The success of your business depends on the talent and hard work of your employees. However, working with employees can also represent a legal minefield. There are many situations where you can get into legal disputes with your employees, which can create an unhealthy working environment. Employment law disputes may be expensive, too – many small businesses may not have enough revenue and reserves to survive these types of disputes.
Due to the serious consequences associated with these types of disputes, it’s best to consult a lawyer beforehand to design contracts and procedures that will minimize the risk of trouble and put your business in a favorable position should an employment law dispute arise.
Discrimination
Discrimination disputes occur when an employee alleges mistreatment because they belong to a protected class, including:
Race
Gender
Sexual orientation
Disability
Age
Religion
Employers should understand and comply with federal and state anti-discrimination laws to avoid even the perception that they are discriminating against employees in these categories. This is one of the few situations where you might get into an employment dispute with someone who isn’t even an employee yet. It’s important to review your hiring practices and establish robust objective hiring criteria that you always adhere to and can cite if a potential employee claims discrimination.
It’s also important to monitor discourse in the workplace. If you permit the free use of sexist and racist language, these can make employees feel discriminated against whenever things don’t go their way and provide evidence of a discriminatory workplace in the event of a dispute.
Harassment
Harassment is when a person is subjected to hostile, insulting, or discriminatory treatment because of a protected category.
Sexual harassment is the most familiar type of harassment. It occurs when a person is subject to sexual comments, unwanted touch, or an expectation that they will provide sexual favors in exchange for promotions, raises, or other favorable treatment in the workplace.
However, people can claim harassment on the basis of other protected categories, so it’s important to control the workplace environment so that everyone feels safe, protected, and welcome.
It’s a good idea to establish a way for employees to bring up their concerns without going to a direct supervisor, who may potentially be the source of harassment.
Salary Disputes
As much as people might love their jobs and love working for you, everyone wants to get paid a fair salary for their labor. Getting paid is the main reason why people work in the first place, so it’s not a surprise that salary disputes are common.
People might dispute whether their salary conforms to federal, state, or municipal minimum wage laws. You will have to show that either their position isn’t covered by those laws or show that their salary actually does conform to the requirement.
People might also claim that they’re not being paid overtime properly. This is one of the most common wage disputes, and it comes up regularly. Make sure you know when your employees are entitled to overtime and be prepared to pay it when appropriate. When you discover that you’ve made a mistake and didn’t pay overtime when you should have, credit it to your employees before they start a dispute.
Employees might also allege that you haven’t calculated their salary properly. Listen to their complaint and check your math. This might be as simple as not understanding how your payroll software works – if you’re a small business owner, you’ve got a lot on your plate and mistakes happen. If it is an error on your part, admit the mistake and pay what’s owed.
Whenever there’s been a mistake in wages, check to see whether you might also owe your employees additional compensation such as interest to get compliant in the eyes of the law.
In addition to wages, people might dispute whether they are getting the benefits you promised. Make sure comprehensive education about benefits is part of your onboarding process. If people have questions, answer them in a non-confrontational environment.
Wrongful Termination
When you fire an employee, you need to make sure that you are complying with federal, state, and local laws. In particular, you need to make sure that you clearly document the reasons for termination so that you can show that an employee was fired for clear reasons that were made plain to them and not because they belong to a protected class.
One common allegation in wrongful termination disputes is that termination is in retaliation because a person is a whistleblower. If a person alleged fraud, unsafe conditions, or a discriminatory workplace, bringing their concerns to an outside authority, you must act very cautiously before you terminate them.
Noncompete and Nondisclosure Agreements
Noncompete agreements are intended to protect you from losing valuable expertise and knowledge when employees leave your company to go work for a competitor. These agreements have become very popular, but they are also highly contentious. Courts have given different verdicts on what terms are enforceable in noncompete contracts. Upcoming rule changes might make these agreements even harder to enforce.
A similar type of contract is a nondisclosure agreement, often called an NDA. These are also intended to protect your company’s secrets and are generally more enforceable.
In either case, it’s recommended that you work with a small business lawyer when drafting contracts to make sure they will function as intended.
