Agreements
Business Planning

4 Essential Legal Agreements No Business Should Be Without

When starting a new business, putting the right legal agreements in place is crucial for protecting your assets and relationships. Yet far too many new business owners put off—or even entirely overlook—creating these vital documents. You might not even know which agreements you need.

The following 4 agreements are among the most essential legal documents for just about every business. If your business is missing any of these foundational documents, or you need the agreements you already have reviewed, contact us, your Personal Family Lawyer® with business planning expertise right away.

1. Business entity agreements

One of the very first decisions you will make as a business owner is how to legally structure your business. To minimize your personal liability and maximize tax savings, we often advise our clients to set up their business as a limited liability company (LLC) or a corporation. In either case, you’ll need to draft the proper business entity agreement to stipulate how your business entity will be governed and run.

For an LLC, this is in the form of an operating agreement, while corporations require corporate bylaws. Both legal documents define the rights and responsibilities of your company’s owners: LLC owners are known as “members,” while corporation owners are “shareholders.”

Among other functions, these agreements establish how the company will be managed not only on a daily basis, but also in the event one owner dies, becomes incapacitated, or retires, as well as stipulating what will happen if the company fails. These agreements also outline how business communications will be handled, along with how disputes will be resolved.

Business owners often don’t take these documents seriously enough—or even bypass them entirely—because the owners are friends, and they figure they will just figure everything out as they go. But giving short shrift to these agreements is a huge mistake.

Conflicts are inevitable in any business, and even if everyone gets along, you still need to plan for events like the company’s eventual sale or dissolution, as well as incapacity, death, or retirement of an owner. For this reason, you should always consult with an experienced business lawyer like us to help you create these agreements, and never try to draft them on your own using a do-it-yourself (DIY) online document service.

As your Personal Family Lawyer® with business planning expertise, we will not only advise you on the entity structure that’s right for your business, we will also support you to create robust operating agreements or bylaws to ensure your company’s governing documents cover all of these critical areas.

2. Employment and independent contractor agreements

If you anticipate hiring employees or independent contractors, you’ll need to create comprehensive employment agreements and independent contractor agreements, and require every person who works for you to sign one—no matter how long you’ve known the person. In fact, it becomes even more important when you are hiring friends or family.

These agreements should clearly detail the terms and conditions for the working relationship, establishing metrics for success and time frames for specific goals and objectives to be achieved. Then include that information in the employment or contractor agreement, so it’s abundantly clear what the expectations for the position are for both the team member and for you.

Your employee agreements and contractor agreements should also include provisions that protect your intellectual property (IP). We often see agreements that put business owners at risk of their employees or contractors leaving and taking the company’s most valuable IP assets with them. Sometimes, they will even steal your customers, or in a worst-case scenario, you may not even own the IP you’ve paid them to create for you.

Given that your IP is one of our company’s most valuable assets, your agreements need to be prepared properly to ensure you own the full spectrum of rights related to these intangible assets. We outline how this works in the section below.

Last—but far from least, since it’s the biggest area of risk to your business—if you are hiring independent contractors, you must have an independent contractor agreement that keeps you from getting in serious hot water if a contractor you hired is actually deemed to be an employee. Before you hire anyone, be sure to work with us to get your team member contracts in place.

3. Intellectual property assignment agreements

You must ensure all intellectual property brought into your company by its founders before you open your doors, as well as any IP created by owners, employees, and contractors once the business is up and running, is owned by the company, not the individuals. Transfer of IP ownership is accomplished using intellectual property assignment agreements, and properly worded employment and independent contractor agreements.

Whether included as a clause in the employment agreement or created as a stand-alone document, these agreements “assign” the company ownership rights to all intellectual property assets—patents, trademarks, and copyrights—used by your business. These agreements are especially important when working with independent contractors. Although you typically have automatic ownership of IP produced by your employees working for you, contractors generally retain full ownership rights to their work, unless they’ve signed an agreement stating otherwise.

