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TRANSCRIPT
THE CALIFORNIA ENTREPRENEUR’S GUIDE TO
SURVIVING YOUR FIRST YEAR
Kristen Hayes Kuse and ann Penners Bergen
Avoiding the Top Eight
Legal Mistakes That Can
Capsize Your Business
Disclaimer
the information contained in this e-book is not intended to be legal advice. no attorney-client
relationship has been formed by your reading of this book. nor are you our client or we your law-
yers just because you use some or all of our suggestions to move your business forward. We don’t
know the exact facts of your case or your situation and therefore cannot give you specific advice
about that. you should always confirm with your lawyer whether the information contained in
this e-book applies to your situation. accordingly, this e-book is to be read as a means to raise
potential pitfalls and how to avoid them. no legal advice is provided here.
if you need the services of an attorney, please contact us at www.integratedgeneralcounsel.com
(925) 399-1529 (Kristen) or www.pennersbergen.com (626) 463-7361 (ann) and we can discuss
how we might be able to help you or refer you to someone who can help you.
©2011 Kristen Hayes Kuse and ann Penners Bergen. all rights reserved.
3The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
TABLE OF CONTENTS
introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Chapter 1 – Have a Working Knowledge of some of the
Basic Laws regarding your Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Chapter 2 – getting the advice that you need to start upand
run your Business the First year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Chapter 3 – Choose the right entity through Which to Operate your Business . . . . . . . . . . . . . . . 16
Chapter 4 – Write Down your agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Chapter 5 – take Care of and Protect your intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Chapter 6 – avoid starting a new Business While employed by a Potential Competitor . . . . . . . 28
Chapter 7 – Make the right Decisions in Leasing your space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Chapter 8 – Protect yourself and your Business against the unknown . . . . . . . . . . . . . . . . . . . . . . . 37
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
about the authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Kristen Hayes Kuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ann Penners Bergen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Contents
taBLe OF COntents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Chapter 1 – Have a Working Knowledge of some of the
Basic Laws regarding your Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Chapter 2 – getting the advice that you need to start upand
run your Business the First year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Chapter 3 – Choose the right entity through Which to Operate your Business . . . . . . . . . . . . . . . 16
Chapter 4 – Write Down your agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Chapter 5 – take Care of and Protect your intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Chapter 6 – avoid starting a new Business While employed by a Potential Competitor . . . . . . . 28
Chapter 7 – Make the right Decisions in Leasing your space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Chapter 8 – Protect yourself and your Business against the unknown . . . . . . . . . . . . . . . . . . . . . . . 37
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
about the authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Kristen Hayes Kuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ann Penners Bergen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
4The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
Introduction“Oh . . . we wish we had
talked to you before we signed this . . . “
unfortunately, given our combined 32 years experience as lawyers (as of 2011) representing
California businesses both in and out of litigation, we have heard those words from our clients
too many times to count. We can’t turn back the clocks. However, if there’s any way that we can
use our experience in the “litigation battlefields” to help prevent small business owners from
making those same mistakes and regretting not getting help at the outset, that is our goal. and,
who is more vulnerable to those costly and sometimes fatal legal errors than those entrepre-
neurs just starting their businesses and running 100 miles a minute meeting one challenge after
another?
as solo lawyers, we know what entrepreneurs go through. We know what it is like to eat, sleep
and breathe your start-up company because we have the same passion for our practices. We
know about marketing and systems and keeping all the balls in the air. We know it because we
live it too. But, most importantly, we know about business law and what can and will go wrong
and how to prevent the more predictable disasters. the good news is that it does not require
Kristen Hayes Kuse and ann Penners Bergen
5The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
expensive and exhaustive legal work. rather, taking just a few very simple steps at the beginning
of your business can help avoid capsizing your business later.
yes, we know what entrepreneurs deal with, but did we say that we also LOVe our entrepreneur
clients? We love the excitement and, most of all, the willingness to assume risks that others only
dream about taking. However, that love of adventure is exactly what can make the entrepreneur
vulnerable to simple missteps that can ruin his or her business or even his or her life. We want to
do what we can to protect our entrepreneur clients and their businesses
at the fledgling stage so that they can go forward and grow into the com-
panies of their dreams.
there are various statistics about the percentage of start-ups failing the
first year, which range from 35% to 50%. given the nature of start-up busi-
nesses and the reasons that people start businesses, however, we’re not
sure that any of those figures are accurate. and, frankly, this is not about
scaring you with statistics. We assume that you knew those risks and are
tired of hearing from all the naysayers in your life. What we do know, how-
ever, is the first year of your business is the toughest and . . . just about the most exciting thing
you’ll ever do. so, let’s keep the adrenaline rush and try to take some of the fear and uncertainty
out of it.
so, without trying to dampen your enthusiasm for your business, we have put together this sur-
vival guide to help entrepreneurs avoid some of the larger and most expensive legal mistakes
that can capsize their businesses. Look at this survival guide as a type of checklist for you on your
way to putting together your business. We know you know checklists, right?
in this e-book, we want you to be exposed to each of the following:
• Basic legal considerations
• Most essential trusted advisors
• Which entity you might choose
• Contracting do’s and don’ts
We assume that you knew those
risks and are tired of hearing from
all the naysayers in your life.
Kristen Hayes Kuse and ann Penners Bergen
6The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
• intellectual property and how to protect it
• Competing with a business that employs you (or did)
• Leasing space
• insurance – what types and why you need it
that’s it.
so, we hope that this survival guide can help you avoid some of the very obvious and expensive
legal mistakes that we have seen during the years. if you have any further questions or if you
would like referrals to attorneys, bankers, accountants or insurance agents, please let us know.
good luck!
