About

April eNewsletter

Welcome to our April business eNewsletter focusing on legal necessities for your business.

Quote of the month:
“To be successful, you have to have your heart in your business, and your business in your heart.” — Thomas Watson Sr., chairman and CEO of International Business Machines

In this Issue…


SpiritBank May Lunch and Learn

Join us for some Burn Co. Barbecue and get answers to your most burning legal questions.

May 9, 2019
11:30 a.m. – 1:00 p.m.
SpiritBank Community Room (1st Floor)
1800 S. Baltimore
Tulsa, OK 74113

Learn about legal necessities for your growing business with the entertaining Gale Allison of Gale Allison, PLLC.

RSVP: Tandy Donald, tdonald@spiritbank.com; 918-295-7438


5 Common Small Business Legal Mistakes To Avoid

Nobody wants legal trouble. Ever. That’s as true in business as it is in personal life. A legal battle is expensive and time consuming – it may even be enough to sink your business. The good news is that you can avoid a lot of legal issues by preparing yourself in advance; avoiding a legal problem is a lot easier and cheaper than dealing with it when it happens!

We can’t forecast every possible legal risk, but these are 5 major legal mistakes that catch a lot of small businesses.

1. Failing to Prepare for Employment Issues

It’s really exciting when your business grows enough that you need to hire staff. And that growth probably also means you have a lot on your plate. It’s easy to take on an employee or two without doing your homework, but that can set you up for serious legal trouble down the road.

Excellent employees will help you get your business of the ground, while subpar employees can undermine even the best business efforts. In the worst case scenario, bad employees can become legal liabilities. You may run into trouble with harassment, union regulations, and other legal issues that can take a ton of time and money to resolve.

How can you avoid this problem? Do your homework! You need to know the laws in your area that govern hiring, managing, and dismissing employees. You also need to know federal, state, and local regulations regarding overtime wages, health and safety requirements, and relevant industry requirements. Make sure you’re completely in line with all of those rules and have clear documentation in place to show it.

Keeping up with the law is a good start, but a comprehensive legal strategy should go further. That means creating an employment policy and making sure your employees are very familiar with it. At the least, it should cover the terms of employment, employee rules (for conduct, dress, etc.), disciplinary procedures, and procedures for filing and dealing with complaints. Make sure every employee gets a copy and signs a form stating that they’ve received it – that can offer you protection later on if an employee claims they didn’t know about the policy.

Finally, make sure you address any employment issues quickly, especially if they relate to harassment or discrimination. Allowing issues to drag on is not only bad for morale and business, but it can open you up to liability for failing to protect your employees.

2. Lack of Succession Planning

Do you have a plan in place for who will take over your company when you leave, pass away, or retire? You should. It’s easy to get caught up in running your business now, but you need to consider what will happen when you’re gone. Accidents happen, so you need to have a plan in place. This is important for any business, but is particularly crucial for small businesses. As a founder, you’re used to doing all the tasks and you know more about the business than anyone else. If you leave without a clear plan in place, it will be very difficult (if not impossible) for anyone else to step in and take over. Worse, there may be questions of inheritance or fights over who should take control, which can leave your business in disarray through complicated and expensive legal battles.

Many small business owners want to leave their businesses to their children. That’s a great plan if your children are interested, but you also need to account for the fact that they may not have the interest or ability to take over. Make sure you talk to your children early. Make sure they know about the business and that they have the option to take over. Whether they’re initially interested or not, you’ll need a policy for how to fill the top spot in an emergency. That means outlining a procedure for either an heir or an outsider to step in and making sure that you have clear records of what’s going on – that makes the transition as easy as possible.

Succession planning often benefits from a strong Board of Directors, ideally with outside directors. They can help keep the company on track during the transition process and they can help make decisions that are in the best interest of your heirs and shareholders.

This kind of planning takes specific legal forms and processes, so it’s not enough to tell your children or your Board of Directors what you want. You’ll need to sit down with your attorney and draft a formal plan for what happens when you’re no longer at the helm. That may mean a child or heir taking over, an outside manager stepping in (permanently or temporarily), or a sale of the business, among other options.

In addition to a plan for the business, you’ll need a personal estate plan to set out what will happen to your equity. You may want to put it in trust for your children or grandchildren, donate part of your ownership to a worthy cause, or sell everything and disburse the cash. Sit down with an attorney and make those plans in advance – and make sure you notify your heirs.