As your Personal Family Lawyer® with business planning expertise, we will help you create IP assignment agreements for everyone involved with your business, so you can retain total ownership and control of these valuable intangible assets.

4. Sales and service agreements

Many business owners don’t understand that client service agreements and product purchase agreements are a key part of the sales process. If this process is not smooth and integrated, you’ll breach trust and reduce your chances of making the sale.

Whether you sell products, provide professional services, or a bit of both, you should have legal agreements in place clearly laying out the rights and responsibilities of both your business and its customers/clients. These agreements detail the key elements—price, payment and credit terms, tax responsibilities, warranties, and liability limitations—for all products your company manufactures or services you offer.

When you work with us to prepare your agreements, we’ll keep our eye on your company’s overall sales process. By doing so, your agreements will enhance that process, building trust and confidence in your products and services, while boosting your bottom line.

Don’t Do-It-Yourself

With so much at stake, never trust generic legal documents you find online to create your company’s agreements. Always consult with an experienced lawyer like us to ensure these vital documents are properly created and maintained.

Whether you need new agreements created or want us to review agreements you already have—even those drafted by another lawyer—meet with us, your Personal Family Lawyer® with business planning expertise. We will support you to not only create clear concise agreements, but also implement an agreement process that will allow you to more effectively navigate the inevitable changes that take place in every relationship, while dealing with conflict in a way that’s both healthy and productive. Call us today to learn more.

This article is a service of a Personal Family Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.

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Side Hustle
Business Planning

4 Strategies To Turn Your Side Hustle Into A Booming Business

Whether you are starting your very first company or you are an established business owner looking to develop a new income stream, creating a side hustle can be the ideal way to get a new business venture started. By developing your business as a part-time side gig, you can greatly reduce the personal and financial risk that comes with starting a new business from scratch.

If you are eager to get the ball rolling with your side hustle, here are 4 strategies to enhance your chances of success.

1. Monetize Your Passion

The quickest and easiest way to get a side hustle going is to start with something you truly enjoy doing, you are already good at doing, and that provides value to those around you. By turning something you are passionate about into a money-making venture, you’ll likely have the motivation to see things through when the going gets tough, because even when you are not making any money, you’ll still be having fun.

If you are working a day job, find something you enjoy doing and for which you already have the skills, experience, and industry knowledge. For example, if you work in marketing and really enjoy creating your company’s digital media, you might launch your own e-newsletter or graphic design service.

But first, be sure you aren’t violating the terms of your employment agreement with your current employer. As your Personal Family Lawyer® firm with business planning expertise, this is something we can help you with to make certain your new venture doesn't get you into any legal trouble.

If you already own a business, find ways to generate new income streams from your current operation. From affiliate marketing to consulting and creating new digital platforms, there are an array of different options to choose from for creating new revenue sources. Not sure where to start or which options to choose? We can help you with that.

2. Validate Your Concept With Income And Feedback

Studies show that nearly half of all startups fail due to a lack of a profitable market. This highlights the need for you to validate your business concept with paying customers before investing too much time, energy, and money—or quitting your day job. Your side hustle idea may sound like a winning concept to you, but your potential customers might not feel the same way.

By attracting just a few paying customers, you can not only validate your concept, but you will also be able to solicit vital feedback. By getting honest customer feedback, you can make adjustments to your initial concept to ensure you’re producing the ideal version of your product or service.

Oftentimes, your initial concept will evolve through several iterations before you land on the winning one, so be flexible and willing to go with what actually works, not just what you think will work. If you’d like to have a brainstorming session to discuss the marketability of your product or service before you bring it to the market, give us a call, and ask about our LIFT Start-Up Session.

3. Minimize Your Startup Costs

One of the biggest advantages of launching a side gig is that you often don’t have to invest much—if any—money to get your operation off the ground. If you already own a business, you can leverage your existing legal, insurance, financial, and tax (LIFT) foundations, as long as they are already well established.