Kristen & Ann
7The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
1Have A Working Knowledge of Some of the Basic Laws Regarding Your Business
as soon as you decided to open your business, you left the world of being able to rely on “i didn’t
know that – you can’t blame me” and entered into the world of “the buck stops here.” although
no one expects you to know aLL of the laws aLL of the time, the simple truth is that you can’t
hide behind ignorance when you are running your own business.
you are making a great start by reading this e-book. However, you need to have a working knowl-
edge of (1) contract law; (2) intellectual property; (3) employment laws; (4) real estate law; and (5)
any regulations that can affect your industry. it’s impossible to cover all of these areas in a short
e-book, however, the basics include:
Kristen Hayes Kuse and ann Penners Bergen
8The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
Contract Law
Do you have the correct contracts in place? Have you got written contracts in place with your
vendors, clients, employees, landlord and anyone else with whom you do business? as a general
rule, the contract should be written and should include the key terms of each agreement. those
key terms will vary depending on the type of contract. Key terms include such items as price,
quantity, parties and length of time. you also have to watch out for the “boilerplate” – those are
the non-key terms. some of the more obnoxious “boiler plate” terms include such paragraphs as
a forum selection clause requiring you to litigate any dispute in a different state (your business
is in California) or an attorneys’ fees clause. your business attorney is a huge help in this area and
can usually work with you to get these contracts in place and do it right the first time.
intellectual Property
this includes copyrights, trademarks, patents and trade secrets.
Copyrights protect the expression of an idea. trademarks protect your
company name or logo, or even certain products. they are a little more
complicated and you can run into some issues if you don’t know how to
perfect your trademark effectively. Patent law is more technical than ei-
ther copyright or trademark law and you should contact a patent special-
ist about this. a trade secret is a formula or compilation. it derives value
because it is not well known in the industry. if you don’t, however, take
steps to protect it, you can lose the trade secret protection.
Learn the basics about intellectual property so that you get the protec-
tion you deserve and you don’t run the danger of infringing on someone
else’s intellectual property or being unable to defend against someone
infringing your intellectual property. these are covered in more detail in
Chapter 5.
…get the protection you deserve and
you don’t run the danger of infringing
on someone else’s intellectual property
or being unable to defend against
someone infringing your intellectual
property
Kristen Hayes Kuse and ann Penners Bergen
9The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
employment Laws
employment laws vary from state to state and California has been said to have some of the strict-
est laws by which employers must abide. employment laws are too complex to address in this
venue, but suffice it to say that as you grow your employee force you should seek advice on
the proper procedures, manuals and ways in which you should handle your various employees.
However, watch out for such common missteps as misclassifying employees and independent
contractors, harassment of employees by you (or people working for you or even your vendors)
and failing to pay overtime. Most lawsuits by employees against employers involve the employ-
ers being responsible for the employees’ attorneys’ fees. this creates incentives for employee
lawsuits and also puts you in the position of paying for two sets of lawyers – yours and the em-
ployees – as soon as a lawsuit is filed. so, it is very important to know the rules here.
real estate Law
you need to know the common terms of leases and how lease payments are computed. you also
need to know and understand your lease. We cover some of that in this e-book at Chapter 7 but
if you need further help to understand these laws, get it.
industry regulations
some industries or businesses are highly regulated. you probably know if that applies to you.
if it does, you should become well-versed in any laws and regulations that are specific to your
industry so as to be careful not to cross those lines.
again, you can’t hide behind ignorance of the law so please educate yourself in any areas of the
law touched by your business. if you need help, make sure you contact a lawyer who works with
entrepreneurs.
10The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
2Getting the Advice
That You Need to Start UpAnd Run Your
Business the First Year
as an entrepreneur, if you’re starting your own business, we know you absolutely eat, breathe
and sleep your business. you have no problem cleaning the floors if that’s what’s needed or put-
ting on a suit and tie to meet with angel investors or venture capitalists to explain your dream
to them. if working 20 hours per day is what your business requires, you’re there! you feel exhila-
rated – not exhausted—by the demands of your business and you really don’t mind doing it all.
so, you believe you don’t need advice and you’d rather skip on to the next section. But, before
you do, read on with an open mind. We think once you do, you’ll understand why you should
take steps to get the right trusted advisors in place to help your business.
Kristen Hayes Kuse and ann Penners Bergen
11The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
Why you should seek Outside advice
there are some really good, solid reasons to seek outside advice for your business.
First, practically speaking, while you may feel super-human surviving on nothing but coffee and
minimal sleep, you aren’t. news flash...you don’t know everything. Most importantly, however,
the mindset that you DO know everything can get you in trouble and prevent you from seeing
warning signs and even missing valuable opportunities. also, ignorance is not bliss. What you
don’t know can kill you and your business. so, there’s nothing wrong with a little humility and
asking for help at the beginning
second, your business is valuable to you and you are serious about your success. that’s why you
spend so much time on it sometimes to the expense of your family or day job (if you still have
one). if your business is really valuable to you, isn’t it worth seeking outside advice to protect
your business, protect your family and protect yourself? you and your business deserve every
opportunity to survive and to succeed. Put another way, at the end of your business’ first year –
and particularly if your business does not survive – you don’t want to look in the mirror and tell
yourself, “if only i had gotten help,” or, as our clients have said “i wish i’d spoken with you sooner.”
third, you seek advice on the stuff that’s not so easy for you and that’s not so fun and that doesn’t
get your juices flowing. in fact, you seek advice from people who could tell you “no” or “don’t do
that,” or “here’s the risk.” By seeking advice from others, you get to focus on what gets you excited
and keeps you positive. Most importantly, you get to focus on marketing
and developing your business instead of learning about the dry and mun-
dane – although necessary – details. and, remember, it takes time for many
businesses to succeed and it takes time for everyone to learn about your
brilliant and amazing products. Don’t waste the stamina you need to stick
with your business model until it succeeds by dissipating your energy and
your positive attitude by trying to figure out details for which you could get
a quick answer.
By seeking advice from others, you get to focus on what gets you
excited and keeps you positive.