Family and Medical Leave Act
The Family and Medical Leave Act (FMLA) is a well-intentioned but complicated piece of legislation that allows a lot of opportunities for misunderstanding. It’s very common for employers and employees to have different interpretations of what the law does and does not require of each party. As a result, it’s common for parties to allege a violation by the other party.
Work with a lawyer to understand the law and develop a clear brief for your employees so they understand the law, too. This will help head off any disputes.
An Employment Law Attorney Can Help You Avoid Disputes
Colorado employment law attorney Elizabeth Lewis understands that it’s much better for your business to avoid disputes than to try to resolve them once they arise. Since 2007, Elizabeth has been using her results-oriented approach to help small and medium-sized businesses succeed. This includes a diverse array of legal services, including employment law.
Elizabeth can help you and your employees understand the law so that you can avoid disputes. Once disputes arise, she can help you resolve them without having to resort to an expensive courtroom battle.
To learn how Elizabeth can help your business, please contact the Law Office of E. C. Lewis in Denver today.
Small businesses struggle to balance their revenue and expenses. When you’re running on a narrow profit margin, the sudden addition of fines and penalties can sink your business. When these penalties come up, you may not have the thousands or tens of thousands of dollars you are being asked to pay, especially when you are given a short period to make the payment.
It’s important to avoid small business fines and penalties, but how do you do it? Here’s some advice for keeping your business on the right side of the law and avoiding major fines and penalties.
Research Your Requirements
Before starting a business, you should research the requirements your business will need to meet to avoid fines and penalties. Ignorance of the law will not protect you from meeting its requirements. Only understanding what regulations affect your business will help you comply and avoid penalties.
Some of these requirements are going to be general. Any business that plans to operate in a certain area will have general requirements related to taxes, incorporation, and reporting its beneficial owners. However, there are also specific requirements based on the industry you will be in. Try to understand these issues as best you can.
You don’t have to do all this research yourself. The Small Business Association (SBA), your local Chamber of Commerce, and even city and state officials can help you understand the regulations that will apply to your business and how to meet them.
Consult a Lawyer
When it comes to important business regulations, don’t trust your own research exclusively. Also know that the people you talk to in various places might give you incomplete or inaccurate information. If you want to make sure you really understand all the requirements your business must comply with, talk to a small business lawyer.
An attorney who is specifically trained in small business law will be your best resource for identifying requirements and achieving compliance.
It’s also a good idea to have an attorney available for consultation as your business grows and changes, as this can lead to changing requirements.
Get the Appropriate Licenses
Although some people get fines and penalties because they don’t know the law, many other small business owners know that they are operating their business without the appropriate licenses for their industry.
We understand: the licenses for your business seem overly expensive. It’s tempting to just do without. However, the cost of getting the proper licenses is typically much less than the penalties you will face for not being licensed.
There are also business benefits to being licensed. It will allow you to get the proper insurance for your business without paying exorbitant rates. It will give you access to better-paying clients who are looking for properly licensed professionals. Plus, it protects you from liability in some situations.
Not to mention the fact that you won’t always be looking over your shoulder and wondering which client, employee, or competitor might be considering reporting you as an unlicensed professional.
Pay Your Taxes
This might seem like an obvious piece of advice, but tax infractions are among the most common reasons why businesses face fines and penalties. In part, it’s because the tax payment requirements for businesses can be a little different from individual taxes. Many businesses are expected to pay estimated taxes throughout the year, and failing to pay these on schedule can lead to fines.
There are also additional taxes you might have to pay for payroll and other situations. Make sure you know the taxes you have to file and the schedule for payment, then follow it to avoid fines and penalties.
Set HR Up Right from the Start
One place where small businesses can get into trouble is when they start hiring employees. Like getting professional licenses, some small businesses look at the legal requirements for having employees and think they would rather avoid those requirements, such as registration and getting workers’ compensation.
Some small businesses try to skirt these requirements by treating employees as contractors, but this will lead to trouble in the future if employees can’t meet all the tests to be considered contractors. Again, it’s expensive and complicated at first, but it’s better than risking the penalties you might suffer otherwise. Take the responsibility of setting up your HR department right away, even if it’s just you doing it. This will make it easier to add new employees in the future and can improve the profitability of your business in the long run.