3. Trying to “DIY” Complex Legal Matters

We know that hiring an attorney is expensive – those hourly fees and retainers add up quickly. While Google allows you to search most legal questions and even find legal forms online, remember that there’s a reason it takes 3 years of law school and a grueling exam to qualify as an attorney. You might use Google to get a sense of whether your ankle is broken or just sprained, but you’d go to the doctor for the actual treatment. In the same way, you may use a quick Google to get an idea of where to start and what potential issues may come up, but you need a qualified business attorney to handle your legal needs.

Every business can benefit from the help of an attorney to set up the business properly, create an employment policy, draw up a succession plan, and flag tax and accounting questions in advance. An attorney can also help you trademark your business name and logo to protect your reputation (and make sure you’re not violating copyrights or trademarks yourself). If you’re a contractor or work with detailed contracts, a business attorney can help you draft and formalize your contracts. If you’re trying to set up a corporate or partnership, your attorney can assist with the necessary documents, tax advice, and relevant filings.

Start a relationship with a business attorney as soon as possible after starting your business. And whenever you’re worried that a legal issue is looming, pick up the phone and check in. They can tell you whether you’re worried over nothing and if there is a real concern, they can help you head it off at the pass.

4. Working on the Basis of a “Handshake Deal”

Contracts can be dense, complex, and full of legalese. They can also be expensive and as a small business owner, you’re often working with vendors and contractors that you already know. So, it may seem easier to work with vendors or contractors under a “handshake deal,” as opposed to formalizing a written contract.

Never, ever work without a written contract.

In theory, an oral contract may be enforceable in court if it’s a short-term contract. In practice, however, you’re going to end up in a he said/she said fight and there’s no guarantee you’ll get a good outcome. A written contract, on the other hand, forces both parties to consider every aspect of the deal and helps make sure everyone understands what they’re signing on for.

Not every contract needs to be a massive legal production; you can work with your lawyer to draft a few standard template documents that you can customize for different vendors, contractors, etc. A clear contract can help you avoid the kind of disputes that turn into legal troubles in the first place. And if you do end up in court, a clear contract will help make sure that the deal is enforced.

5. Keeping Sloppy Records

Ask most small business owners about what their days are like and the universal response may be “BUSY.” When you’re the boss, there’s a lot on your plate. Note – keeping and updating records may be a chore which falls by the wayside. The problem is that sloppy record keeping can expose you to future legal problems.

If you’re incorporated, then properly keeping your records is vital to preserving your protection from liability. Even if you’re just a sole proprietor, vital record keeping is important if you ever plan to sell or expand your business.

Proper recordkeeping is especially vital when it comes to accounting practices. One of the easiest ways to get yourself in legal trouble when it comes to taxes is by commingling business and personal funds or failing to account for your income and expenses. When it comes to financial records, it can be well worth your while to outsource it to a bookkeeper. They can handle the minutiae (and the complexities of payroll) and leave you free to manage your business.

In addition to financial records, you need to keep clear records of your contracts and your employment practices/issues. Creating a contract isn’t going to help you if you can’t find it. And if employment issues come up, you’ll need to be able to pull up records to show what actions you took, when you took them, and what the outcome was.

Stay Out of Court

Your business is important to you and you want to run it the right way. That means protecting yourself from legal issues wherever possible. Take the time and the cash to make sure everything is set up the right way – that can save you a lot of time, money, and anguish in the future.

Read this article at the us.accion.org


5 Legal Tips for Small Businesses and Startups
By Eyal Lifshitz

The economy today is moving faster than ever. Given the ubiquity of cloud-based solutions in the market, relatively low barriers to entry and a surplus of capital available to aspiring entrepreneurs, full speed ahead is your only choice. Anything slower, and someone else will pass you.

Related: 10 Questions to Ask Before Hiring a Small-Business Attorney

Yet even with these market conditions, potential roadblocks remain, and every business owner needs to tackle them. From the beginning, your business strategy should satisfy the legal requirements of your industry. After all, no matter how great your business strategy, it can’t be executed if you’re operating outside legal bounds. The very well-being of your business depends on giving this building block the time, attention and investment it deserves — and at the early stages.

Here are five tips for crafting a legal strategy in your fledgling organization:

1. Budget more for legal spend than you think you need.

Don’t underestimate your legal expenses. Legal fees could end up being a large upfront investment when you start your business. In my experience, these fees always end up being more than anticipated due to the constant back and forth, legal complexity and other factors. For this reason I recommend giving yourself enough of a buffer in your budgeting for these services. Also, make sure you consult with your attorney to estimate the total legal fees at the onset.