Kristen Hayes Kuse and ann Penners Bergen
12The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
What Kind of trusted advisors Do you need to survive your First year?
there are many types of business advisors who can really enhance the value of your business and
your life once you are up and running and successful. However, during your company’s crucial
first year of life, we believe there are really only four types of business advisors that you must
have: (1) a banker, (2) a lawyer, (3) a CPa and (4) an insurance agent.
you need a banker because you need money. Willie sutton, infamous bank robber, has been at-
tributed with the statement that he robbed banks “because that’s where the money is.” While Wil-
lie sutton didn’t actually say that, (see http://www.snopes.com/quotes/sutton.asp), it’s still true
that banks are where the money is. it is important to develop a relationship with a bank as soon
as possible and even when your business is small because . . . your business will grow and growth
demands money. your banker can help you by recommending the best bank accounts for your
business, the best lines of credit and steps to take to insure and improve your credit rating.
an entrepreneur’s lawyer helps the entrepreneur choose the correct form of business, sets up that
form of business, can help provide the entrepreneur with written agreements with their vendors,
employees and customers, and can be there when legal questions arise. an entrepreneur’s law-
yer can help protect your intellectual property. an entrepreneur’s lawyer has worked with other
entrepreneurs, knows the problems faced and works to help the entrepreneur avoid the more
obvious legal errors that can detract the entrepreneur from building his or her business.
your business needs a CPa both to deal with the taxes for your business and to help you set
up the accounts payable, accounts receivable and financial reporting systems for your business.
Let’s face it, you are in business to make money. your financial status is the temperature of your
company. it tells you whether you are on track to meet your goals, whether you are struggling
or, sadly, whether it’s time to call it a day. if you are intending to build up your business to sell it
someday to a third party, you absolutely must have these systems in place from day one.
insurance is a way of preparing for and guarding against the risks of any business. the risks can
range from a customer falling in your store to an employee hitting a pedestrian while dropping
off your product. if you’re a professional, you could face liability on that level as well. an entre-
preneur’s insurance agent knows what these risks are, what type of insurance can protect against
these risks and the most cost-effective way to protect you from these risks with insurance.
Kristen Hayes Kuse and ann Penners Bergen
13The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
How to Find the Four essential Business advisors
the four ways to find these essential advisors are (1) to ask friends if they know of any banker,
lawyer, CPa or insurance agent; (2) to ask other entrepreneurs; (3) to research bankers, lawyer,
CPas or insurance agents online, or, (4) once you have one of these trusted business advisors, ask
him or her for referrals to other trusted business advisors.
We recommend that you compile a list of at least three in each category before you take the next
step – hiring a trusted advisor.
How to Hire the Four essential Business advisors
Once you have your list of at least three trusted advisors in each category, it’s now time to re-
search them and interview them to determine the best fit for you and your business. to research
them, go online. Do they have blogs that provide information for you to read in advance and tell
you that they know the field? How about their website? if they do, that’s a good sign. But don’t
write them off if they don’t. unlike you, many skilled practitioners may not understand the im-
portance of a web presence.
as for interviewing the advisors, if possible, it is a good idea to make an appointment and go to
their office to get a sense of how they operate. is their staff courteous? Or, is the staff resentful
and overworked? Do you have to wait longer than ten minutes for your appointment without a
good explanation? ask yourself these questions as you evaluate the advisor.
Meanwhile, when you meet with your advisors, here are the general questions to ask all of these
advisors:
1. Have you worked with entrepreneurs before?
2. What is your availability? Do you have time to help me and my situation? When can
i call you with follow up questions? Do i reach you or your assistant? if i contact your
assistant, will he or she get you involved if my question is beyond their expertise?
3. How do i contact you? (Via email or phone or text or in-person meeting?)
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14The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
4. What is your pricing structure? are there any costs that i need to pay in addition to
your fees (for example, incorporation fees or filing fees)?
5. How long will it take for you to provide me with the services needed?
6. What information do you need from me?
at some point in interviewing these advisors, you will get a definite sense that you like someone
and are prepared to move forward with him or her. you believe that you can trust them. you
sense that they are just as excited by your business as you are. you feel exhilarated, or at least
relieved, when talking with them. While we all know that true trust develops over time and is
basically a series of promises that are kept, if you have done your research and asked the right
questions, you will intuitively know when you’ve found your match.
How to afford the Four essential Business advisors
now that you’ve found the advisor you want to use, how do you afford them? the good news is
that for insurance agents, they are normally compensated by the insurance companies so that
there are no out-of-pocket costs for them. as for bankers, their services are paid for by their bank.
so, then, the question is how do you afford a CPa and your attorney? CPas usually charge on an
hourly basis. some do not charge until they prepare your financial statements or taxes. When you
interview them, they will tell you this. you can then budget for this as a cost of doing business.
as for attorneys, although many still charge on an hourly basis, in many cases when you are form-
ing your business, lawyers will provide you with a flat fee for certain services such as trademark
registration or incorporation. if you are lucky, many can incorporate these initial charges into a
monthly membership plan that also permits you to call them during the year on an “as needed” ba-
sis as questions arise. in this case, a monthly fee is charged to your credit card and you receive your
initial documents and have access to the lawyer throughout the year. We have used this model for
quite some time and it has been great for our clients because by having our clients contact us as
issues arise, we often are able to solve problems before they spiral out of control. it is also good for
our clients because they have a predictable cost for attorney services and they don’t have to cringe
every time they call a lawyer because they fear that the “meter” is running.
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15The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
What if you Want to Change advisors
it is possible that after all of your research, your relationship with your trusted advisor just is not
working. if this happens, you may want to ask one of your other advisors for recommendations.
Most advisors know others who can help you and chances are that if you like one advisor that
his or her colleagues are similar to them and the fit will be good. the most important thing,
however, is to make sure that you part amicably and, yes, that means, paying the advisor what
is owed them.
although it may take a considerable amount of time and effort to build your trusted advisor
team, this is well worth it to protect and grow your business.
16The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
3Choose the Right Entity
Through Which To Operate Your Business
Choosing a business structure is one of the most important decisions to make. each business
structure, such as a sole proprietorship, a partnership, a corporation or a limited liability com-
pany has a different legal implication. the entity that is best for you will depend on your plans
for the future. For example, if you plan to raise venture capital, a corporation may be the best
structure.
sole Proprietorship
as a sole proprietor, you are the company, the company is you and you are liable for all of the risks
of the company. this means that a creditor of your business can come after your assets (including
Kristen Hayes Kuse and ann Penners Bergen
17The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
your house, your investments and even your spouse’s ira). avoiding this type of exposure is one
of the main reasons that entrepreneurs choose to do business as either a corporation or limited
liability company. if there is any advantage to this type of business, it is the flexibility and the fact
that you can start doing business – and open a bank account – as a sole proprietor right away.