Track Major Business Changes
As your business changes, so will your legal requirements. Keep a running log of the changes your business is going through and talk to a lawyer about them on a regular basis to make sure you’re staying compliant.
How often is regularly? During your initial consultation, your lawyer will likely flag key events that might require changes within 30 days or so. Otherwise, a quarterly or even semi-annual consultation should be sufficient.
Get Help from a Small Business Lawyer in Denver
If you are starting or running a small business and are worried about the potential for fines and penalties, let Denver small business lawyer Elizabeth Lewis help. She’s been helping small businesses to establish themselves and grow since 2007. Elizabeth is dedicated to the success of her clients and is prepared to give you the personal attention you need to truly be successful. Elizabeth has been working exclusively with small and medium-sized businesses and understands how their needs differ from those of larger entities. She is focused on results and knows what it takes to help her clients achieve their goals.
For help avoiding fines and penalties in your business, please contact the Law Office of E.C. Lewis today. We serve clients in Denver and throughout Colorado.
When you are starting a business, your odds of success will be much higher if you have an actual plan. However, sometimes recommendations for a business plan – like the ones offered by the Small Business Administration (SBA) – seem to be bloated with unnecessary materials. Small business planning doesn’t have to be complicated at first. You can start simply, then add elements later on as your business grows.
We’ll talk about some of the essential elements you need in your business plan and make references to other aspects that you might need now or later.
Company Description
The first essential element of your business plan is a company description. You need to know what you are hoping to accomplish, with a sense of your general values and goals. Have a sense of your desired size and what steps you might take to achieve it. In addition, have a sense of what your organization principles are likely to be as you start to add employees. If you have more than one person in your organization, it’s worthwhile noting what structure your decision-making will follow.
Products or Services
You need to know how your business will generate revenue. This typically means providing goods and/or services for money. Often, this is where your business plan started: you had an idea of what type of product or service you felt you wanted to provide. It’s not a bad idea to have a sense of the scope of products or services you want to provide, whether you will be a specialized operation or a generalized one.
Market Analysis
Before you start your business, you need to know what the market looks like. This includes industry-specific factors such as demand for your particular products or services as well as the level of competition for providing those products or services. It also includes general business factors such as interest rates, labor costs, supply costs, and other factors that will affect your ability to be profitable.
Marketing and Sales Plan
Once you have a sense of what the market is like for your products or services, you need to figure out how you will break into the market. This means marketing. You will likely want to start with a sense of what is your unique value proposition (UVP), also known as a unique selling proposition (USP). The UVP is a description of why someone should choose your business over competitors. The UVP could be something simple like, “Our store is closer,” or “Our prices are lower.” It could also be something complicated like, “We use LASS to prevent SLAM attacks.”
Once you have a sense of what your UVP is, plan how you are going to market your product or service. With a simple UVP, this might be as easy as putting a “Grand Opening” sign on your neighborhood store, with perhaps some support on local social media like Nextdoor.
For more complex UVPs, you might need to educate your potential customers. Educate them about the pain points you are addressing, explain why current solutions are inadequate, and create a need for your solution even before creating awareness of your business.
Financial Plan
Your financial plan should include information about where your money is coming from and where it’s going. Do you have money set aside? Are you going to need external backers? What start-up expenses can you expect? How quickly can you ramp up revenue from sales? How much will marketing cost?
Be realistic in your financial plan. In fact, be pessimistic. Lower your estimates for revenue and raise your estimates for expenses. See how viable that makes your business before you consider whether this is a step you want to take.
If you need to secure outside investment, all the “unnecessary” materials from the SBA’s business plan template start to become essential. For example, your Executive Summary becomes your elevator pitch for securing meetings with potential backers. Organizational plans also become critical. Investors are more likely to put money in a business that has a formal structure, especially a corporation that provides dividends for their investment.
