legal issues facing your home-based business

21
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")

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Page 1: Legal Issues Facing Your Home-Based Business

Legal Issues Facing Your Home-Based Business

Page 2: 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

Page 3: Legal Issues Facing Your Home-Based Business

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

Page 4: Legal Issues Facing Your Home-Based Business

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

Page 5: Legal Issues Facing Your Home-Based Business

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

Page 6: Legal Issues Facing Your Home-Based Business

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

Page 7: Legal Issues Facing Your Home-Based 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

Page 8: Legal Issues Facing Your Home-Based Business

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.

Page 9: Legal Issues Facing Your Home-Based Business

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

Page 10: Legal Issues Facing Your Home-Based Business

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

Page 11: Legal Issues Facing Your Home-Based Business

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

Page 12: Legal Issues Facing Your Home-Based Business

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 . . . .?

Page 13: Legal Issues Facing Your Home-Based Business

LEGAL ISSUES INVOLVINGTHE OPERATION OF YOURHOME-BASED BUSINESS

Page 14: Legal Issues Facing Your Home-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

Page 15: Legal Issues Facing Your Home-Based Business

Types of Insurance Needed

Property Damage Insurance

Liability Insurance

Business Interruption Insurance

Page 16: Legal Issues Facing Your Home-Based Business

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

Page 17: Legal Issues Facing Your Home-Based Business

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

Page 18: Legal Issues Facing Your Home-Based Business

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

Page 19: Legal Issues Facing Your Home-Based Business

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.

Page 20: Legal Issues Facing Your Home-Based Business

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

Page 21: Legal Issues Facing Your Home-Based Business

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