If your business doesn’t already have its LIFT foundations in place, meet with us, your Personal Family Lawyer® firm with business planning expertise to get these systems established before you expand. And if you are starting a side hustle from scratch, you will want to consult with us before you launch to get those basic foundations in place.

4. Develop A Schedule And Stick To It

If you are already running a business or working a 9 to 5 job, you will likely have limited time to work on your side hustle. That’s why it’s called a “hustle” after all—you have to hustle to make the venture pay off. This is where time management is critical.

First, you’ll need to determine how many hours you can spend each day on your side gig, and then block out those times using Google Calendar or another time-management app. To give the venture its best chances of success, find the times of the day when you’ll have the most focus and energy. Whether it’s setting aside extra time in the morning, evenings, or weekends, tailor your side-job schedule around the times when you’ll be the most productive.

From there, make those work times as non-negotiable as your day job or primary business venture. If you simply work whenever you feel like it, you are unlikely to make progress, you’ll get discouraged, and your venture will most likely fall apart before it has a chance to take off.

We have a proven process, called Money Mapping, we can take you through that will help you map your income needs, your available time, and then allow you to use your calendar wisely to ensure it all works together. Contact us for details.

Create A Solid Foundation

One way to maximize the time and productivity spent working your side hustle is to streamline the tedious—yet critical—daily tasks involved with running any business. From keeping financials and creating legal agreements to managing taxes and insurance, these things may not be very glamorous, but ignoring them can seriously stunt your budding business—and even lead to financial ruin if you are sued or audited.

As your Personal Family Lawyer® firm with business planning expertise, we can support you to ensure that you have the foundational legal, insurance, tax, and financial (LIFT) systems in place, so you can focus your time and energy on growing your side hustle. At first, you probably won’t need anything super extensive, but you’ll at least need the basics, and we offer exactly this kind of support with our LIFT Start-Up Session.

Schedule a Start-Up Session with us before launching your side hustle—or if you’ve started but have yet to set up LIFT systems, or if you’re simply not sure if your systems have been set up properly. From there, as your side hustle grows, meet with us again to implement the full suite of systems offered in our LIFT Foundation System & Toolkit. Contact us today to learn more.

This article is a service of a Personal Family Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.

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Business Taxes
Business Planning

How your choice of business entity affects your tax obligations—Part 2

Along with personal liability protection, record-keeping requirements, and how you plan to finance your operation, one of the main factors to consider when choosing an entity structure for your business is deciding how you want your company to pay taxes. Your choice of entity will not only determine the rate at which your business is taxed, as well as how and when you are required to file your taxes, but it can also impact a variety of other factors affecting both you and your company.

Last week, in part one of this series, we covered the tax obligations associated with three entity structures: Sole Proprietorships, Partnerships, and Limited Liability Companies (LLCs). Here in part two, we’ll cover the tax treatment of the remaining two entity structures—C Corporations and S Corporations—along with discussing the benefits and drawbacks related to each one.

C Corporations

A C Corporation is a separate tax-paying entity that files its own tax return, Form 1120, to report its income, as well as claim deductions and credits. Corporations taxed as C Corporations currently pay taxes at the corporate tax rate of 21% on all net income.

Post-tax profits are then distributed to the company’s shareholders as dividends. Dividends are then taxed on the shareholder’s personal income tax return at their individual tax rates. This means that the corporation itself gets taxed first, and then you get taxed again on your income from the corporation.

To avoid this system of “double taxation,” the owner of a C Corporation may elect to have the C Corporation taxed as an S Corporation, which we will cover next.

Due to the expense and complexity of creating and maintaining a traditional corporation and dealing with double taxation, very few small businesses will choose to be taxed as a C Corporation. However, once your business begins to have annual profits over $200,000 or so annually (beyond your salary and retirement account contributions), it could be worth considering a C Corporation for your entity structure.

Once you get there, or if you are there now, talk with us, your Personal Family Lawyer® with business planning expertise to discuss whether a C Corporation entity structure might be an effective tax-saving strategy for your business.