Partnership
if you decide to form a general partnership with someone, the company is you and your partner,
you and your partner are the company and you are both liable for all of the risks of the company
you operate together. that means that if your partner decides to make a large purchase for the
company that the company can’t afford, you could be liable for it. For that reason, this is one of
the riskiest forms of doing business. not only are you liable for the business (and any mistakes
you make) but you may also be liable for mistakes made by your partner. remember, just be-
cause you and your partner both share a great idea for a business does not mean that he or she
has the same level of responsibility, assets or caution that you do. also, unless you have an agree-
ment otherwise, each of you shares equally in the profits and in the losses. and remember, it’s
best to have your general partnership agreement in writing and signed by all partners.
a limited partnership is a bit more complicated than a general partnership because it is owned
by two distinct tiers of partners who each have different roles. the general partners manage the
company and are personally liable for its debts, just as in a general partnership; the limited part-
ners make capital contributions and share in the profits but normally do not participate in the
day-to-day operations. generally, the limited partners do not incur any liability for the partner-
ship debts above and beyond their capital contributions and they also enjoy liability protection
most similar to the shareholders of a corporation. the limited partnership is typically used for
restaurant businesses, with the founding partners serving as general partners and the investors
as the limited partners.
a limited liability partnership, sometimes referred to as an “LLP,” is designed to, as the name im-
plies, limit liability for limited partners. in California, only accountants, architects and lawyers can
form limited liability partnerships. an LLP is a type of partnership in which each partner receives
limited liability protection. However, an LLP is similar to a general partnership in that all the
partners can take an active role in managing the day-to-day affairs of the business. the partners
decide the structure of the business and a formal, written agreement for the LLP is advised.
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18The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
Corporation
a corporation generally will shield you from liability if properly formed and if you keep the assets
and debts of the company separate from your personal debts and assets. this means that if you
are sued, your personal assets should be protected. in order to maintain the “corporate veil” or
protective wall between your company and your personal assets, however, not only do you need
to keep the assets of the company separate from you, it also requires that you have adequately
funded the company, and that you (and the other shareholders, if any) follow what are called
“corporate formalities.” Corporate formalities include such things as holding regular meetings,
drafting minutes and/or resolutions to document what the company has done, and otherwise
following your by-laws.
a professional corporation is the same as a corporation except that it is formed by a professional.
Many of these professional corporations have ownership restrictions that bar non-professionals
from owning them and require you also to be registered with the licensing organization. you
should consult an experienced attorney if you are a professional seeking to form a professional
corporation.
Where Corporations and LLC’s Don’t Protect you
the two most common situations in which a corporation will not protect you, however, are (1)
when you personally guaranty a debt ; and (2) if you are a solo professional. a personal guaranty
is where you agree that if the company cannot or will not pay its debts, you will pay them. Many
creditors (such as landlords or banks) may require such guarantees in order to loan money to
your corporation. although you will not be protected from individual liability for creditors who
require a personal guaranty, if you follow the corporate formalities described above, you may
have protection against other creditors.
the second common situation in which a corporation may not protect your personal assets is if
you are a solo professional, such as a doctor, lawyer or accountant and someone sues your com-
pany for malpractice. if they sue your company, they likely will sue you individually as well, so the
“shield” of a formal entity may not have as much of an effect. (On the other hand, this is the exact
reason that you should not start a professional practice without malpractice insurance.)
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Limited Liability Company
another popular business structure is something called a “limited liability company.” the limited
liability company or LLC requires filing with the secretary of state, operating under an operating
agreement rather than by-laws, and, instead of shareholders owning the company, members do.
LLCs offer many of the protections of a corporation with far less formalities required. in California,
if you are a professional licensed by the state, you are not eligible for a membership in an LLC. in
that case, you should start a professional corporation.
if you are going into business with someone else, you should have a written agreement with that
person. By having a written agreement in place, you ask and answer the hard questions, such as
what each of you will do, how much each of you will invest, how much each of you can take out
of the company and, perhaps, hardest of all, what happens when one of you wants to leave. as
detailed in Chapter 4, agreements are promises. shouldn’t you outline what you are promising
to your business partner and what they are promising to you?
to determine the best entity for your business, think about your needs:
• risks and liabilities of your business?
• are you willing to take the time and money to maintain the entity you choose (i.e.
corporation)?
• expected profits and losses?
• Plans for investors?
• Plans for going public – having shares of your company publicly traded?
• if going into business with another, what are your risks?
• What is best in the short term and in the long term?
if your plan is to build your business, you really should think about some form of a formal entity
in order to limit your liability in case your company fails. yes, failure doesn’t seem possible right
now but you can’t ignore that risk and, besides, if your business does as well as you think it will,
do you really want to take the time to incorporate? also, if you plan on seeking capital to grow
your business, you probably need to incorporate.
When you are planning your business, you should consult an attorney who is versed in helping
entrepreneurs build their businesses. Don’t try to do these agreements yourself. if you are willing
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to invest your money, time and your energy into your business, you should be willing to invest to
get the proper business entity in place.
if you don’t want to hire an attorney to do this because you think it costs too much, consider the
costs if you get it wrong and your personal assets can be seized. also, do your homework. talk to
at least three lawyers before you decide you can’t afford one. you may be pleasantly surprised.
21The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
4Write Down
Your Agreements
Many of our clients have bragged at how informal their business arrangements are. they claim
that all they need is a handshake and that they’ve been doing business that way for years. Well,
handshakes and oral agreements are great – that is, until they don’t work anymore. Handshakes
used to be the way business was done until we became such a litigious society. now it’s best to
document, document, document. and while every lawyer will assure you that most oral agree-
ments are valid – which is true – the problem becomes how do you prove that you even had a
contract or what the terms of those contracts were?
to understand why it is so important that a contract be in writing, you need to understand what
it is. a contract is a promise supported by something you give in exchange for that promise. so,
isn’t it better for everyone to have that promise be in writing so that there is no mistake about
what the promise is? also, doesn’t the act of putting those promises in writing make you think
about what those promises are before you sign the contract?
