Using the Law as a Protective Shield for Your Small Business

SmallBizChat on TwitterEvery week as SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wednesday on Twitter from 8-9 pm ET. This is excerpted from my recent interview with Lisa Montanaro.  Lisa is a Productivity Consultant, Success Coach, Business Strategist, Speaker and Author that “defected” from the practice of law in 2002. You can follow Lisa on twitter @LisaMontanaro and at www.facebook.com/LisaMontanaroBiz and on her website www.LisaMontanaro.com.

SmallBizLady: Is the threat of a lawsuit a real fear for small business owners?

Lisa Montanaro: Unfortunately, yes.  I always say anybody can sue anybody over anything at any time. In fact, 46% of small businesses have been threatened with a lawsuit, 34% have been sued in the past 10 years, and 62% have made business decisions to avoid lawsuits. Indeed, small businesses bear 69% of the total cost of the tort system to all U.S. businesses.

Smallbizlady: What is the best course of action? What’s a small business owner to do?

Lisa Montanaro: For starters, realize that the best defense is a great offense. While most small business owners fear the law, it is much wiser to use the law as a protective shield. There are many business and legal components that contribute to creating the strongest shield possible. For example, business entities (the type of structure that governs your business), insurance, and intellectual property (copyright, trademark, patent, and trade secrets) to name a few.

SmallBizLady: How can a small business owner create a shield through business structure?

Lisa Montanaro: There are 4 basic types of business entities: sole proprietorship, partnership, corporation & limited liability company. If you are a sole proprietor, then you essentially have no shield. 78% of all small businesses in the U.S. are sole proprietorships because it is simple and inexpensive to create. If the business entity itself does not provide a shield, then you can create one by acquiring appropriate and adequate insurance coverage. Limited liability companies (LLC) and corporations provide a shield of protection if they’re operated according to statutory rules. Don’t get caught up in the thought process that your business is too small to incorporate. Entrepreneurs often make the mistake that if a business is one-person show, it’s too small to have structure that provides protection. Think “big” even if the business isn’t big. Even the smallest company can incorporate or form an LLC.

SmallBizLady:  Can small business owners create a shield through a written agreement?

Lisa Montanaro: Yes! When you agree to perform services for a client and the client agrees to pay you for those services, you and the client have entered into a legal contract (also known as an agreement). A written agreement promotes consistency of policies, exudes professionalism & clarifies understanding of parties. An agreement is an expense worth paying for to secure adequate protection in the long term. An agreement does not need to be fancy or long, but should be understandable.

SmallBizLady: What should small business owners do to protect themselves when hiring or retaining help?

Lisa Montanaro: When a small business owner is ready to hire or retain assistance, proceed with caution. Be slow to hire. Take your time to interview, check references, do a background check (with permission), etc.  It will be time well spent. Consider starting with independent contractors first, then hiring employees.

SmallBizLady: Should small business owners carry insurance?

Lisa Montanaro: If you are in business, you need business insurance.  Period. If you do not have business insurance, do yourself and your business a favor and take a look at it.  Work the cost into your budget. Some industries are not as high risk as others, but why take the chance? Insurance is generally considered a valid business tax deduction and gives you peace of mind of knowing your business is protected.

SmallBizLady: How do we classify team members in our business as employees or independent contractors?

Lisa Montanaro: If you have individuals that work for your business, you need to determine whether they are employees or independent contractors. The IRS has a wealth of information on this topic on its website at www.irs.gov and you can also check with an accountant. The IRS uses a 20 factor test to make the determination of employee or independent contractor. Get the answers you need.  Do not guess, because if you’re incorrect, it will be costly mistake of having to pay back taxes.

SmallBizLady: How should small business owners handle funds?                                               

Lisa Montanaro:  Use the rule – No Commingling of Funds. Do not use business funds for personal expenses or vice versa. Keep separate bank accounts and credit cards for business and personal. The IRS likes to see separation of business and personal finances.  Give the IRS what it wants and keep ‘em separated!

SmallBizLady:  What are areas of intellectual property and how should small business owners use it to protect their businesses?

Lisa Montanaro: Intellectual property includes copyright, trademark, patent & trade secrets. Small business owners should copyright any original work they create. Affix the word “copyright” or the © symbol, the year of first publication of the work, and the name of the owner (or the business if you prefer the business owns the work). A trademark or service mark is a word, phrase, symbol or design (or combination thereof) that identifies and distinguishes source of goods & services. Protection is created by using the mark in commerce or by registering it with the US Patent & Trademark Office. Use the ™ or ℠ symbol to show your intention to claim rights in the mark. The registered trademark symbol ® may only be used after the trademark is registered and approved by USPTO.

SmallBizLady: How should small business owners find attorneys to help them with their businesses?

Lisa Montanaro:  Look for an attorney that specializes in the area you need, e.g., intellectual property, incorporation, contracts, employment law, etc. Find lawyers through friends/family, chambers of commerce, law schools, and local bar associations. Check Martindale-Hubbell’s Lawyer Locator online at www.martindale.com to research attorneys.

SmallBizLady:  Are there any legal & government resources that you recommend?

Lisa Montanaro: Yes, some of my favorites are Legal Zoom, Nolo & The Company Corporation for general legal advice and do-it-yourself legal issues. Also, the American Bar Association is a great resource. The IRS has a user friendly site at IRS.gov. The US Patent & Trademark Office site at www.USPTO.gov is great too.

SmallBizLady:  Any final tips to using the law to protect a small business?

Lisa Montanaro: Knowledge is power! Don’t be afraid of the law. Educate yourself, and the ways it can help you protect your business, and better serve your clients. Many legal protections are not overly costly to implement. They just require that you take the time to learn about them and put them into place. And, often not implementing them may cost you more in the long run! One more thing… sometimes what looks like a legal issue is really a business decision, so make sure that any attorney you work with understands small business.  He or she can become a great asset to you and your company.

If you found this interview helpful, join us on Wednesdays 8-9pm ET follow @SmallBizChat on Twitter. Here’s how to participate in #SmallBizChat: http://bit.ly/S797e

For more tips on how start or grow your small business subscribe to Melinda Emerson’s blog http://www.succeedasyourownboss.com. Melinda F. Emerson, known to many as SmallBizLady is America’s #1 small business expert. As CEO of Quintessence Multimedia, Melinda educates entrepreneurs and Fortune 500 companies on subjects including small business start-up, business development and social media marketing to fulfill her mission to end small business failure. She writes a weekly column on social media for The New York Times. Forbes Magazine named her #1 woman for entrepreneurs to follow on Twitter. She hosts #SmallBizChat Wednesdays on Twitter 8-9pm ET for emerging entrepreneurs. She also publishes a resource blog http://www.succeedasyourownboss.com Melinda is also the bestselling author of Become Your Own Boss in 12 months; A Month-by-Month Guide to a Business That Works.

Comments

  1. says

    Melinda first of all thanks to you to share “Lisa & smallbiz lady((You) ” interview questions on the website because this question cleared my doubts. i already followed lisa on twitter she is a great personality.

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