S Corporations

An S Corporation is not a business entity in and of itself. Rather, the S Corporation is a special tax election made by the owner of a C Corporation or an LLC to notify the government that the Corporation should be taxed as a pass-through entity. As we wrote last week, unless you elect for your LLC to be taxed as an S Corporation, a single-member LLC is automatically taxed as a sole proprietorship, while multiple-member LLCs are taxed as a partnership.

A C Corporations can also elect to be taxed as an S Corporation, thereby avoiding the double taxation issue discussed in the prior section. Instead, when your business entity elects S Corporation status, all profits of your business entity are passed through to the shareholders via a K-1, and each shareholder reports their share of the profits as income on their personal tax return.

However, not all LLCs or C Corporations can elect S Corporation status. In order to file the S Corporation election, your business must meet the following requirements:

  • Must be filed as a U.S. corporation
  • Can maintain only one class of stock
  • Limited to 100 shareholders or less
  • Shareholders must be individuals, estates, or certain qualified trusts
  • Each shareholder must be a U.S. citizen or permanent resident alien, with a valid Social Security Number
  • All shareholders must consent in writing to the S Corporation election

As we mentioned previously, in addition to these requirements, for an S Corporation election to save taxes versus reporting all profits on a Schedule C, you’ll want to have at least $60,000 of net income per year. Furthermore, to prevent business owners from avoiding payroll taxes by taking disproportionately large profit distributions, the IRS requires S Corporation owners to pay themselves “reasonable compensation” in exchange for their services.

What constitutes reasonable compensation is a highly subjective matter, and one that you should discuss with us, your local Personal Family Lawyer® with business planning experience, along with your CPA. This issue is particularly crucial for you to get right, because if the IRS determines that your compensation was not reasonable by its standards, your business could face serious consequences.

For instance, the IRS could reclassify all of your S Corporation distributions as wage payments subject to employment taxes, which could leave you on the hook for a massive back tax bill. On top of that, you could face tax penalties of up to 100%, plus negligence penalties. Given such grave repercussions, consult with us to ensure your compensation satisfies the IRS requirements.

Choose the tax treatment best suited for your business

Choosing the entity structure that’s right for your business is something you shouldn’t try to handle on your own—there’s simply too much at stake should you get something wrong. As your Personal Family Lawyer® with business planning expertise, we will offer you trusted advice on selecting the entity that’s best suited for your particular company—not only for how it’s taxed, but for all of the other factors that affect your chosen entity as well.

From personal liability protection and required administrative formalities to your ability to finance your company, we will offer you the support and guidance you need to choose the entity that’s most advantageous for every circumstance your company might face. Contact us today to learn more.

This article is a service of a Personal Family Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.

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Entity Selection
Business Planning

How Your Choice Of Business Entity Affects Your Tax Obligations—Part 1

Along with personal liability protection, record-keeping requirements, and how you plan to finance your operation, one of the main factors to consider when choosing an entity structure for your business is deciding how you want your company taxed. Your choice of entity will not only determine the rate at which your business is taxed, as well as how and when you are required to file your taxes, but it can also impact a variety of other factors affecting both you and your company.

Some of these factors include how you pay yourself, your risk of being audited by the IRS, the type of tax deductions and tax credits available to your company, and the types of strategies you can use to reduce your tax bill. That said, each entity comes with its own rules and requirements governing its tax obligations. Moreover, depending on your company’s size, location, the number of owners and employees, and its revenue, certain entities won’t be practical from a tax-savings standpoint. Given this, when it comes to paying taxes, there’s no single entity that works best for every business.

On that note, here we’ll provide a brief overview of the tax obligations for each type of business entity, along with some of the advantages and disadvantages inherent to each structure. While this article can serve as a good starting point for helping you understand an entity’s tax benefits, you should always consult with us, your Personal Family Lawyer® with business planning expertise to get our advice before making your final decision.