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a Written agreement signed By Both Parties Will Be More enforceable than an Oral agreement.
Why? Because, if drafted correctly, the agreement should define all agreed-upon terms. Make
sure the contract says that any changes must be in writing, and if you ever change or make an
addition to the agreement, you should make that change in writing.
if you are making an agreement for services, you should strive, at a minimum, to set out what the
services are, what needs to be done, by when it should be done and the fees. also, you will want
to decide what reasons additional fees will be incurred and the amount of those additional fees.
How about when you sell something? When you sell something, you should have a bill of sale to
make sure that you are collecting and remitting the appropriate taxes. some of a host of agree-
ments you may want to consider are: an agreement when you are commissioned to do work; an
agreement when you provide your work to a gallery or business; an invoice; a sales contract; or
an agreement when you do a consignment.
But, whatever you do, you should not sign a contract unless you know what the language means
and also what the implications are. signing an agreement without understanding it can lead to
potential problems. For instance, a client sent a contract to us for review and simultaneously
signed the agreement and sent it to her vendor. When we reviewed the contract, there were
several terms that could be construed against the client. But now the contract is signed and the
client may be out of luck if any of these terms come into play. she is now proceeding, with fin-
gers crossed, hoping it will all work out. Don’t get yourself into this situation. again, remember,
that you are making promises. Does it make sense to promise to do something if you don’t know
what you are promising?
a common question we hear is, “Why shouldn’t we do a search for a contract on the internet and
then cut and paste what we need?” that is usually a really, really bad idea for at least three rea-
sons. First, the contracts you find on the internet are not specific to your business or your needs.
second, if you are the one who drafted the agreement, even if you are just grabbing random
clauses from the internet, if the agreement has any vagueness, it will be interpreted against you.
it doesn’t matter that you didn’t know what the clauses you were grabbing meant or their signifi-
cance. that’s just the way the law works.
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third, a big danger exists that by cutting and pasting from the internet, you will either add a very
unhelpful clause or fail to include a necessary clause. When you are dealing with business con-
tracts, it pays to get some feedback from someone who knows what they are doing in this arena.
another contract to consider is when you are going to be doing business with someone else. you
should take the time to figure out what everyone’s share will be in that business and who will do
what, among other things. Do you want your agreement or venture to last until a date certain?
are either or both of you putting money, time or other resources in? What happens when it ends?
sometimes the answers to these questions are easy and sometimes they aren’t – all the more rea-
son to face those potential problems nOW. you can structure your new business in many ways,
but you will want to begin to consider your structure now. if you find it uncomfortable to ask or
answer these questions now, because you think it makes you seem distrustful or even “negative,”
this is one of the best reasons to hire an entrepreneur’s lawyer. Let the lawyer be the “bad guy”
and ask the hard questions for both of you.
Finally, if you are doing business with friends or family, or if they are involved in your business, the
need for a written agreement is even more acute. this is because with people this close to us, we
tend to take verbal shortcuts and assume that we know each other and what everyone means.
unfortunately, however, we don’t always. the only thing worse than a business dispute between
partners is a business dispute between partners who also happen to be family. Do you really
want to be in a lawsuit with your brother? this is really sad when the original partners wanted to
build up their business and pass it on to the next generation and, instead, their relationship has
deteriorated to the point that they can’t have thanksgiving together anymore and their mother
is crying in the corner. (no, that’s not overly maudlin – we’ve seen it happen and it’s awful.)
One of the biggest objections we’ve heard to using a lawyer to help you with these basic con-
tracts is cost. Putting aside the obvious – that a lawsuit arising out of a bad contract will cost you
much more – let us ask you one question: “How do you know?” if you haven’t interviewed at least
three different lawyers and asked them the costs, can you really say you know that this proactive
step is “too expensive?”
remember, when you decided to open your business, you gave up the luxury of laziness and
contempt without investigation. yes, calling a lawyer and getting this information can be scary
and, sometimes time-consuming, but it beats the alternative.
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5Take Care of and
Protect Your Intellectual Property
the proper time to begin thinking about the intellectual property issues facing your business
is at the beginning. What is intellectual property? glad you asked. intellectual property really
falls into four categories and the kind you have will depend on the assets of your business as
well as other factors. a detailed explanation as to the steps required to protect your intellectual
property is beyond the scope of this book. However, once you recognize the type of intellectual
property that may affect your business, consult an attorney to learn about the best way to pro-
tect it. this is not something you want to attempt on your own because if it’s not done right, you
may lose your protection.
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traDeMarKs
a trademark or a servicemark is a word, phrase, symbol or design, or a combination of words,
phrases, symbols or designs, that identifies and distinguishes the source of goods (trademark)
or services (servicemark). a trademark could be the name of your company or the name of your
product. a servicemark could be the name of the services you provide. the owner of a trademark
or servicemark can prevent someone else from marketing a product or service that is confusingly
similar to his trademark or servicemark. and, let’s be blunt, in the beginning all you may have is
a name and, let’s be even more blunt still, in the beginning, that name may not be all that valu-
able in the marketplace – yet. and that’s the big rub. Because the more energy and more money
you put into developing your brand and your company’s name, and the more successful you
become, the more valuable your name should be. and, yet, if you do not take steps to protect it
in the beginning you could be out of luck.
trademark problems can come up in many ways. you could be accused of
trademark violation. For example, you receive a letter from a lawyer asking
you to cease and desist from using a name because it’s confusingly similar
to another name. On the other hand, you could be the victim of trademark
violation when you learn that someone is selling a very similar product with
a very similar name and there is a risk of confusion. unfortunately, if you
never registered your trademark, your chances of winning in any lawsuit
about the name may be compromised. although you may still win (because
trademark is about “use” not just registration), it will be a more fact intensive
process to prove that you first used the trademark. and “fact intensive” is-
sues in litigation equate to more expense.
so, in the very, very beginning, before you design the logo you will learn to
love, before you order the really cool stationery, create an awesome web-
site and get your business cards printed – get thee to a lawyer who can do
a trademark search for you. Bring him or her several different names and
when you find a name that (a) you like; and (b) that no one else is using, register it and purchase
the domain name.
