10 Legal Tips to Keep Your Company Out of Court

Litigation is very expensive and can even cost you your business.  This article will give you some pointers on staying out of court.

1.       What is the best way for a person who’s starting a business to research the laws that govern their industry?

The first place to check is with your town or city government.  They will be able to tell you about local ordinances about zoning, whether a business can be run out of your home, whether you need certain facilities for your type of business, especially if there is food involved, and what licenses and permits you need.  Then you do the same with your county and state government.  Another good place to research the laws that govern your industry is to find the trade organization that represents your industry and talk to the officers and legal counsel, if they have one.

2.       Some cities haven’t updated their laws to include home-based businesses.  How can business owners make sure they stay within guidelines when there are no guidelines?

Business owners should check with their municipality to learn whether zoning ordinances exist that permit or prohibit home-based businesses.

3.       In your experience, which city department handles zoning?

Various larger towns and cities have a separate Zoning Department.  Other towns place the zoning board in the Building Department.

4.       Sole proprietors often seek the limited liability form of business ownership.  First let’s define limited liability, and then tell us some of the advantages.

Limited liability refers to protection of your personal assets from company debts and claims.  That means that if the company loses a lawsuit or owes someone money, only the company’s assets can be used to pay the judgment on the lawsuit or pay the debt, not your own assets, such as your house.  With forms of business ownership such as sole proprietorship or general partnership, all of the assets of the business as well as your own bank accounts and property can be used to pay for company debts.

5.       What types of companies benefit from being a limited liability company, also known as an LLC?

All companies can benefit.  The filing procedures are fairly simple and most states allow even just one person to form an LLC.

6.       Why would a one-person office set up their business as a corporation?

Usually, a one-person office incorporates because they want the limited liability protection that a corporation offers, and may not meet the requirements for a limited liability company in their state.

7.       Contracts are a very necessary part of business.  What type of contract help is most requested by your clients?

My clients tend to ask me to review a lease, before they sign it, and vendor contracts.

8.       I’ve heard stories about people who begin partnerships without a signed agreement.  When the partnership ends, one person is left with all the debts.  How can this be avoided?

This is such a common situation when 2 friends start a business together.  They figure that their friendship will overcome any questions that come up about how to handle company business.  Every partnership should have a partnership agreement. 

9.       What’s the basic information to include in a partnership agreement?

All partnership agreements should discuss how much and what each partner will invest in the business, how much time each partner will invest in the business, whether full-time or part-time, how the profits and losses will be divided, what will happen when one partner wants to leave the business or dies, and whether one partner can bind all of the partners when signing a contract.

Binding all of the partners – how does that work?

Legally, a signature by one partner on a contract or business deal means all of the partners are responsible for fulfilling that contract or business deal.  That also means that any or all of the partners can be liable for all of the damages if something goes wrong.  By specifically stating in a partnership agreement that prior consent of all or a majority of the partners is required before a partner can bind the partnership, it decreases the chance that one partner will go off on his own and put all of the partners’ assets at risk.

10.   What are the legal problems associated with choosing a business name that someone else has trademarked?  Before answering that, we should define the term “trademark.”

A trademark is a distinctive symbol, picture, or word that a company has registered with either the state or federal government.  If a company has trademarked its name or its logo, another company cannot use the same or even similar name or logo.  The company that registered the tradename or trademark has the right to go into court and stop your company from using its name.  That can cost you a lot of money, both in court and lawyer fees and in changing your name and everything that you had your name on.