Sole Proprietorships

As a sole proprietor, you and your business are legally one and the same from the IRS’s perspective. This means all of the business’s assets and liabilities are reported on your personal 1040 tax return. You report your business income and expenses on Schedule C, which becomes a line item on your 1040.

From a tax standpoint, the primary advantage of a sole proprietorship is that it’s simple—you don’t pay any separate taxes for your business, and you report all of your business income and losses on your personal tax return. It’s typically inexpensive (or no-cost at all) to set up a sole proprietorship, and your legal expenses are usually limited to obtaining the needed business licenses or permits, along with the necessary insurance.

However, as a sole proprietor, outside of normal deductions for your business expenses, you will be taxed on all of your revenue, regardless of whether or not you actually withdrew the money from your bank account or took a paycheck. Additionally, the audit risk for sole proprietorships is three-time more likely than that for limited liability companies (LLCs) and corporations, according to the IRS. You are also required to pay your own self-employment taxes on a quarterly basis. These are contributions to Social Security and Medicare that regular employees usually have taken out of their paycheck, often called “payroll taxes.”

Partnerships

A partnership is basically a sole proprietorship with more than one owner. The partners typically share equal responsibility for the business’ assets and liabilities. Like a sole proprietorship, a partnership is not a separate entity from its owners from a tax perspective.

The partnership reports its income, deductions, losses, and gains to the IRS by filing a Form 1065. However, all of the company’s profits and losses are “passed-through” to the individual partners, who report this information on their individual tax returns via Schedule K-1, and they pay taxes based on their individual tax rates.

Partnerships are generally inexpensive and simple to set up. Although because they have more than one owner, they can be more complex to set up than a sole proprietorship for the simple fact that each partner must agree on all decisions affecting the business. Like sole proprietors, owners of a partnership are required to pay self-employment taxes and submit quarterly estimated tax payments.

Limited Liability Companies

As a limited liability company (LLC), you have flexibility in choosing how you’ll be taxed, and your choices are based on how many owners (known as members) your LLC has. Unless you choose to be taxed as a corporation, single-member LLCs are automatically taxed as a sole proprietorship, while multi-member LLCs are taxed as partnerships.

In either case, your company doesn’t pay any taxes directly. Instead, your share of the net business income is passed through to you, and reported and taxed on your personal tax return, and you’ll pay taxes based on your personal tax rate, as described above.

Alternatively, you may elect for your LLC to be taxed as an S Corporation. In this case, you will file a tax return on behalf of the corporation, reporting all income and expenses on that return. But the entity itself will not pay taxes. Instead, the business will issue you a K-1, indicating the net profit or loss, which will be taxed as ordinary income on your personal tax return.

The main advantage of choosing to have your LLC taxed as an S Corporation is that you only pay payroll taxes on your actual payroll, not on your profit distributions from the company. Whereas, if you are taxed as a sole proprietorship or partnership, all profits are considered payroll and subject to payroll taxes up to the payroll tax limits. Additionally, as mentioned earlier, the audit risk for an S Corporation is typically less than it is for companies taxed as sole proprietorships, where income and expenses are reported on your personal Schedule C.

If your LLC is taxed as an S Corporation, you will pay income taxes on your profit distributions, but you would save roughly 15% in payroll taxes on distributions taken as profits, rather than as payroll since you don’t pay payroll taxes on income taken as a profit distributions. In contrast, when using an LLC taxed as a partnership or sole proprietorship, you will pay payroll taxes on all distributions to you from the LLC up to the payroll tax limits, and as discussed earlier, your risk of audit by the IRS will be higher as well.

That said, for an S Corporation election to make sense, you’ll want to have at least $60,000 or so of net income per year. If you are close to that amount and have not yet filed an S Corporation election, consult with us, so we can get you supported to do so.

Entities & Taxes: Choosing The Structure That’s Right For You

Next week, in part two of this series, we’ll cover the tax obligations for the remaining two entity structures—S Corporations and C Corporations—and discuss the benefits and drawbacks related to each one.