…the more energy and more
money you put into developing your brand and your company’s name, and the
more successful you become, the
more valuable your name should be.
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COPyrigHt
Ok, so what is a copyright then? a copyright protects original works of authorship. the owner
of a copyright has the exclusive rights to reproduce the copyrighted work, prepare derivative
works, distribute copies or phono records of the work, and perform or display the work publicly.
Whoever creates the original work automatically owns the copyright in that work. However, to
protect that copyright, you should register your copyright. this can be done for a fee at www.
copyright.gov. also, be careful of situations in which designers – such as website designers –
work for you to make sure that they are not infringing someone else’s copyrights (sometimes we
see these claims when someone is using someone else’s pictures). Otherwise, you could be liable
for copyright infringement as well.
Patents
generally, a patent owner can exclude others from making, using, selling, offering for sale or
importing the claimed invention for a period of 20 years. you may file a patent application for
yourself or a registered patent agent or attorney can file a patent application and otherwise rep-
resent you before the usPtO. the usPtO provides a searchable list of registered patent agents
and attorneys at https://oedci.uspto.gov/OeDCi. although you may obtain a patent on your own,
you should seriously consider contacting an attorney who is well versed in patents. Will it be
expensive? that depends on the type of patent you are seeking. However, you owe it to yourself
and to the business that will rely on your invention to find out and take all steps to protect that
invention.
traDe seCrets
a trade secret is either information, a process or a formula. it is valuable because it is not gener-
ally known in the industry. you need to take reasonable steps to keep it secret. if an owner pro-
tects a trade secret, the owner can maintain a competitive advantage over other companies in
its industry. at a minimum, you should define what your trade secret is – whether it’s a formula
to the special marinade you have for your chicken or, how you find customers and their likes and
dislikes. you don’t need to make any type of filing for it but you need to instruct your employees
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about what is and what is not a trade secret and limit access to it. Call it a secret or call it “propri-
etary information” and treat it that way.
intellectual property issues can affect the long term viability of the business. you want to protect
your intellectual property but, just as importantly, you want to ensure that you do not infringe
on someone else’s intellectual property. this is why if you think that you have any of the above
types of intellectual property, you should consult with an entrepreneur’s or intellectual property
lawyer and take steps to appropriately protect your business assets.
28The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
6Avoid Starting a New
Business While Employed by a Potential Competitor
as much as it makes sense on so many levels, you probably have never considered that you can
get yourself into hot water fairly quickly if you begin your new venture while you are employed
by a company that makes a product or provides a service that would compete with your new
company’s product or service. Here’s what you could be charged with:
• using the trade secrets of your current employer to your own benefit.
• soliciting your employer’s other employees.
• attempting to interfere with business relationships formed between your current
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employer and its customers or clients if you try to contact them directly about your
competing product or service.
• Creating products for your new venture on your current company’s time may lead
to a claim that your current company owns your work that was completed while on
the clock of your current employer.
• Breaching an employment contract.
• Depending on your position at the company you are working at while launching
you new business venture, you may also be accused of breaching a fiduciary duty.
How do we know this? Well, to be honest, we have either drafted complaints for business clients
that have made these claims or have had to defend start-ups against them. any of these claims –
and the need to hire a lawyer and incur thousands of dollars of attorneys fees to defend against
these claims – could be crippling for your new venture. Bottom line: it’s best not to tread here.
What do you do to circumvent these potential issues? Well, first, if at all possible, do not start
any work on your new venture until you sever your ties with your current
employer. if that is not feasible, you may want to evaluate the reaction if
you came clean with your employer and told them your plans. evaluate this
carefully because in many cases, this could result in you being handed a
box, asked to empty your office and being escorted out the door. On the
same note, don’t start hoarding office supplies or telling clients you service
that you are leaving. this also is not the time to start coming into the office
early and leaving late so that you can copy or download information from
your former company’s database. Just saying. . .
On a related note, if you have taken appropriate action on your own behalf
and you are going into business with or hiring others, make sure they are
not taking trade secrets or working in competition with their company be-
fore you launch your business. you may also want to check with them to be
sure they will not be in violation of any employment agreement they may
have in place when going into business with you. you want your partners
and employees to bring more to the table than a lawsuit against your new venture!
any of these claims – and the
need to hire a lawyer and incur
thousands of dollars of attorneys
fees to defend against these
claims – could be crippling for your
new venture.
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so, assuming you’ve kept your nose clean and not raided your former employer’s customers,
employees or office supplies, what can you do aFter you leave? in California, non-compete
clauses are not valid unless it is part of a deal between partners or someone has purchased a
business. so, yes, you generally can compete with your former employer. However, you can’t do
so by using trade secrets, such as confidential information. Confidential information is a pretty
broad term and may include such things as the customers’ preferences, a trade formula, or even
knowing when those contracts the customers had with your former company expire. For many
people, the safest course of conduct in the beginning may be simply to send announcements to
inform them of your new firm. resist the temptation to insert an “offer to help” in this announce-
ment as this may be construed as “soliciting.”
also, it may be safe to assume that your former employer is going to be angry that you left and
will be looking to fight with you. Don’t make the mistake of bad-mouthing your former employer
or their product and risk being sued for defamation. if you left because you couldn’t stand the
former employer any more, you don’t need to share that. it may be best to say nothing, but if you
must, you may simply say, and it is the truth, “i believed it was time for me to start my own com-
pany.” Frankly, your clients and contacts don’t really care about your problems and don’t want to
get caught up in the drama.
if you really need to vent, talk to your spouse, your clergy or your therapist – not potential clients
or vendors.
this is because, when you bad mouth your former employer, you’re still functioning within the
problem. your new company is the solution – so it might work better to focus on that. Before
long, believe it or not, a time will come when you will be grateful that your former employer was
as awful as you now believe them to be. Had they been a better employer, would you have actu-
ally struck out on your own?