On top of that, you also need to pay for license fees, license filing fees, bonds and more. It can be very helpful to speak with other entrepreneurs who deal with similar legal challenges, to determine a better estimate of those costs. At the end of the day, budget wisely so you don’t have to dip into funds that could have been put toward other business objectives.

2. Assume you need twice as much time as you anticipate.

When the idea for your business comes to you and you see a market need that is not being fulfilled, you want to get cracking right away. But getting your legal ducks in a row can take time, so plan ahead. When we started BlueVine, it took us a full year to obtain our lender license. During that time, we had to work on a modified basis to operate within our legal bounds. Make sure you know which licenses you need, to begin operating, and take into account the time needed to acquire those permits.

Related: The Legal Advice Mark Cuban Didn’t Take

3. Make sure you have the right attorney for each task.

Specialization matters. An attorney not versed in the specific field can be costly. For instance, if you need to obtain a patent, or worse, go toe-to-toe with a patent troll, work with a patent attorney. This specialist’s years of experience in intellectual property, and in-depth knowledge of the ins and outs of patent and trademark litigation, will serve you well. Opting for a general practice lawyer who covers a broad range of areas but specializes in none of them may save you money upfront, but this individual’s lack of expertise in a specific field could cost you down the road. It’s worth getting the right person for the job — you’ll spend more in the long run if you don’t.

4. Make sure you are covered and not breaking the law.

The consequences for not having your legal house in order can be expensive. Square, the mobile commerce startup, was recently fined more than half a million dollars in Florida for operating without a money transmission license. Worse than fines, however, is the damage you suffer by squandering your reputation with customers. The need to keep up with competitors and expand into new markets can seem pressing, but no corner is worth cutting if it ends up ruining your brand or putting you behind bars. Work with a trusted legal advisor early on to ensure you’re operating within the letter of the law.

5. It’s not all or nothing; run legal processes in parallel.

If part of your model requires licenses/compliance, do what you can legally until you’re compliant. While obtaining legal permissions to run your business is vital to starting your business, don’t sit around waiting for progress on the legal front. Use your time wisely, investing and building the areas of your business you don’t need legal clearance for. For instance, you can launch in states where the regulations don’t hold you back while applying for the proper permits in states that require them; or you can go to market with a solution narrower than what you intended. Be ready to flip the switch and resume pushing forward the second your compliance is official.

By its nature, business moves fast. Following these basic steps can go a long way in building your business as quickly — and wisely — as possible.

But remember, just because something may be legal doesn’t always mean it’s right. With each decision, make sure you’re not just following the letter of the law, you’re also abiding by the intent. Your business should be built on your values and operate with positive intent: Keep that in mind regardless of what legal parameters your venture faces.

Related: Avoid These 8 Toxic Trademark Mistakes

Read this article Entrepreneur.com


When to Upgrade Your Business Structure
By Lori Fairbanks

Is sole proprietorship still the best legal structure for your small business? Here are some considerations that can help you decide if it’s the right time to incorporate or set up your small business as a limited liability company.

Most small businesses – more than 70 percent, according to the SBA – are sole proprietorships, the simplest legal structure for businesses. Not only is it easy and inexpensive to set up this type of business, but tax prep isn’t as complex as it is with other business structures and you keep full control over your business – and its profits. With this type of entity, there isn’t any legal distinction between you and your business; all business earnings, losses and liabilities are yours.

This structure works well for many businesses. As your business grows and your profits increase, however, it may be worthwhile to sit down with your CPA to talk about when, or if, you should consider upgrading your business structure. Get their advice on whether forming a limited liability company or incorporating could save you money, limit your liability, or help your business grow.

Before you decide to upgrade your business structure from a sole proprietorship to an LLC or corporation, there are drawbacks to consider. They’re more expensive to set up and maintain, as there are compliance regulations and fees, and they vary depending on the structure you choose and your state.

LegalZoom’s Jane Haskins, Esq., writes that “it costs money to set up and dissolve a corporation, and corporations have additional record keeping and annual reporting requirements that sole proprietorships and partnerships don’t have. If your business is small and just starting out, those extra obligations can outweigh the advantages of incorporating.”

Here are some points to think about and discuss with your CPA.