Risk Analysis
In your financial plan, you looked at the risk that you might not generate enough revenue to cover your expenses, but small business planning should look at more than this. You should look at external risks, such as liability related to your industry.
About 90% of businesses will face a lawsuit over the course of their life, and in many cases these lawsuits will target the business assets. If this is a risk in your industry, you should set up a structure that protects your personal assets from business liability, such as a limited liability company (LLC) or a corporation.
You should also consider internal risks, such as the possibility of losing ownership of your personal intellectual property (IP). This is another reason to set up formal start-up paperwork which defines ownership of different business assets, including IP.
Robust Small Business Planning for Success
If you want to give your small business the best chance of success, then you want to make sure your business plan doesn’t just cover the essentials but is thorough and well-considered. A small business lawyer can help you consider all the aspects that can make a difference between the likely success and failure of your business.
Since 2007, Elizabeth Lewis has been helping small businesses in the Denver area and across Colorado to get established and grow into large, successful institutions. She knows how to build a strong foundation for your business, including taking all the important legal steps such as filing foundation paperwork, protecting IP, and writing strong contracts that can protect your small business from abuse by established players in the market. Elizabeth takes a personal interest in your business and is ready to help you navigate the complex legal landscape that can be challenging for many small businesses.
To learn how Elizabeth can help you launch your business, please contact us today. The Law Office of E.C. Lewis serves clients in Denver and the surrounding area.
8 Common Contract Disputes Impacting Small Businesses
You might think that your business is so small and inoffensive that you won’t have contract disputes. You will live up to the terms of any contracts you have, and you will judiciously choose business partners who are also likely to live up to the terms of their contracts.
Here are some of the common contract disputes where a business contract lawyer can help.
Timing Disputes
A contract often stipulates that one party will deliver something by a certain time. Depending on the language of the contract, this can lead to considerable dispute. For example, is the delivery deadline by start of business, end of business, or midnight on the date specified? Does it count as “delivered” if the supplier turned merchandise over to the shipper, but the product hasn’t yet arrived at the buyer’s property? If the contract allows for “reasonable” delay because of “unforeseen circumstances,” what circumstances apply and what delay is reasonable?
Resolving these disputes can be difficult, especially when you’re trying to maintain an otherwise profitable professional relationship between businesses. Having clear terms in your contract can help mitigate any disputes before they happen.
Disputes about Pricing, Fees, and Compensation
As with timing, there is often language about pricing in a contract. However, circumstances often lead to disputes about pricing, fees, and other compensation. One party might submit an invoice that is significantly different from the initial estimate. The second party objects and may point to language in the contract that they took to mean that the price would be as quoted and was not merely an “estimate” subject to change. That may resolve the dispute, or it may cause further disagreements about the language of the contract.
This may also happen with employment contracts. Employees may think that they were hired with one particular compensation package, but when they get the actual package – which might be days or weeks after their official first day – they find that it wasn’t as advertised. Depending on how much of the compensation package is described in the employment contract, it may be hard to resolve the dispute to everyone’s satisfaction.
Disputes about Responsibilities
The other side of compensation is responsibility. What is each party expected to do in order to earn their compensation? Employee duties may not be well-defined in their contract or job description, and they might balk at being asked to take on duties other than what they initially agreed to. Resolving the dispute to both parties’ satisfaction may not be easy.
This problem can also arise between suppliers and their clients. For example, a supplier might agree to deliver a certain number of Christmas trees, and when they arrive, the client is shocked to find that the trees don’t have stands. The client assumed the trees would come with stands, while the supplier assumed the trees would not have stands. The contract didn’t specify, and both parties felt they were getting a good deal because they had different ideas about what was to be delivered. This may seem like an absurd example, but it actually happens all the time, especially when business owners write their own contracts.
Durability of Contract
How long is a contract supposed to last? Who has the power to dissolve the contract? What happens when the contract is dissolved?
These aspects of the contract should be defined within its terms, but all too often there is misunderstanding or disagreement about what they mean. All too often, people skip over these parts of the contract because they assume that they won’t want to dissolve the contract early. They only discover the serious penalties that come with dissolving the contract when they try to get out of it.