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7Make The Right Decisions
In Leasing Your Space
although in some rare cases it may make sense to purchase a working space, in most start-ups,
funds are at a premium and it does not make sense to commit a large sum of money to purchas-
ing space. in still other cases, you may be able to operate your business from home. For most
businesses, however, you will eventually need an actual office or commercial space.
the key considerations in determining the commercial space to rent are location and cost for
your business. to determine if you have the proper location for your business, it is best to use
the services of a professional real estate agent who represents tenants. use the same criteria for
other trusted advisors to find this agent but you can also ask one of your other trusted advisors
to locate this person.
unlike residential leases which are usually fairly simple, there are several different types of com-
mercial leases and each of these turn on whether the tenant pays a portion or all of such things
as insurance, property taxes or maintenance fees.
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types of Commercial Leases
there are five basic types of commercial leases: (1) percentage lease; (2) net lease; (3) double net
lease; (4) triple net lease; and (5) fully serviced or gross lease.
in a percentage lease, the tenant is charged a base rent and pays to the landlord a percentage
of monthly sales. this is often used in retail businesses or malls. When negotiating such a lease,
the tenant should negotiate that the percentage of monthly sales be paid only when sales have
exceeded a certain amount. For example, if a retail store pays a monthly base rent of $1,500 and
3% of sales, that 3% should not be payable until, say, for example, sales exceed $1,500 per month.
a net lease requires the tenant to pay, in addition, to rent, some or all of the taxes, insurance
or maintenance paid by the landlord. these costs (taxes, insurance or maintenance) are usually
referred to as “usual Costs.” this can be used in any commercial lease and usually favors the land-
lord’s interests.
in a double net lease, the tenant pay rents plus part or all of the usual Costs of taxes and insur-
ance. this type of lease also favors the landlord’s interests because a portion of the usual Costs
are passed onto the tenant.
a tenant who rents under a triple net lease will pay rent and all or part of the taxes, insurance
and maintenance. this type of lease is also known as an “nnn lease,” or even a “net net net lease.”
as you might imagine, this really favors the landlord because the majority of the landlord’s costs
are shifted to the tenant. at a bare minimum, it should be negotiated to limit the amount that
the nnn fees can increase per year.
in a fully serviced lease or a gross lease, the landlord directly pays all or most costs. those costs
may be passed on to a tenant in rent as something called a “load factor.” a load factor is a way
of computing total monthly rental costs to a tenant. it combines usable square feet and a per-
centage of square feet of common areas. usable square feet is actually the square feet that are
exclusively within the tenant’s control and can include such things as storage closets or private
restrooms within the tenant’s business. the common areas can include such “shared space” as
hallways, elevators, lobby and restrooms.
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Considerations about Commercial Leases
Costs:
as you probably figured out from the discussion of the different types of commercial leases, the
lease payment consists of two items: (1) the monthly cost for the space that you are renting and
(2) your share of the common area maintenance costs (“CaMs”).
normally the monthly cost is computed by multiplying the square footage times the cost per
square foot. if the cost per square foot is an annual cost, you divide that figure by twelve. so, for
example, if the square footage is 1,000 and the annual cost per square foot is $12.00, your annual
cost is $12,000 and your monthly cost is $1,000. in the same example, if the monthly per square
foot is $2.00, your monthly cost would be $2,000.
your share of the CaMs is computed by your share of the common areas such as stairways and
hallways.
Payments Included in the Lease
in some cases, the landlords pays these costs and, in some cases, the tenant will pay them: (1)
property taxes, (2) landscaping, (3) parking lot and driveway maintenance, (4) roofing mainte-
nance and repairs, (5) cleaning of common areas, (6) utilities, (7) refuse collection, (8) non-struc-
tural repairs, and (9) mechanical repairs (such as for electricity or air-conditioning). Know what is
included in your lease.
Term of the Lease
this is typically the length of the lease. Many landlords want long-term tenants and you may be
able to negotiate more favorable terms if you are willing to sign a longer lease.
Repairs and Improvements
unless the former tenant had the exact same business that you had, you likely will have to make
repairs or improvements to the space to be suitable for your business. in some cases, and, in par-
ticular, if you have a longer lease, a landlord may pay for these improvements by offering a rent
rebate. Most often, however, the tenant will be responsible.
Who Signs the Lease and Guarantees
if possible, have the lease be with your business instead of having your name on it. Of course,
many landlords insist on having personal guarantees signed by the owners of the tenant’s busi-
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ness. a personal guaranty is where an individual guarantees the payment of another and is re-
sponsible if the other party does not pay.
Other Terms
a lease is one of the most important contracts that you will sign for your business. Make sure that
you understand all of the terms within that contract and take the time and spend the money to
have a lawyer review it. under no circumstances should you simply sign a lease agreement on
the spot even if the landlord leads you to believe that you will lose the space before you can re-
view it or if the landlord insists “all my other tenants signed it without a problem.”
Common terms in Commercial Leases and What they Mean
turning now to the actual terms of the written lease, here are some common terms and what
they actually mean.
Parties. these are the official names of the tenant and landlord. try to have your business be the
party to your lease, not you.
Premises. this describes the actual space that is being rented. Make sure that you understand
the actual space you are renting, how the square footage is being determined and what exactly
you are paying rent for.
Deposit. normally, as with a residential lease, a tenant will be required to provide a security de-
posit to protect the landlord in case of damage or abandoning the lease prior to the end. this
section will describe the circumstances under which the security deposit either will be forfeited
or returned to you.
Term. this provision describes when the lease begins and when it ends.
Rent. unlike a residential lease, your monthly rent for a commercial space may not be a predict-
able, set amount. rather, this paragraph will explain HOW the rent is calculated. Look for the
information on CaMs and other costs associated with the lease. such terms as “gross lease” or
“triple net lease” may be included. Be sure you know what these mean and, if you don’t, check
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with your attorney.