Liability

One of the most common reasons business owners upgrade their business structure is to reduce personal liability by legally separating personal and business assets. If you have a sole proprietorship or partnership and your business experiences financial troubles or is sued, your home, vehicles, personal bank and retirement accounts are at risk, as they may be collected on to pay down your business debts.

In the same vein, a top concern with a business partnership is that you share responsibility for all business losses or debts. Even if these losses are sustained due to an action or decision made by the other partner and you had nothing to do with it, you’re still liable, and your personal assets may be vulnerable.

If you set up your business as an LLC or corporation, your business is its own entity with its own assets; your personal assets aren’t tied to the business and can’t be used to collect on business debts. Writing for the small business mentoring organization SCORE, CorpNet CEO Nellie Akalp says, “These structures protect your personal assets (and those of any other shareholders) from debts, losses, and court rulings against your business. With a C corp, that liability protection usually extends to directors, officers, and employees as well.”

If your business is just you – for example, if you’re a professional service provider such as a consultant, contractor or doctor – you may still be able to set up your company as a separate legal entity, such as through a single-member LLC.

Taxes

Each business structure handles taxes differently, and some may help you save money. For example, with a sole proprietorship, your taxes are simpler than with other structures, but you’re taxed on all your business’s profits – not just the amount you pay yourself or withdraw for your own use – and you must pay self-employment taxes (Social Security and Medicare taxes) on all your earnings.

With a C corp, the business pays a corporate income tax on all profits. These profits are then taxed again at the individual’s tax rate when they’re paid to shareholders as distributions, or dividends. Even though profits are double-taxed, the ability to split the profits between the business and yourself as a shareholder may lower your tax rate.

With an S corp, the business pays you a reasonable salary and takes care of the Social Security and Medicare taxes. The remaining profit is distributed to shareholders, and you pay your individual income taxes on your portion. This option may save you some money on your Social Security and Medicare taxes, but only if your business is making enough of a profit above your salary (which experts caution against setting artificially low, as the IRS looks closely at these amounts).

If you have an LLC, you can decide whether you want to be taxed as a sole proprietor, C corp or S corp.

To determine which structure is best for your specific tax situation, you’ll need to consult your CPA.

Changes in ownership

If the ownership of your business changes, you may need to upgrade your business structure as well. For instance, if you start out as a sole proprietor and take on a business partner, you’d need to convert to a partnership or another structure. If you start out as a partnership and decide to buy out a partner so you have full control of the business, you’d need to change the structure to a sole proprietorship or single-member LLC. If you have a family business and want to add multiple people as shareholders, you’d need to switch the business structure to an LLC or corporation.

Financing

In addition to minimizing your tax burden, the right business structure will allow you to decide how you want to accept financing, if this is something you need to help your business grow.

With a sole proprietorship, your financing options are limited to those you can personally guarantee. You’ll need a healthy personal credit score to qualify for a business credit card, loan and line of credit, and you’ll be personally responsible for them if your business can’t meet its obligations. You may also be required to put up collateral, such as your house, against the debt. If your business is an LLC, you can avoid personal liability for the financing you receive, unless you sign a personal guarantee or put up personal assets as collateral against the loan.

If you’re willing to share ownership of your company, you can form a partnership and accept investments in exchange for shares of the business. However, keep in mind that this may affect how you run your business. Small business lender Bond Street advises, “When taking on new partners, it’s important to decide whether they’ll play an active role in the management of the business or operate as silent partners. If it’s the former, weigh the impact on business operations against the opportunities created by the access to new capital.”

If you’re interested in bringing in outside investors, such as an angel investor or venture capital firm, to help you turn your startup into a big business, you’ll need to set up your business as a C corp. This allows you to issue different classes of stock that you can exchange for investment capital.

Share your experience!

If you’ve changed your business structure, leave us a comment. What prompted the change? What results did you see from the upgrade? What advice would you give other business owners thinking about switching from a sole proprietorship to another structure?

Read this article at the Business.com


Effective Tips for Outsourcing Work to Drive Growth
By Katharine Paljug, Writer

Are you outsourcing part of your business? If so, you’re not alone. The 2018 Deloitte Global Outsourcing Survey found that businesses of all sizes are outsourcing core business functions to disrupt the market, improve their efficiency and better serve customers.

For small businesses, hiring contractors can be the key to growth, especially when you don’t have the option or ability to bring on a full-time employee. But it can also be a stressful process for small business owners, whose businesses are intensely personal.