Definition Disputes
Often, contract disputes arise over the definition of terms used in the contract. Several of the disputes we’ve talked about could be considered definition disputes. Some timing disputes can be described as disputes about the definition of the delivery date. In the Christmas tree dispute, the supplier defined “Christmas tree” as not including the stand, but the client defined it as including the stand.
Definition problems can arise in many contexts. In software development, scrum teams may deliver “minimum viable product” that meets their internal “definition of done,” but the buyer may not feel that software is either viable or done. In manufacturing, the final product may not be what a buyer expected, which they would say is a contract violation because the product is SNAD (significantly not as described). Definitions don’t always have to be written, either. A prototype can be seen as a physical definition of the promised product, and if the product doesn’t match the prototype, the buyer may object.
Lease Disputes
A lease is a common contract that can lead to significant disputes between the lessor and the lessee. There are many aspects of the lease that may be poorly written or difficult to understand, leading to disputes. Common areas of dispute include who is responsible for maintenance, how common areas are going to be maintained, terms of renewing or ending the lease, and the right to increase rent.
Many landlords put very unfavorable terms in their commercial leases, and it’s up to potential lessees to carefully evaluate the lease before they become a tenant.
Non-Compete and Non-Disclosure Agreements
Often, non-compete and non-disclosure agreements are the cost of doing business. In order to work with a certain company, you have to agree not to work with their competitors and not reveal certain information. However, the terms of these contracts can be difficult to understand and enforce. For example, parties might disagree about what constitutes a “competitor.” A signatory to an NDA might discuss information that they think is not covered by the agreement, but the other party might believe is sensitive.
Warranty Disputes
When you sell a product or service, there are often implied warranties, some of which are governed by state, local, and federal laws. In addition, you may provide an explicit warranty of your product. When a consumer buys your product and thinks it has failed, they may come to you seeking remedy under the terms of the warranty.
You might agree with them, and provide them their remedy, but there are several aspects of the process that can be contentious. First, the customer might not like the remedy, which may be a prorated refund or a discount on a replacement. Second, you might think that the customer treated the product in a way that voids the warranty, which they might dispute. Often, there are disputes about the terms of a “lifetime” warranty, which typically only runs for the specified lifetime of the product, not, as some assume, the lifetime of the owner.
Get the Help of a Small Business Lawyer
If you’ve read the examples above, you probably thought “That problem could have been avoided with a well-written contract.” You’re right. Many contract disputes are preventable. Often, they arise when business owners either write or sign contracts without the help of a lawyer.
Since 2007, business contract lawyer Elizabeth Lewis has helped many small businesses write good contracts and deal successfully with contract disputes. She knows the perils that come with many of the common contracts. She can help you write contracts that will protect your business and preserve good relationships with your business partners. She can review contracts offered by others to help you avoid any onerous terms that will be destructive to your business. She also offers a wide range of other legal services to protect your business, from drafting business formation documents to securing your intellectual property.
To get Elizabeth’s help with business contract law, please contact us today. The Law Office of E. C. Lewis serves clients in Denver and the surrounding areas.
7 Common Legal Mistakes to Avoid as a New Business
Starting a new business can be exciting. For many businesses, the excitement is the thrill of seeing their venture prosper and grow. For other businesses, though, this initial excitement can turn into regret caused by major legal issues that occur due to mistakes made during the business startup process.
Here are some of the common legal mistakes that people make when forming a business so you will be more likely to avoid them. The good news is all of these mistakes are easily sidestepped by working with an experienced startup business lawyer who can guide you through the process and make sure your interests are protected every step of the way.
Not Protecting Your Personal Property
A business is risky. If you’re not careful, you might be risking everything in your business venture. One of the most important things you need to do when starting a business is to take steps to protect your personal property from business liabilities.
This is especially true if you work in any field that carries liability risks, such as construction or healthcare. However, it’s also important if you are considering acquiring any kind of debt to help start your business – that business debt can quickly overwhelm your personal capacity for paying it.
Not Having Good Written Agreements
A lot of people enter business naively assuming that your word and a handshake is enough to secure a deal. In business, there are many situations where it’s important to clarify the details of a deal so that everyone proceeds with the same understanding.
