Business Law: What You Need to Know To Achieve Success
Stockman & Poropat, PLLC is comprised of a stellar team of attorneys well-versed in business law. Few ventures are more thrilling than starting a business! As you may already know, forming a business involves making a series of important decisions. If you have a unique or potentially lucrative business idea, but do not know where to begin, look no further! Our firm can offer you a full business evaluation. During the evaluation, we will take a close look at every aspect of your company. Namely, we can assist you in determining what intellectual property requires protection and/or what may not. From that point, our team can develop a realistic timeline in accordance with your budget. Then, we will work with you to delineate the exact steps you should take and in what precise order.
The sector that is business law encompasses a bunch of legal aspects. From property rights, corporate governance, and contracts, to consumer protection, environmental and other regulations, and business formation. In fact, business law isn’t just applicable to corporate entities and companies. If you’re a sole proprietor, for example, it will benefit you to learn as much about business law as you can!
What is the Purpose of Business Law?
What’s the purpose of business law? The answer to that is somewhat varied, but includes protecting the rights of an individual, ensuring fairness when it comes to business transactions, and establishing standards to uphold responsible actions. Not to mention, it can encourage a certain amount of stability in terms of the economy by way of the law. If you’re entering into a deal or attempting to settle a dispute, that’s where business law also comes into play.
When you have a business, you’ll want to make sure you’re in compliance with any international, federal, or state laws, too. That’s a huge part of business law. Having a business law attorney can give you the ability to protect your rights!
As far as small business owners are concerned, they can run into legal issues and should attempt to understand the complexity of business law so as to make decisions with an informed perspective. A business lawyer is a major resource when navigating legal matters in the commercial space. If you need to draft an ironclad contract, a confidentiality agreement, or a work product agreement, you can rely on your business attorney.
Protect Yourself From Liability
Overall, business owners want to protect themselves from any liability. And if you’re working with one of our attorneys, you’ll have the confidence that your company is safe from any possible risks that may be present or arise. To be a business owner is to learn how to protect your intellectual property, as well. Need a trademark, copyright, or protection of your trade secrets? A business lawyer can handle all of that for you!
Legal Entity Formation: Your Brand
We can help you choose the best type of legal entity to suit the needs of your business. That means, deciding to form a sole proprietorship, partnership, corporation, or limited liability company. There are varying benefits and complexities to each entity, which we can walk you through in detail, so that you do not waste time or money in forming a business type that may not make sense for your company. Once the appropriate legal entity type is selected, our firm can provide crucial assistance for filing and registering that entity.
Adherence to regulations and laws, whether federal, state, or local, is paramount for business owners. You’ll want to avoid, as much as possible, facing tough consequences for not adhering to laws and/or regulations. The penalty for not complying could mean having to shut down your business, paying steep fines, or even imprisonment. That’s why business law is so essential! And, a business lawyer can create a compliance plan for your business, so that you can work it into your business practices.
Content Creators and Creative Independent Contractors
If you are a content creator or creative independent contractor, we can also help. Maybe you are considering turning your hobby into a small business venture. Or, perhaps you are curious about what is the most cost-effective way to pay your taxes as someone who is self-employed. In these cases, you may want to consider forming an Limited Liability Corporation (LLC).
One of the primary advantages of having an LLC versus making money under your personal name is that it protects any assets you may currently have or will have in the foreseeable future. Without an LLC, a lawsuit could affect the house or car you own, or your net worth. Who would want to deal with that?! We recommend doing all you can to ensure everything you worked extremely hard for is kept safe and sound.
You may also want to set up a business bank account. Similar to the point made above, it is best to separate your personal assets from your business assets. If you are sued and do not have a business bank account, it could affect your personal assets.
LLC Formation Benefits
Another positive aspect of having an LLC is that it makes you or your brand appear more professional. In a sense, it gives your business operations a solid foundation of legitimacy in the eyes of clients, customers, and collaborators. How does this look when you get paid? Simple: instead of you getting a check made out to your name, it is written to your LLC.
Paying Taxes With Your LLC: Business Law
Overall, one of the most attractive aspects of forming an LLC is that in all probability it will save you money when you do your taxes.
The two most popular types of LLCs for creatives, as an example, are called Sole-Proprietorship and S-Corporation.
Let’s take a look at Sole-Proprietorship LLC first:
Because an LLC is a “Pass-Through Entity,” if you have an LLC you will not file taxes separately. Instead, as a Sole-Proprietorship LLC, your income will be reported on your personal income tax return.
Pass-Through taxation also allows you to avoid what is called “Double Taxation.” Double Taxation refers to paying taxes on both your revenue and proceeds.
Revenue is money generated by the sale of goods or services, aka income. Proceeds encompasses sales money, collection of money owed to you, and/or money borrowed (investments made in your business by others).
Advantages of Forming A Legal Entity
First off, consider that most companies have a good amount of losses during the embryonic stages of their existence. Which is to say, you will most likely have a lot of loss in the first year or so of your LLC’s lifespan. Loss is the term for money spent, such as for supplies, research and development, advertising, travel, meals, etc. In fact, loss can also include brand sponsorships and affiliate deals. Likewise, a company that is just starting out will probably have no revenue, meaning income. You will probably spend more than you make in the beginning. Why not make it easier for yourself?!