Until then, if you need guidance or advice on any issue related to your company’s entity structure—or any other matter affecting your business—meet with us, your Personal Family Lawyer® with business planning expertise to get the support you need.

This article is a service of a Personal Family Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.

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Legal agreements for business
Business Planning

10 Pitfalls to Avoid With Your Company’s Legal Agreements—Part 2

Agreements are the heart of your business. Indeed, your entire business is one vast series of agreements: agreements with investors and lenders, clients and vendors, employees and contractors, as well as partners and customers. Yet, despite the critical role they play in a company’s success, far too many business owners fail to take their agreements seriously.

Whether it’s winging it by creating your own agreements or using cheap, do-it-yourself (DIY) legal documents you purchase online, failing to treat your legal agreements with the respect they deserve can seriously cost you. In fact, just one poorly constructed agreement could end up costing you tens of thousands of dollars in attorney’s fees and court costs—or even put you out of business entirely.

Last week, in part one, we covered the first 5 of 10 pitfalls that can put your company in serious jeopardy if you take the DIY route with your legal agreements. Here in part two, we’ll cover the five remaining pitfalls that you’re likely to encounter when going it alone with these vital documents.

6. Failure to Give Yourself An Out

In addition to terminating an agreement due to a breach, you need to consider how the relationship might end due to any number of other circumstances. By giving yourself a clear exit strategy, rather than being caught off-guard or surprised when things change, the relationship can successfully adapt to the transition with ease.

For example, when entering into an agreement with a new business partner, you should think about—and plan for—all of the ways each of you might potentially exit the business. What would happen in the event you decide to sell the business? What would happen if the business failed, and you had to close your doors? What will happen when one (or both) of you dies or if one of you becomes incapacitated?

You need to get clear about all of these eventualities, and then document them in the appropriate agreements, including your operating agreement, bylaws, and/or buy-sell agreement. Moreover, it’s best to prepare these agreements—and your exit strategy—early on in the relationship, when you are still on good terms and have high hopes for the relationship's future.

Otherwise, it’s likely going to be much more difficult to agree on a solution, without dealing with unnecessary conflict—and in the worst cases, costly litigation—just to get yourself out of the relationship. As your Personal Family Lawyer® with business planning expertise, we can ensure that your agreements provide you with a clear exit strategy that will allow you to get out of the relationship with the least conflict, liability, and expense possible.

7. Failure to Address Conflict Resolution

Along with having an exit strategy, your agreements should also address how to resolve any disputes that may arise—preferably without resorting to litigation, which ideally is a last resort. To this end, consider adding terms to your agreements that require alternative dispute resolution processes, such as mediation and arbitration, before either party can file a lawsuit.

By including a clause requiring mandatory mediation or arbitration in your agreements, you can have better control of potential disputes before they occur, and you can help ensure contractual conflicts are handled in the most productive manner possible, without getting stuck battling one another in court.

8. Not Protecting Your Intellectual Property

Your intellectual property (IP) is among your company’s most valuable assets, and as such, it needs to be fully protected in your legal agreements. This is especially important when working with independent contractors.

Unlike employees, with whom you generally own automatic copyrights to everything they produce while working for you, contractors typically retain full copyrights to their work—unless they’ve signed a written agreement stating otherwise. In fact, if you don’t have properly drafted agreements in place, you may not even own the work you’re paying someone to produce for you.

To secure ownership of your IP, you need to include work-for-hire and copyright assignment clauses in every contractor’s agreement to ensure you actually own the work you are paying for. And yes, this means every single person, even those you may have worked with for years without a single problem.

Beyond contractors, it’s vital to ensure your IP is protected from all other potential threats, such as competitors, clients, and even partners. From filing for trademarks and copyrights on all of your IP to adding limitations-on-use provisions to your agreements with clients and customers and including clauses that assign ownership rights of IP brought into the company by partners to your business (rather than the partners themselves) in your operating agreements or bylaws, as your Personal Family Lawyer® with business planning expertise, we can ensure your agreements include the necessary terms to ensure your IP has the maximum protection possible.