When you are starting a business with others, it’s important to make strong partnership documents that define key elements like ownership of the assets, liability for losses, and payment from profits. This is important even if you aren’t forming a legal corporation.
It’s also important to have strong contracts that define your relationship to clients. You need to make sure that you have legal remedies in place in case they opt not to pay your invoices. You also need to define your liability in the event that something goes wrong with your work.
Finally, it’s important to have contracts with your employees, but we’ll talk about that in more detail later.
Not Keeping Good Books to Preserve Liability Protection
You might think that you’ve protected your personal assets by setting up a corporation or limited liability company (LLC), but that’s only the first step. Next, you have to make sure that you’re keeping business and personal property separate. If you are using personal assets in the business or using business assets as if they were your personal property, you might erode the protection your legal documents provide.
To avoid this problem, keep careful track of what are personal assets and what are business assets, and use them accordingly.
Unclear Relationships with Contractors or Employees
Bringing on employees is a big responsibility for your business. There are major tax implications and numerous regulations governing how you are supposed to treat your employees. Often, it makes more sense to work with an independent contractor at first. It simplifies the interactions from the standpoint of your business and reduces your tax liabilities.
The problem is that if you are essentially declaring someone an independent contractor when they’re really an employee, you can create a major legal problem for your business. Make sure that you are really treating independent contractors as independent contractors, not as employees. When you really need an employee, go ahead and take the plunge into the labor pool. Just make sure you’re protected with proper employment contracts and that you understand your legal obligations to employees.
Not Protecting Intellectual Property
When you think about protecting your assets, it’s easy to forget about your intellectual property (IP). However, for many small businesses, especially tech start-ups, your IP is your most valuable asset.
Make sure you’re protecting your software and other IP by taking appropriate steps like registering copyrights and trademarks. Don’t forget to take steps to protect your IP from partners. You may trust them. You may think they are your friends. However, the history of the tech industry is littered with creators who lost control of their ideas. It’s a good idea to make sure you keep control of your personal IP or at least make sure that you will receive adequate payment for your contributions to the business.
Ignoring Regulations
All businesses must contend with tax regulations and employment laws. However, some businesses must deal with specific regulations that govern their industry. For many businesses, the web of regulations they must contend with can be quite complex, and if you violate them, the consequences can be severe.
You can’t plead ignorance to avoid the penalties of breaking regulations. Instead, it’s best to talk to a business planning lawyer to understand the major regulations affecting your industry.
Not Having a Start-up Business Lawyer
What we’re looking at here are just the common legal mistakes that many businesses make. However, there are plenty of uncommon legal mistakes you might make, and you may only discover them by making them, at which point you need the help of a business planning lawyer.
Having a business formation lawyer that you work with from the beginning can help you understand the potential risks facing your business so that you can avoid legal troubles rather than struggling to get out of them.
Elizabeth Lewis is a business lawyer who has been helping small businesses in Colorado since 2007, including many start-ups. She has helped people figure out how to organize their business to protect their personal property and helped them secure their valuable IP.
She is very supportive, focused on building a relationship with your business and achieving the results your business needs to get started. In addition, Elizabeth has the experience necessary to help you navigate a wide range of legal matters after your business becomes established. This ensures you’ll have the legal protection you need moving forward as your business grows and evolves.
If you are looking for a lawyer to help your start-up navigate legal challenges, please contact the Law Office of E.C. Lewis today for a consultation.
How to Choose the Right Legal Entity for Your Business
If you are considering starting a business, it’s easy to get caught up in the excitement over your idea and skip important details like legal entities. In fact, many people have only the vaguest notion about what different entities are available. They may miss opportunities to save money on taxes and, most importantly, protect their personal assets in the event of lawsuits or contract disputes. They might also risk losing control of the business and their ideas to their partners.
Everyone is encouraged to consult with a startup business lawyer before deciding on a legal entity for their business. You want to make sure that you understand the options and select the one that meets your needs.
