Want to get ALL the tips that Michael shared with us on the go? Check out the entire podcast episode to learn the 10 legal things every entrepreneur needs to stay out of trouble!
As an entrepreneur, you need to be covered legally.
If not, you can be held liable not only for things you do, but for things that your business does.
Proper legal representation also helps ensure you aren't taken advantage of and that you have recourse if anyone tries to steal from you or do something else shady. Even if your business isn’t that big yet, you need to have all your legal paperwork in order.
And you need to have an attorney that has your back.
Trust me, it’s worth spending the extra money upfront so you don’t have to pay a lot down the line. At Lurn, we have Michael Carrigan, a lawyer who's been named a Colorado Super Lawyer several times and is an expert in litigation and compliance for internet retailers.
We've worked together for years now.
I recently sat down with Michael and discussed the 10 legal things every entrepreneur needs to stay out of trouble.
Let’s take a look at those 10 things so you can have your legal affairs in order when you start your business (or you can get them together now!)
#1. Legal Structure Of Your Business
If you don’t have a separate business entity that you're covered by—you can be held personally liable. Because of this, you need to build a wall that separates you from your business.
If you don’t do this, the IRS or someone else will come after you if anything goes wrong. They can say whatever went wrong is your fault—and that you're personally liable!
If this happens, the IRS or whoever is looking to sue you can come after YOUR assets, including your home, car and anything else you own.
The best thing you can do to combat this is to create a separate legal entity to do business under.
This means determining which type of business is right for you, keeping your money separate and starting a separate bank account. This way—if anything happens to your business—it doesn’t happen to YOU.
Some of the most common business types for smaller businesses include:
It’s a good idea to work with an attorney to set up your business. This often costs around $3,000 to $5,000, and it's worth every penny to make sure you set up your business correctly!
(RELATED: How To Incorporate Your Business)
While a partnership may seem like a good idea, it's pretty tricky legally. Because of this, it's important to have all your ducks in a row before you enter into a partnership.
To ensure you both get what’s fair, put all the details of your partnership in writing. This includes how things are being divided in your partnership.
- What’s the deal you want to enter into?
- How are you going to resolve disputes?
- How are you going to split profits and losses?
A good lawyer can help you come up with the details and set up a contract that reflects these details.
Having a contract will also help with taxes, and it will help you determine how to treat your income. For instance, your contract may outline how income will be distributed and how much of it will be reinvested into your company.
Keep in mind every partnership contract needs to be custom-written. Don’t use some sort of boilerplate!
This will save you a lot of hassle (and it will save you on legal fees) if things don’t work out and you both decide to go your own way. Don’t rely on your partner to do the right thing and to intuitively know what you want.
Get it all down on paper, and stick to what you agreed upon.
#3. Intellectual Property
Protecting your intellectual property is essential for the success of your business. If you don’t protect your intellectual property, people can easily rip you off and even sell things that you should have ownership over.
These assets need to be protected!
While you have inherent copyright over something you've written, you should still register it for greater rights over the material. For instance, if someone writes a book, they don’t technically need to register it.
However, it sure helps in case anyone tries to steal their intellectual property.
Sure, registering your intellectual property may cost a little bit more in fees, but it will also make it easier to go after people that steal your intellectual property.
Take advantage of the U.S. Trademark and Patent Office to ensure your intellectual property stays safe.
If you have code that's unique to your platform, you may be able to patent it! It also may be covered by copyright laws.
Make sure you speak with an attorney about code so you don’t have to worry about theft.
Similar to copyright, trademarking something gives you protection from theft.
For instance, Lurn is trademarked.
If someone tries to steal our company name (in our space), we can sue them. Actually, Lurn is in the process of trademarking the names for our different courses as well.
Make sure you trademark your name and how you're using it so others can’t claim it.
The cost of trademarking is going to start with a trademark search, which often isn’t too expensive.
Michael, for instance, charges less than $1,000 to perform a trademark search.
A trademark search allows you to find out if someone is using the name you're looking to trademark in your space.
The actual price of having an attorney register a trademark for you is around $1,000 to $2,000 (not including the price of the search). Trust me, it’s worth paying someone to do it right.
Make sure you trademark your name early so you don’t have to worry about people stealing the name or trademarking the same name before you get a chance to.
The process for trademarking varies.
How unique your name is will affect how long the process takes, as well as if anyone decides to challenge it.
Generally, though, trademarking in the U.S. takes around 6 months (registering in multiple countries can take longer).
Make sure your intellectual property is protected so you don’t lose out on income due to theft (and so you don’t get sued for using someone else’s trademark).
#4. Understanding Your Assets
To ensure you don’t have any issues with your assets, understand what your assets are. From there, you need to figure out if you, your business, or someone else owns these assets.
One example is your intellectual property.
Let’s say you have a partner and you both come up with a logo.
Well, who owns it?
You need to make sure it's clear what assets belong to whom—including what assets belong to your company.
#5. Terms And Conditions
One of the easiest and most efficient ways to avoid lawsuits is to add “Terms and Conditions” to your website or product.
If you aren’t sure of what Terms and Conditions are, consider the stuff on the bottom of a website in smaller text or the agreement you're forced to read and agree to before using certain products, apps and so on.
Terms and Conditions help express the expectations the customer should have, and they help you limit any damages (such as lawsuits).
Terms and Conditions are also enforceable, which allows you to define what people can and can’t do while on your website and/or while using your product. If people want to be involved, they need to agree to your Terms and Conditions—which limits your liability.
