Ask an Expert: How to Get Legal Protection for Your Small Business
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As a small business owner, or someone wanting to start a small business, there’s one part of your business you can’t ignore: LEGAL. In reality, it doesn’t matter what size business you are. No matter what stage you’re in, there are legal protections you must take into consideration if you want to keep the money you make.
Enter: Andrea Sager, a small business attorney shaking up the legal industry with her Legalpreneur plan which provides all-access to her firm for small businesses. Every day, she works with business owners who are on the verge of losing everything because they don’t have the right legal protections in place. Don’t let that be you.
Below are three ways you can protect your business during this pandemic and beyond, according to Sager.
Entity Protection
Sole Proprietor
It’s important for your business to operate as some type of legal entity. If you have not created a legal entity for your business, then by default, you are a sole proprietor. Sole proprietors get no legal protection for their business.
A sole proprietor is personally liable for the debts and obligations of their business. Personally liable means if your business owes a debt or is sued, then creditors can come after your personal bank account and personal assets. Operating as a sole proprietor is risky. It’s scary to be in a position where your personal assets are on the line. The good news is that setting up a legal entity will provide you with the protection you need. And it doesn’t have to be expensive or complicated.
Unlike a sole proprietor, legal entities provide personal liability protection for business owners. When you operate under a legal entity, if your business owes a debt or is sued, the creditors can only come after the business’s bank accounts and assets, not your personal bank accounts and assets. It’s nice to know that you’re not at risk of losing your house because your business fell behind on some payments.
Limited Liability Company (LLC)
The most common legal entity small businesses operate under is a Limited Liability Company, a.k.a. an LLC. Operating under an LLC is usually the best legal business entity your business can operate under, because it is easy to setup and it provides great liability protection to its owners.
To set up an LLC, you must file paperwork with your state and pay a filing fee. Before you file the paperwork, you need to have a few things figured out so you’ll be able to complete the paperwork. Some of the things you need before filing your LLC are the name, a registered agent, and how it is going to be managed. Once you’re approved through your state, the LLC does not give you any federal trademark rights. Trademarks are discussed further below.
Corporations
A corporation is typically not the best fit for a small business. Corporations have more fees and maintenance involved. However, if you plan on having investors, a corporation may be the best choice.
Contracts
I’m sure you have heard the term “get it in writing.” That is always a good rule of thumb in business. Contracts essentially define a relationship between parties. Contracts are important whether your business sells goods or services. With goods, contracts define price, delivery, the refund policy, shipping, when and how payment is due, and quantity. Issues can arise in any of those areas so it’s important to have them defined in writing.
Services contracts may need additional terms to help protect you. Service contracts can define what exact services will be provided. Some services are dependent on client response. Service contracts can allow you to terminate the contract if the client isn’t being responsive. Sometimes the result of a service can be subjective. Service contracts can protect you from a client saying, “I’m not satisfied with the service and I’m not paying.”
Why It’s Important to Have Terms and Conditions
If you run a website for your business, you’ll want to make sure you include terms and conditions. Terms and conditions are not required by law, but they’re are something you will want to include because it’s the contract between you and the visitors of your site. Terms and conditions can protect you if someone uses your website to make defamatory comments or infringe on someone else's intellectual property rights. Those are things you are not going to want your business to be liable for. There are lots of sample terms and conditions on the internet, however, it is best to have a licensed attorney draft terms and conditions for your website to fit the specific needs of your business.
Why It’s Important to Have a Privacy Policy
If you collect any kind of personal information from your customers/clients then you will need to have a privacy policy in place. Personal information includes names, addresses, mobile telephone numbers, email addresses, and so forth. A lot of states have privacy laws that require you to disclose what personal information you store and how you use it. There can be big penalties for not complying with privacy laws. Like terms and conditions, there are lots of sample privacy policies on the internet, however, it is best to have a licensed attorney draft a policy that fits your business.
Intellectual Property
There are three types of intellectual property: trademarks, copyrights, and patents. It’s important to understand the difference between these because they protect different aspects of your business. And whether you know it or not, many times intellectual property is the most value part of your business.
Trademarks
A trademark is a word, symbol, or combination thereof that is intended to identify and distinguish one merchant from another. Essentially, trademarks allow consumers to distinguish who is offering what goods or services. You can apply for a federal trademark registration for goods or services that let consumers know your goods and services come from you, such as your business name, logo, slogan, podcast name, service name, product name, and many more.
In order to obtain federal protection, meaning you are the only one that can use that term or logo throughout the United States, you must apply with the United States Patent and Trademark Office. The trademark application process takes at least six months, and the average amount of time is nine months. Filing a trademark application can be difficult, so it’s best to work with a licensed trademark attorney when filing.
Copyrights
Put simply, copyrights protect original works of authorship (content): podcast episodes, photos, videos, this blog post, books, songs, movies, and many more. The purpose of copyrights is to award creators for their creations by protecting the expressions of their ideas.
The neat thing about copyrights is that you don’t have to obtain a registration to have rights. Once you create a work, and it meets the qualifications, it’s automatically protected by copyright law. However, you can register your copyright with the United States Copyright Office, which does have its benefits. First, having a copyright registration allows you to sue someone for copyright infringement in federal court. Additionally, a registration allows you to recover attorney’s fees in a copyright infringement lawsuit. Meaning, if you win an infringement lawsuit, the other side will probably have to pay for the cost of legal fees.
Although we’re in the middle of a pandemic, there is going to be a large wave of new businesses. If you don’t take the time to protect your business now, you will end up spending 10-20x more money in the long run defending yourself. Do what you can now to protect yourself.
About the Expert: Andrea Sager is a small business attorney shaking up the legal industry with her Legalpreneur plan that provides all-access to her firm for small businesses. After working for a large law firm working with large businesses, Andrea realized her true passion was helping small businesses embrace and protect their business and intellectual property. In just under 2 years, Andrea has become the go-to attorney for entrepreneurs, protecting everything from their brand names to their courses and blog posts.