Factors to Consider in Choosing a Business Structure
Before you can decide on the right legal entity, there are several important factors to consider. Here are some of the ones that come up most often:
Protection of personal assets: One of the most important factors to consider is whether you’re prepared to risk your home, your car, and any other assets if the business gets into debt.
Partners: If you are starting a business with one or more other people, you will want to define who owns what and the personal responsibility of each owner.
Taxes: Legal entities are often taxed differently. Which one you choose can make a big difference on your taxes.
Funding: When you look for backers for the business, your legal entity can make it easier or more challenging to secure funding.
Paperwork: Some legal entities require no special paperwork. Others require a significant amount before you can start operating.
Registration: Registration is like more paperwork, but sometimes registration of your legal entity is necessary to get tax benefits.
Intellectual property: If your business is based on a certain piece of intellectual property, it’s important to determine who owns that idea.
Weighing these factors can be difficult. A business planning lawyer can help you sort through them to find the best option for your business.
The Simplest Options
Many people default to the simplest options for setting up their business: sole proprietorship and limited partnership. These are functional legal entities and may be right for your business, but it’s important that you aren’t just choosing them because they’re easy. In some cases, these legal entities can cause big problems.
Sole Proprietorship
A sole proprietorship is the simplest business option. It’s the default if you just start doing business without filing any paperwork. Just choose a name for your business and start selling.
Who’s it for:Small and home-based businesses with low overhead, low startup costs, and minimal liability exposure. This can be a good choice for people who are operating multi-level marketing companies, those who are starting a business and are under 18, or those that are doing a side business such as babysitting a few hours a week.
Disadvantages: Your personal property is exposed to any legal risks your business faces. Unless you are in an industry that is very low risk and where you are going to make very little money, a sole proprietorship is usually not recommended. In addition, it carries a heavy tax burden because you have to pay self-employment taxes. Finally, it can be hard to secure backing as a sole proprietorship.
General Partnerships
General partnerships are the equivalent of sole proprietorship for multiple people. There is no paperwork required, though it is recommended. If your partner is anyone except for your legal spouse, you should have a partnership agreement to make sure everyone knows their rights and responsibilities though.
Who’s it for: Businesses started by married couples with minimal liability exposure.
Disadvantages: Personal property might be exposed to legal risks. Ownership of business assets can be murky. This is extremely problematic if people are bringing different intellectual property into the partnership. Tax burden can also be murky: depending on how leadership is shared, limited partners may or may not have to pay self-employment taxes. A robust partnership contract is recommended to make sure these issues are clearly laid out from the beginning unless your partner is your legal spouse.
Finding the Smartest Option
Although the above options are (relatively) simple, they may not be ideal for your business in many situations.
For example, any individual working in areas with significant liability risks, like construction or healthcare, will want to insulate their personal property from business liability. You can do this with a limited liability company (LLC). However, an LLC won’t alleviate your tax burden unless you choose to be taxed as an s-corporation: you will still need to pay self-employment taxes. In some cases, an corporations and LLCs can reduce your taxes if you are a s-corporation, but other times a C corporation is the better option.
For partners who aren’t married to each other, partnerships can work, if you get the help of a business formation lawyer in drawing up the partnership documents. Other times, a corporation makes more sense.
Talk to a Start-Up Business Lawyer
Are you considering starting a business? Before you start, talk to a start-up business lawyer about the different options to determine which one might be best for you. If your new business is based in Denver, the Law Office of E.C. Lewis will make sure you choose the right legal entity to protect your interests.
Elizabeth Lewis is a business planning lawyer who has helped many people start businesses in Denver and throughout Colorado. She has extensive experience helping small businesses. Since 2007, she has helped many startups in Colorado get on firm legal footing before they made it big, including software companies and others with valuable IPs. She is focused on results and understands the challenges your business faces starting out. She’s not only great at setting up legal entities, she has the extensive experience necessary to address just about any legal issue your business encounters moving forward.
Finding the right legal entity of your business can boost your odds of success. When you’re ready to start a business, Elizabeth is ready to help you start it right. Please contact the Law Office of E.C. Lewis today for a consultation.
