legal issues facing your home-based business
Post on 22-Oct-2014
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An Overview presentation of Legal Issues facing a Home Based Business (This is not legal advice)("No representation is made that the quality of services to be performed is greater than the quality of legal services performed by other lawyers")TRANSCRIPT
Legal Issues Facing Your Home-Based Business
Overview Choosing the Best Legal Entity
Factors in Determining Which is Right for You Major Types of Business Entities Advantages and Disadvantages of Each
Legal Issues Involved in Getting Started Business Licenses Zoning Ordinances and Other Land-Use Restrictions
Operation of Your Home-Based Business Insurance Employees Contracts Going to Court
Choosing the Best Legal Entity for Your Business
Five Major Factors In Choosing a Legal Entity for Your Home-Based Business:
1) Liability Exposure
2) Amount of Debts (Present and Future)
3) Number of Involved Individuals
4) Ease of Day-to-Day Administration
5) Tax Considerations
Choosing the Best Legal Entity for Your BusinessMajor Types of Business Entities Used by
Home-Based Businesses
Sole Proprietorship General Partnership Corporation Limited Liability Company
Sole Proprietorship
Simplest form of business entity
You and the business are the same
Only one ‘owner’ or ‘manager’ is allowed
Due to the ease of creation and operation, most home-based businesses use this type of entity
General partnerships
Basically the same as a sole proprietorship, but a general partnership is for 2 or more people. Creation and operation is still simple and inexpensive
A written partnership agreement is not legally required, but should be considered a necessity
Each partner owes the other partners the highest legal duty of loyalty, good faith and fairness
You and your partners are the business
Corporations Unlike sole proprietorships and partnerships, a
corporation is a separate legal entity from the individual or individuals who own or manage the corporation.
You and the corporation are not the same.
Can have 1 or more managers and/or shareholders
Registration with the State is required to organize and operate as a corporation
Limited Liability Companies
Again, a limited liability company (or L.L.C.) is a separate legal entity from the individuals who are members or directors. You and the L.L.C. are not the same.
The L.L.C. is a new form of business entity that has evolved in a way beneficial to small businesses
Registration with the State is required to organize and operate as an L.L.C.
Advantages & DisadvantagesType of Entity Major Advantages Major Disadvantages Ways to Overcome
Disadvantages
SOLE PROPRIETORSHIP
Simple and Inexpensive to Create and Operate
You are the Company
No liability protection; you will be liable for ALL business debts and judgments Only 1 ‘owner’ allowed
Carry increased amount of business property and liability insurance; added cost of insurance may be burdensome
GENERAL PARTNERSHIPS
Simple and Inexpensive to Create and Operate You and your partners are the company
No liability protection; you will be liable not only for ALL business debts and judgments of the business, but also your partner.
Carry increased amount of business property and liability insurance; added cost of insurance may be burdensome
CORPORATIONS
Owners have limited personal liability for business debts and judgments
Initial startup cost is more than sole proprietorship Operation of corporation and paperwork is burdensome
Corporate Record “Black Book” Retain an attorney who has programs for small businesses
LIMITED LIABILITY COMPANIES
Owners have limited personal liability for business debts and judgments
Initial startup cost is more than sole proprietorship or corporation.
No safe way to avoid initial expense; attempts to do on-line or from form could be detrimental
What’s Good For You?
LIABILITY EXPOSURE
AMOUNT OF DEBT
NUMBER OF MANAGERS
TAX CONCERNS
EASE OF APPLICATION
SOLE PROPRIETERSHIP
BAD BAD Only with 1 Manager
BEST
GENERAL PARTNERSHIP
WORST WORST More than 1 Manager Required
GOOD
STANDARD CORPORATION
GOOD GOOD Any # Allowed WORST
LIMITED LIABILITY COMPANY
BEST GOOD Any # Allowed GOOD
Getting Started(or Looking Back)
Business Licenses
Zoning Ordinances Most residential zoning allows for home business
Land Use Regulations & Restrictions Property Deed or Lease Subdivision, Co-Op, Condo, Homeowners Association
Restrictive Covenants
Business Financing Financing obtained in Business Name Personal Guarantees
Now You are Organized
Now You Have Started Up
Are You Finished with Your Legal Concerns?
There are still 30 Minutes Left in My Presentation . . .
What Do You Think . . . .?
LEGAL ISSUES INVOLVINGTHE OPERATION OF YOURHOME-BASED BUSINESS
Insuring Your Home-Based Business
75% of home-based business owners believe that they are adequately insured
Nearly 2/3 of that 75% are WRONG, and are underinsured
Nearly all homeowners policies exclude property damages losses related to business pursuits
Homeowners also does not cover liability arising from business pursuits
Types of Insurance Needed
Property Damage Insurance
Liability Insurance
Business Interruption Insurance
Property Insurance
Nearly all of homeowner’s insurance policies exclude coverage for any losses or liability related to business pursuits.
Covers the loss of equipment, machinery, furniture and
leased property used by the business
Also covers the loss of inventory, supplies and materials used by the business
Main Risks to Insure: flood, fire, hurricane, theft, power surges, lightning
Liability Insurance Liability insurance mainly protects the business from
damages caused by the employees, products or property of the business
Main Coverages– General Liability – Slips & Falls at property, other lawsuits– Employee Theft – Protects from employees stealing from you– Auto Insurance – Covers cars used for business purposes– Product Liability – Covers if your product causes injury
If you are not adequately covered by liability insurance, anyone injured by any aspect of your business will attempt to come after you personally
Business Interruption Insurance
This type of insurance covers you if for any reason you are forced to close down the business for a temporary period of time.
Will pay you a portion of your average income for a specified period of time.
Examples:– Hurricane– Sickness / Treatment– Fire – Theft – Computer Crashes / Technology Problems
Legal Issues Involving Employees
Hiring Employees
A. Employment Contracts
> Non-Compete Agreements
> Confidentiality Agreements
> At-Will Employment Clauses
B. Background Checks
> Criminal
~ Interaction with the Public, Other Employees and Children
> Driving Record
~ Deliveries, Errands, etc.
Business Contracts
No matter what the contract is for, no matter who it is with, get all contracts
signed
Examples: Contracts to Purchase and/or Sell Goods, Services or Materials Leases – No Oral Agreements to Lease Property Employment Agreements (with job duties and pay amount)
Always Keep Copies of All Contracts
GOING TO COURT
Getting Sued> Contact Lawyer Immediately
> Do not attempt to answer first; waive defenses
> Call as soon as you get letter or court paperwork
Suing Someone> Contact Lawyer Soon
> Statute of Limitations
Collections> Contact Lawyer when you are ready to get your money
> Statute of Limitations also applies