The issue a lot of companies run into (especially smaller companies) is that their Terms and Conditions don’t match their product or website. This is because they simply copy and paste those Terms and Conditions from somewhere else.
This is a HUGE mistake!
Your Terms and Conditions must reflect what you are offering specifically.
If you copy Terms and Conditions from another company that outlines the damages a user is able to collect, but these damages are beyond what you can reasonably pay, you are still liable. This means losing money!
Your Terms and Conditions need to match your company.
While you don’t have to make people agree to your Terms and Conditions, it's helpful to have customers click a box saying they agree to the Terms and Conditions.
The key thing with Privacy Policies is you have to tell people what information you're taking from them, who you're going to share it with and what you're going to do with it.
#6. Consider What You're Signing
Before you sign something, understand what you're getting into and how exactly you can get out of it.
One big example of this is NDAs (Non-Disclosure Agreements).
There are some downsides to NDAs, so take them seriously. If you break an NDA, you open yourself up to lawsuits. When considering an NDA, see what the terms are, how long the NDA lasts for and what can and can’t be disclosed.
To avoid trouble, require a clause in the agreement that states that whatever is shared is not a confidential secret unless it’s labeled. This puts the burden on the other person to label it.
And whether it's an NDA or any other kind of contract, know how to get out of it if you need to.
Have an attorney read over paperwork before you sign it so you understand what you're signing and what signing the documents actually means.
The best way to avoid getting sued or investigated is to stay in compliance with the law.
Not only does compliance help you avoid legal trouble, it also helps you be more ethical and moral in your business dealings (for instance, compliance means not lying or making false claims).
A lot of people think they're too small to worry about compliance, or they simply don’t understand it.
Size and ignorance won’t protect you from the FTC, though.
No matter what industry you're in, there will be a government body that's regulating your industry. For a lot of companies, this is the FTC (Federal Trade Commission). The FTC is in charge of protecting consumers.
Because of this—if you aren’t in compliance—they can take your business apart.
This may even include seizing your personal assets and making sure you never work in your industry again! A good attorney can help you to understand regulations and will help you stay in compliance with FTC regulations.
One place that many companies run into compliance issues is marketing.
To be in compliance with the FTC, make sure your marketing has no fake claims or testimonials.
Keep it honest!
Think about it this way: would you want someone to sell something to your mother that way?
If you're going to use examples of people that have succeeded using your products or services, make it clear that not everyone will have the same results. This will help you avoid any compliance issues.
When it comes to compliance issues, the FTC will speak with the BBB (Better Business Bureau). This is why it’s a good idea to be registered with the BBB!
Once you register with the BBB, make sure to monitor your business’ standings with the BBB, and respond to any issues that arise.
The sooner you handle any complaints, the better off your company will be.
Find a good attorney to ensure you're compliant. Often, attorneys that specialize in advertising law are the best to ensure you're in compliance with FTC regulations.
Every business should have some sort of insurance—so buy it and use it!
Insurance for your business is crucial for a variety of issues that may come up, including cases of fraud, employee theft and so much more. With insurance for your business, you can ensure you're covered.
You can even get Key Person Insurance, which essentially helps protect you if something happens to someone that's really important to your company.
Consider this to be life insurance for your company!
Make sure you speak with an insurance broker about what you do, what you're selling and what your sales look like. They can then help put together the perfect insurance plan to meet your business’ needs.
#9. A Good Accountant
The right accountant will ensure that your finances are taken care of and that your money is ending up where it's supposed to go.
One thing an accountant can help with is keeping your business and personal accounts separate.
When it comes to taxes, a good accountant can help make sure that your expenditures are things that you can save tax money on. There are several things you may want to put into your business that are tax-free, and a great accountant can help you find the deductions you need to avoid paying taxes on those things.
If you're considering an accountant, make sure they understand how to save you money on taxes!
You also need to consider the size of your business, and whether your accountant is a good fit for a business of your size. Some accountants work better with smaller businesses, while others are used to working with corporations.
Consider having your lawyer present when discussing things with your accountant for legal advice and confidentiality reasons.
#10. Good Lawyers!
Obviously, if you find yourself needing legal advice (or you find yourself in legal trouble!) you're going to need to have a good lawyer (or lawyers) in your corner!
The right lawyer for you, though, may not be the right lawyer for other people.
When you're choosing a lawyer, make sure it’s a good match early on. Not all lawyers are right for you, and the earlier you figure this out, the less time you spend with a lawyer that doesn’t match your needs.
You will also want to find a lawyer that you're personally comfortable with.
While your lawyer doesn’t have to be your best friend, you want a lawyer that respects your needs and that you can trust to advise you and help you in your time of need.
You’ll want to pick a lawyer that is responsive, treats you with respect and wants you to succeed. I know that last one sounds strange, but you really do want a lawyer in your corner that actually cares about you as a client and wants what is best for you.
With that being said, you also don’t want a lawyer that is constantly second-guessing you and telling you that you can’t do things. Instead, find a lawyer that helps you find how you CAN do things!
Protect Your Business
Michael is a fantastic lawyer, and we're happy to have him here at Lurn.
You can also find the right lawyer to represent your company and to make sure that you stay out of legal trouble!
Speaking of which, keep the 10 things we went over in mind to ensure that you protect your intellectual property, save money, keep yourself out of trouble and create contracts that protect your interests.
(Note: Want to get ALL the tips that Michael shared with us on the go? Check out the entire podcast episode to learn the 10 legal things every entrepreneur needs to stay out of trouble!)