In terms of taxes, if an LLC earns a loss, it can be deducted from your employment income for that tax year, thereby lowering your total income, which results in you paying less money in taxes. By extension, you are more likely to receive a larger tax refund that you can then use to grow your newly formed business, or however else you see fit. That money belongs to you!
So if you have an employment income of $50,000 and your LLC earned $15,000 in loss, your actual total income would be $35,000, making your tax return bigger, which you can use at your discretion. As a hypothetical example.
Your Business Can Live Forever
Legal entity formation is also advantageous for the longevity of your business. We’re human beings and as such we won’t live forever! However, your company can. That means, when you’re gone, your company will live on and potentially thrive for years and years to come. Additionally, a big part of running a business is raising capital. One of the better ways to accomplish that is to sell stock. Furthermore, a major bank is more likely to issue you a loan as an incorporated borrower as opposed to a personal loan. And, for some, a legal entity may be appealing because you won’t have to have your own personal involvement be public information. A legal entity provides business owners with a healthy measure of anonymity!
Forming an S-Corporation LLC
The S-Corp LLC is most beneficial to independent contractors or self-employed folks, who roughly speaking make more than $40,000 to $50,000 per year.
Just like a sole proprietorship, an S-Corp LLC allows you to protect any personal assets you may have in the event of a lawsuit.
More specifically, having an S-Corp LLC works out for independent contractors because it can give you permission to not pay self-employment taxes. Without an LLC, any wages that you pay yourself will be subjected to self-employment taxes.
Additionally, if you are doing business for yourself as an independent contractor, the existence of your LLC proves that to the Internal Revenue Service (IRS), as a matter of fact, leaving no room for dispute.
If you are a serious creative or self-employed professional, forming an LLC will very likely save you money in the long run, even though it costs money up front.
These are the basic steps to follow to set up an LLC:
- Select a business name for your LLC. Be sure that name is available in your state.
- Pick a registered agent. This can be you or another person or a third-party entity.
- Complete the articles of organization, which will be filed with the state and accompanied by a filing fee.
- Apply for an Employer Identification Number (EIN). This is basically like a social security number for your business.
- Seek to obtain any relevant permits or business licenses with your LLC.
Contract Drafting
Contracts will likely come into play whenever you or your company conducts a transaction with another legal entity. The contract could be a partnership agreement, service agreement, revenue share agreement, licensing agreement, and/or a stock/equity transfer agreement. Our firm can draft the appropriate contract for your business transaction needs. A template agreement is not the way to go! We provide the drafting, maintenance, and review of contracts. That way, all of the details are correct and in line with the particulars of your transaction(s). The more detailed, the more precise, the more tailored the contract, the more you and your business is protected.
The analysis of contracts and other legal documents will allow you and those you’re working with know exactly the terms and conditions of your agreements. Without question, a business will have the power to protect itself from various risks by having a thorough understanding of such contracts and documents. Especially with contracts, a lawyer’s analysis can define the obligations, rights, and expectations between parties, so there’s no confusion or issue if a lawsuit is filed. Everyone involved in a business contract needs to know their specific responsibility as described by the legal agreement they’re entering into. That’s what people mean when they refer to the “fine print.” Each disclaimer or clause should be read over by your business lawyer in order to lay out any and all expectations prior to signing any contract.
Operating Agreement and By-Laws
The operating agreement and by-laws contain the rules and guidelines of your company. This aspect of maintaining proper corporate structure entails deciding who the members are, the internal voting process of members, and/or expenditure procedure (if applicable). The specific name of the agreement and/or exact wording of the by-laws may vary depending on your business entity type.
You’ll want to determine the legal framework within which your business will function. The operating agreement and by-laws are so essential because they create this very framework. Business owner or stakeholder protection comes in the form of clarity. The owners or members of a corporation are the ones who enter into the operating agreement to state how each will contribute to the operation of the business. Ranking, the structure of management, principles of accounting, and member contributions are included in the operating agreement. It also includes provisions like ownership structure, ownership percentage, and allocation of losses and liabilities. By-laws pertain to the operating procedure of the organization and speaks to the board of directors’ duties, term limits, the issuing and transferring of shares, and more.
Privacy Policy, Terms of Service/Use
You might believe that a privacy policy form can simply be copied and pasted on your website. That may not be the best idea in terms of protecting your business! Our team crafts ultra-specific privacy policies for businesses, and updates those policies, so that you are much less likely to encounter any issues down the road. Major business hiccups may occur if you do not have the right policy. This particularly applies if your clients, customers, or website users are California residents or live in the European Union, due to the California Consumer Privacy Act and General Data Protection Regulation. These privacy and security laws are very strict regarding use and disclosure of data collection.
Likewise, the terms of service are profoundly important for your business. In effect, it is the agreement you have with your clients, customers, or users. As a business owner, you should definitely understand what the agreement is and what the content of the agreement contains, so you can fully protect yourself and your business. If you do not have proper terms of service for your website, you are putting your company at risk!
With our team on your side, your policy and terms of service will be as up-to-date and in compliance as possible!
Having an Attorney for Your Business is the Right Approach
No need to handle all of the above steps to form a business on your own! Contact our team at Stockman & Poropat for a free initial consultation. We can map out the best course of action for your exact situation.
Up next we will be discussing Vorys Cease & Desist Letters.