If you’re planning to outsource work from your small business this year, follow these tips to make the transition smooth, productive and profitable.

1. Know what tasks are worth your time.

It can be hard for small business owners to let go of any aspect of their business. But wearing every hat in your business – marketing, copywriting, bookkeeping, client pitches, public relations – might not be the best use of your time and money.

If keeping up with daily minutiae, such as posting on social media or answering every email that arrives, keeps you from big-picture work, it can hinder the growth of your business. Likewise, if you don’t have the skill necessary for important tasks like filing your taxes or writing your website copy, the time you spend struggling to complete them might be better spent on another part of your business that brings in new revenue.

In these instances, outsourcing may cost you money, but it can give you back valuable time that allows you to focus on growing your business. If you know your own average hourly rate, you can judge whether the amount of time you spend on tasks that can be outsourced is worth it – or if your time can be better spent elsewhere while an expert takes that particular slice of work off your plate.

Even if you already have employees in your small business, you may find that it still makes more sense to outsource some work. The Deloitte survey found that IT functions are the most commonly outsourced, along with tax accounting and other financial matters. These tasks require specific skill sets that your employees may not have. Rather than hiring a new employee and paying a regular salary, along with associated expenses like payroll taxes, the best use of your small business’s time and money may be to outsource the work to a dedicated professional when necessary.

2. Understand all legal requirements.

Business owners have a variety of concerns about outsourcing. The Deloitte survey found that the most common one is whether customers’ and their own data is kept secure, while the third most common concern is that vendors comply with any necessary laws and regulations.

With the passage of laws like the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA), businesses of all sizes are on the hook for how they handle customers’ data and online information. There are also various local, state and federal laws that impact how you run your business, such as minimum wage policies and federal tax statutes.

These laws don’t care who is doing the work – whether you are outsourcing or handling it in-house, your small business is ultimately responsible for what happens. This may impact which tasks you decide to outsource. You may choose to be the only one handling customers’ data, do all website updates yourself or keep strict control of production. You may be comfortable outsourcing every stage of the process. Whichever route you choose, remember that, as the owner, you are ultimately responsible for understanding and complying with all the laws that regulate your business.

3. Choose your partner carefully.

When choosing a person or company to take on outsourced work, consider the partnership you are entering into just as carefully as you would choose a new employee.

Whether looking for a bookkeeper, copywriter or any other expert, many small business owners fall into the trap of going with the first option they find. But the Deloitte survey found that the No. 1 thing companies that outsourced want to do differently next year is spend more time on their service provider selections.

Rather than rushing into a business relationship, treat outsourcing like a partnership. Research your options. Carefully consider who you are working with and what impact that partnership could have on your business.

4. Remember you get what you pay for.

Among the businesses that Deloitte surveyed, 35 percent didn’t expect outsourcing to lower their costs, while another 32 percent expected that outsourcing would lower their operating costs by less than 10 percent. Only 9 percent of companies expected that outsourcing would lower their costs by more than 30 percent. But even the companies that predicted higher costs still expected that outsourcing would be worth it.

Even if outsourcing increases your monthly or yearly expenses, it can create opportunities for growth that wasn’t previously possible, allowing you to increase your profits, grow your business and pursue new opportunities that you couldn’t when your time was being taken up with lower-level work. In many instances, outsourcing pays for itself over time, even if it initially increases your operating costs.

For a small business operating on a strict budget, cost may still play a large role in whom you choose to outsource work to. But it shouldn’t be the only consideration. There are many factors in addition to cost that should impact who you partner with, including the following:

  • Reputation of the provider
  • Scope of services available
  • Speed of service
  • Experience and skill level
  • Portfolio or work history
  • Fit with your company priorities and goals
  • Ease of working together

Not all of these factors will hold equal weight in your decision. In some cases, you may find that the cheapest option for outsourcing provides the service you are looking for. Other times, you may find that it’s impossible to find a skilled partner who understands data security and legal regulations, is easy to communicate with, and completes work on time for bottom-dollar prices.

In outsourcing, as in every other aspects of business, you are likely to get what you pay for.

Resources for effective outsourcing

Not sure where to begin? Check out these other Business News Daily resources on the best things to outsource and where to get started.

Read this article at the BusinessNewsDaily.com


The views and opinions presented in this newsletter do not necessarily represent those of SpiritBank.
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