9. Agreeing To Broad Indemnities Favoring The Other Party

When you indemnify another party in an agreement, you are agreeing to compensate them for any losses they incur in specific circumstances. Such terms can also force you to compensate the other party, if something you do—or fail to do—causes the other party to experience a loss, damages, or a lawsuit from a third party. And often these indemnification provisions are buried in boilerplate that you aren’t reading, and wouldn’t even necessarily understand if you did read the terms.

In all but the rarest of cases, you should never agree to indemnify the other party against all possible claims related to the product or services you provide. To prevent this, be sure to have us, your Personal Family Lawyer® with business planning expertise review your agreements before signing to ensure you don’t get stuck paying for things the other party should be responsible for.

10. Becoming A Personal Party To An Agreement

Read this carefully, and then practice it without fail—never, ever sign a legal agreement for your business in your own name. Every legal agreement you enter into for your business should be signed in your company’s name, not yours.

By signing an agreement in your own name, you are placing your personal assets at risk, even if you typically enjoy liability protection because your company is set up as a limited liability company (LLC) or corporation. As with mixing personal and business finances and failing to abide by administrative formalities, signing a company agreement in your name is one of the instances where your “corporate veil” can be pierced, allowing creditors to come after your personal assets to settle a claim against your business, even if you have an LLC or corporation set up.

Every legal agreement, no matter how seemingly minor or trivial it may appear, should be signed in your company’s name, rather than your own. And while you’re at it, make a commitment to never sign another legal agreement without having us review it first.

Give Your Agreements The Proper Respect

Just as you would never try to wire your office’s electrical systems yourself if you weren’t an experienced electrician, you shouldn’t try to do the same with your company’s legal agreements by acting as if you're a lawyer. When it comes to such a critical component of your business, you should always consult with a licensed and experienced professional like us.

Whether you need new agreements created or want us to review agreements you already have—even those drafted by another lawyer—meet with us, your Personal Family Lawyer® with business planning expertise. We will support you to not only create clear concise agreements, but also implement an agreement process that will allow you to more effectively navigate the inevitable changes that take place in every relationship, while dealing with conflict in a way that’s both healthy and productive. Call us today to learn more.

This article is a service of a Personal Family Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.

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Company agreements
Business Planning

10 Pitfalls to Avoid With Your Company’s Legal Agreements—Part 1

Agreements are the heart of your business. Indeed, your entire business is one vast series of agreements: agreements with investors and lenders, clients and vendors, employees and contractors, as well as partners and customers. Yet, despite the critical role they play in a company’s success, far too many business owners fail to take their agreements seriously.

Whether it’s winging it by creating your own agreements or using cheap, do-it-yourself (DIY) legal documents you purchase online, failing to treat your legal agreements with the respect they deserve can cost you significantly. In fact, just one poorly constructed agreement could end up costing you tens of thousands of dollars in attorney’s fees and court costs—or even put you out of business entirely.

Given this potential risk, having an experienced business lawyer like us prepare—or at least review—your agreements is absolutely essential in protecting you and your business. To demonstrate how complex legal agreements can be and how ill-prepared you are to draft your own, here are 10 pitfalls that can put your company in serious jeopardy if you take the DIY route with such important legal documents.

1. Not Using Any Legally Documented Agreements At All

As we’ve covered before, agreements can actually be created verbally, without any written agreement at all. Whether you think you can go without legally documented agreements because you only do business with people you trust, or because you think agreements are something only big companies need, or because you think agreements are simply a way for lawyers to make money, you are setting yourself up for major costs down the road.

Such beliefs are a serious misunderstanding of the role legally documented agreements play in your business. In reality, your agreements are among your company’s most crucial tools—and these tools offer your company more than just legal protection. Agreements don’t just protect your assets, they give your relationships the greatest chance of success; they protect your intellectual property, your time, your energy, and your attention; and they let you know upfront, whether or not you are going to want to work with a particular vendor, client, or partner.

