Let’s talk all about the common mistakes that you might be making while you’re getting your business up and running, and how you can kind of mitigate these problems now so that they don’t end up being big issues for your business down the line.
I know if you are anything like me, legal things are just not something you usually want to talk about, but I’m going to break it down and make it very approachable and not scary.
It’s good to note that a lot of lawyers can do some of the initial startup work that a new business needs, if you’re in year two or year three and are really ready to grow and take things to the next level you may want to look for a more specialized lawyer who can help you do just that.
A strong foundation is everything. Ask yourself these questions:
– Are you using the right kinds of contracts in your business, whether with contractors, clients, or vendors?
– Do you need an LLC or can you stay a sole proprietor?
– Do you have your employer identification number from the IRS?
– Do you have your business license?
– Are you paying the right taxes?
Not every professional needs to become incorporated! Some professionals, like lawyers and accountants and doctors, are in a little bit of a different scenario because if they get sued for something or they do something wrong at work they are going to get sued personally – so the liability protection that an LLC provides doesn’t really apply to your professional liability.
A graphic designer, on the other hand, can put that LLC or corporation as kind of a wall around their business that will protect their personal finances from anything that goes wrong in their business.
So it might make sense for you to remain a sole proprietor until you have employees who could sue for discrimination, in which an LLC could definitely protect you.
It’s important to know whether the people on your team should be classified as contractors or employees. Because this is such a heavy and deep topic I’m not going to go into it too much here, except to provide you with an amazing resource to get clear on what you should be doing if you already have a team. Check out:
Hiring contractors and employees the right way, with Ashley Cox of sproutHR (Legal Road Map® Podcast S1E12)
Because there can be serious fines and penalties if you’re classifying your workers the wrong way this is definitely an area that you want to take a hard look at!
The big thing here is just to make sure you’re using contracts, even in situations where you don’t think you necessarily need one – working with a new client, working with a vendor, collaborating on a project – even if you write it yourself and draw something up really quickly it should have:
– What you are doing
– What you’re going to be paid
– Whether you give refunds or how you can cancel if things don’t work out, and
– Who owns any intellectual property that’s created
Contracts protect everyone and should make everything clear (especially when it comes to who owns what) so that god forbid if something breaks down, the client turns out to be terrible, or you have something happen in your life that you can’t finish the job or you decide it’s not for you, everybody can part ways and you have talked about things on the front end when everybody’s friendly.
Every contract should feel good to both sides – you should never feel icky and
even if you’re working with a friend make sure there’s a contract in place because it lets you stop worrying about if something goes wrong!
The biggest thing is not to give away any rights before you’re fully paid! Some contracts may consist of “work for hire” which means that the person who’s hired you owns all the rights from the second it’s created.
That also means that if you send them a file and they never pay you, they can still do whatever they want with that file.
My advice: always try to hold something back so that you have some leverage in the event that you’re not paid!
If you’re doing things that are really just for one client it might be totally appropriate that they’ll own it after they pay you. But if you’re doing things that maybe you might want to use in other projects – like, let’s say you’re creating a video and you shoot like eight hours of footage, including a lot of b-roll around your town – but you want to be able to use that b-roll in other projects, then that might be a little different.
At the end of the day it’s really up to you how you structure your business, but what I don’t want to see is you get to the end of the project and the client thinks x and you think y.
Before you commit to a name, do your research! I see a lot of people not doing checking to make sure that no one else is already using the name, which can be trademark infringement.
It’s great to check domain availability, if you can get the URL that you want, but you also need to do a quick Google search or a U.S. Patent and Trademark Office search to see if anyone else is actually registered under a trademark.
In U.S. trademark law we have a common law system, so the moment that someone starts using a name with their business selling a certain product or service they own common law rights to that name. So whether I register Pinegate Road or not I automatically have common law rights to it – and the same applies to any business.
Always check with your state because you may want to eventually form an LLC, and do a trademark search because there could be someone out there who’s not going to show up on a Google search but who does have a registered trademark.
It’s also important to note that trademark rights only extend to the products and services that you’re actually using the trademark with – so, for example, a church is not going to be competing with a graphic design company, and so similar names, in this case, may not pose a problem!
You just want to make sure you do a good search before you pour a bunch of time and money and energy into building a brand and trying to protect it – you want to make sure that you actually have something that is protectable and that you’re not infringing on anybody else’s rights.
What this allows you to do is tell people that you own the rights to the content and it outlines what they can – and can’t – do with it, so you basically set up the rules of the road for your product.
For example, can they share your product? Can they share only with credit? What is your policy on refunds? Is there an online community as part of their purchase, and what does that entail? If there’s a payment plan option, what are the rules of engagement for that? Are they still obligated to pay in full if they cancel before their payment plan is complete?
Some of these things can be a big financial hit if you’re not protected in some way with solid terms – so make them a priority!
If you’re just starting out there are a ton of great contract templates that can help get you started without a ton of investment.
Legal stuff doesn’t have to be scary or overwhelming. It should, however, be something that you have as a line in your budget (even if it’s a small line!). It really is part of running a business and super important to get all of your legal ducks in a row – whether you’re just starting out, or already years in your business – it’s never too late!
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