement and for corporations in a separate document.

How can the Internet help your business? Information exists freely online that once was too expensive in time or money or both for practical use. This information may provide the competitive edge for your business or the means of avoiding dangerous costs - if you know about the information. The problem is now fighting information overload.

You can now find here links to those business resources I find useful. These post wills now be an ongoing weekly feature for this blog, so check back often or subscribe to the RSS feed or to the e-mail updates. I suggest that you help by using the Comment function at the bottom of the posts to let me know if you find this information useful or not, and also for any recommendations or requests about business resources.

So why am I passing along this information for free? Am I being a spendthrift with my knowledge? Is the information really worth something?

I freely admit my self-interest here. First, giving you this information educates you on the subject and about my knowledge of the information. Second, you knowing what you need to do does mean you know how to do this for your specific business needs. Putting those together will hopefully illuminate for you why you need to hire me as your lawyer and as your lawyer I will not need to waste your time educating you about whatever needs to be done. Lastly, some resources may lead you to a profitable market area. Even if you do not hire me as your lawyer, I have improved the economy around me and that will benefit all of us eventually.

Dumb Little Man blog from Inter Alia. Dumb Little Man is about productivity tips, saving money, and maybe just keeping its readers sane. I like the style, not sure a lot of it I can use, but what I can use is great. I subscribed to the RSS feed.

At Dumb Little Man, I found this post, 13 Government Resources for Small Businesses. These are federal publications and only a fraction of what is out there.

For businesses writing probably does not seem as important as doing whatever it is that the business does, but how much of what a business does involve some sort of written communication? I thought about this when I ran across the Business Writing blog. Bookmark it or subscribe to the RSS feed for future reference.

The State of Indiana has a Business Owner's Guide as a web page.

The tech savvy will call this a portal page. It has links to other pages with pertinent information. A very good place for new Indiana businesses, old Indiana businesses and business wanting to know about Indiana.

I saw No LA Kitchen Nightmares for Gordon Ramsay in the Telegraph (UK) and I remembered that I had not followed up on my article, I like Kitchen Nightmares. I want to make something clear that I think the earlier article muddled: I wrote about the Kitchen Nightmares on BBC America. I had not seen the American version till after I wrote my article. I have seen one episode of the American version and it angered me. My first reaction was in language Mr. Ramsay would know: it is crap. The hyped up, confrontational style has everything I hate about "reality" television. Which makes me think someone thought that Americans were too dim to follow the English format. That thought angers me deeply.

Restaurants are a business. Some restaurants become big businesses (take a look at the Telegraph article to get a taste of the money involved or go look at the closest McDonald's store). Most everyone thinks they can run one. If you think you can, take in as much of the BBC Kitchen Nightmares as possible.

What can be the most difficult thing about running a business? Ending it.

The Iowa Law Blog has a brilliant post on the subject: How to Avoid the Business Divorce.

I say brilliant because I say about the same thing to all potential business start ups:

Every business partnership (whether in a corporation, LLC or true partnership) should consider a buy-sell agreement from the outset. As Central Iowa financial planner Art Dinkin says, Begin with the End in Mind.

A buy-sell generally covers how an owner can sell shares and how to value those shares. Further, a good buy-sell agreement sets forth what happens in the event of death, disability, retirement, divorce, bankruptcy or other considerations.

Effective buy-sell agreements will generally require a right of first refusal. This means if one owner finds an outside buyer for his shares the owner must first offer those shares to the other existing owners. This protects the owners from suddenly running the business with someone they did not intend to have as a partner.

I especially look at the buy-sell agreements for limited liability companies. I had a bad experience in trying to get a client out of one (he did) and I am twice shy when once bitten.

Technobabble answers that question quite well with http://lawenforcementweb.info/2007/12/09/legal-assistance-ways-in-which-lawyers-can-help-your-business/.

With this blog getting few comments, I am left wondering what are the reactions to non-lawyers to this kind of post. I admit to some self-serving marketing of my services but even more than that is a lot of venting on my part. Venting? Yes, I get to vent my frustration towards business owners who prefer to wait till a complaint and summons lands on their desks before consulting a lawyer. Litigation costs more in money, time, and nerves than having a lawyer who they can talk to and who talks to them. For twenty years I have dealt with area businesses but I have never been able to convince of the benefits of getting a lawyer on board early in the business' life or of keeping one. By the time I saw them for a litigation matter, the majority were on the slide to failure. That concludes my rant for the day.

Go read the article at Technobabble, realize that it is not written by a lawyer, but this lawyer thinks it has a lot of good sense. Call me f you have an Indiana business or are starting up an Indiana business, and want to discuss this subject further.

From Arbor Law I found a link to this 1996 article: ENTREPRENEURIAL DEATH TRAPS. I agree completely with the description I found at Arbor Law:

1996, you say? Yes, it’s from the go-go days of the dot com boom. In internet-dog-years, this is the equivalent of advice from 2000 B.C.

Some advice from 2000 B.C. is very valuable.

I have seen quite a few of the death traps in operation, read about a few of the others, and I can admit that #20 fits a situation I found myself before 1998. If you are thinking of starting a business, if you just starting a business, or if you have a business, read this article.