For example, documented agreements force both parties to work through important issues—and potential sticking points—inherent to the success of the relationship before any work begins. This not only saves time and money by preventing unnecessary future litigation to unwind a relationship, but it gives you early insight into how well you and the other party deal with conflicting viewpoints and desires, which is a vital part of any relationship.

Ultimately, having well-drafted legal agreements can enhance just about every aspect of your business—whether it’s boosting revenue, expanding your operation, hiring the most talented team, or improving your relationships—and you simply cannot afford to go without these crucial legal documents.

2. Signing Without Reading (or Understanding) an Agreement

Every agreement you enter into is likely to contain complex terms and legal jargon that can be tedious to read all the way through. But it’s vital that you not only read—but fully understand—all of an agreement's terms before you sign, since these terms can have a major impact on both you and your business, if and when you ever have to go to court to enforce the agreement.

Before you sign any agreement, you should have your Personal Family Lawyer® with family business planning expertise review the agreement with you to ensure you completely understand exactly what you are agreeing to and the full implications of your agreement. And be sure to seek our counsel before you sign, because once you sign, it’s too late—you’ve already entered into an agreement and are legally bound by its terms, regardless of whether you understood them or not.

3. Failure To Include (or Negotiate) Key Terms

One of the biggest mistakes you can make when entering into an agreement is letting the other party convince you that a key term or clause doesn’t need to be included because it’s something that’s “assumed,” “unnecessary,” or that a key term is just “standard.”

In legal agreements, there are no standard terms, or terms that are assumed or unnecessary. If you have an agreement, and it’s not written into the terms of a legally documented agreement that you have signed, that term will not stand as a term of the agreement, if later on, you ever need to enforce the agreement. Moreover, all terms in an agreement are negotiable.

In addition to helping ensure you fully understand an agreement’s terms, making sure your agreements include the necessary terms is another area where an experienced business lawyer can prove invaluable. To this end, you should have trusted legal counsel like us review every agreement before you sign to make certain that all of the necessary terms have been included—and the terms are documented clearly enough that anyone could understand them.

4. Failure To Establish A Clear Performance Standard

It’s fairly easy to enforce an agreement with a vendor who doesn't pay or a contractor who misses a deadline—the facts are clear in these situations. However, things get trickier when it comes to more subjective areas of an agreement, such as poor performance or “for cause” termination.

To address this, your agreements must be as specific as possible about the goals, objectives, and deliverables of the relationship to ensure your vendors, employees, and contractors are clear on what success looks like, and that those success terms are outlined within the agreement. If not, you may get stuck with a shoddy product or a poorly performing team member, while still being required to pay for the work.

When you hire a new employee, for example, you should establish clear, measurable outcomes for the role, with specific metrics for success, along with time frames for specific goals and objectives to be achieved. Then, include this information in the employment agreement, so it’s abundantly clear what the expectations for the position are for the team member and for you.

5. Not Defining What Constitutes A Breach

Along with establishing clear expectations for performance, it’s also vital to consider all of the things that can go wrong in a business relationship before work starts, and then establish a clear process for addressing each issue in the agreement.

For example, in the above scenario, you need to think about how you’d deal with the new team member if things didn’t work out as expected. What would happen if the individual needs to leave, can’t perform, or isn’t performing for some reason? What is each of you entitled to in the event the relationship needs to end? All of these scenarios need to be thought through and clearly addressed in the agreement.

Next week, in part two of this series, we’ll cover the five remaining pitfalls you’re likely to encounter when going it alone with your company’s agreements.

Don't Do-It-Yourself

For now, make the commitment to never sign another legal agreement until it’s been reviewed by us, your Personal Family Lawyer® with family business planning expertise. This is a wise and invaluable business practice, and it’s one we support every client with. Whether you have existing agreements that need to be reviewed or you need new agreements drafted, we’re here for you. In the end, enlisting our support with your agreements could be the make-it-or-break-it difference for your business. Call us today to schedule your visit.

This article is a service of a Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.

We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.

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