Use/Restrictions. this paragraph will describe any restrictions on uses of the premises, which
includes such things as signs or hours of operations. it also can include any limits on occupancy
or sub-leasing. it is very important to understand the restrictions on use that the landlord sets.
there may be other restrictions that the city or county imposes – for example, bans on commer-
cial activities in certain residential areas. you should check with your attorney or leasing agent to
make sure that your particular business is not barred from doing business at the location.
Parking. this describes what, if any, parking is available for the space. you will want to verify that
the parking space conforms to the standards set by the americans with Disabilities act by pro-
viding adequate handicapped parking.
Taxes and Insurance. this paragraph will describe whether the tenant or the landlord pays prop-
erty taxes or insurance on the property. it is typical that the tenant provide the insurance and
often the landlord must be named as an additional insured. Often, a tenant is required to provide
an indemnity to the landlord in any liability suits against the tenant. an indemnity means that
if the landlord gets sued for something that happens in the tenant’s space, the tenant agrees to
pay for the landlord’s defense (legal costs) and any damages awarded against the defendant.
Options. this can include options to renew the lease at its expiration, to rent additional space in
the building or even, in some rare cases, an option to buy the building.
Defaults and remedies. a default can occur when someone breaks a promise in a lease. Just be-
cause a party does not follow the lease agreement exactly, this does not mean that a default has
occurred. this section will define what a default is and, just as importantly, what the other party
can do if any default occurs.
Assignment and subletting. this is the part of the lease agreement that determines whether you
can sub-let the space or assign it to someone else. this will also tell you whether there are some
circumstances when the landlord can veto your choice of sublessor or assignee.
Subordination, nondisturbance and attornment. under this section, you will find the answer
to the question about what happens if the landlord’s lender forecloses on the property and the
protections a tenant has if a new landlord takes over.
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Attorney Fees. in California, if there is an attorneys’ fees provision, whoever wins on a lawsuit
arising out of the lease is entitled to reasonable attorneys’ fees. Whether a lawsuit “arises out of
the lease,” however, may be subject to interpretation. Make sure that your lawyer explains this
provision to you.
Dispute Resolution. in some leases, the parties are required to have a mediation before filing
a lawsuit. a mediation is a formal settlement conference with a neutral third party who runs it.
they may also be required to have any disputes determined in arbitration. recently, however,
there has been a trend of requiring a “judicial reference.” no, that doesn’t mean a letter of recom-
mendation from a judge! that means that the parties agree to refer any disputes to a privately-
retained judge (or “rent-a-judge”). this can be a very quick – i.e., economical – way of resolving
disputes.
Just because you understand some of the above terms, however, does not mean that you should
sign or execute a lease without reviewing it or having an attorney review it. rather, before exe-
cuting a lease, have your trusted attorney advisor review it. Most of all, never sign a lease without
negotiating it. if your landlord takes a “take it or leave it,” attitude, they may very well be attempt-
ing to railroad you into accepting something that you should not accept. trust your instinct and
trust our experience and get help!
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8Protect Yourself And
Your Business Against The Unknown
usually, your first line of defense against the unknown will be insurance. the insurance discus-
sion is part of the risk assessment discussion that a good business attorney should have with
each client. some basic lines of insurance most businesses should carry are:
general Liability
this insurance should protect you should someone be injured on your business premises. this
can also protect you against such things as a lawsuit against you for defamation.
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errors and Omissions
Professionals such as doctors, lawyers, architects and accountants should have errors and omis-
sions insurance, sometimes referred to as e&O or Professional Liability or Malpractice insurance.
this type of insurance should provide indemnity and a defense if you are sued in the case of a
professional error.
umbrella
Just like it sounds, this is a layer of insurance that sits on top of your general liability and other
insurance lines that will protect you above and beyond the limits of the liability policy you have
in place. there are so many ways to structure this kind of insurance. you should discuss with your
insurance agent having an umbrella for extra protection.
Workers’ Compensation insurance
this is required in many states, including California. this pays your employees if they are injured
on the job.
employment Practices insurance
in some cases, this will give you coverage in case you are sued by one of your employees. this is
generally very limited in scope and fairly expensive.
Business interruption insurance
this type of insurance kicks in if a fire or some other event (such as roof leakage) makes you un-
able to run your business. this insurance may replace some or all of your business income for at
least part of the time you are unable to work.
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39The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
Major Medical or Health insurance
you need this for you and your family. it also is an important employee benefit. you can save
costs by going with a higher deductible but because even a small medical emergency (for ex-
ample, a broken arm at the roller rink), can cost you several thousands of dollars, don’t make the
mistake of going without this essential coverage.
the above only touches on some basic insurance policies you might want to consider. although
your business attorney most likely does not sell insurance, they should be able to talk to you
about your insurance needs in relation to your business risks or refer you to an insurance agent.
40The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
Conclusion
as you have read, there are many factors to consider on the legal side of launching your own
business. We hope that our experience “in the trenches of litigation” has been of some value
to you. yes, there’s a lot. However, as an entrepreneur, you are up to the task. it is better to be
informed than not because ignorance of the law is not bliss. instead, it can actually get you into
quite hot water.
Can you do it yourself? yes. is it recommended? usually not. you should start now to seek out
some advice from an attorney who is accustomed to assisting entrepreneurs to get their business-
es off the ground. attorneys who concentrate on helping entrepreneurs should work with you on
your business to build a solid structure, not just supply you with a “one and done” service. if you
need assistance in locating an attorney in your area who might be able to help you, please contact
us at www.integratedgeneralcounsel.com (925) 399-1529 (Kristen) or www.pennersbergen.com
(626) 463-7361 (ann) and we will see what we can do to help you get hooked up.
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ABOUT THE AUTHORS
Kristen Hayes Kuse
i founded integrated general Counsel in 2010 on the premise that all business
owners should have access to legal advice which affords the opportunity for the
entrepreneur or business owner and the attorney to be proactive rather than reac-
tive. integrated general Counsel focuses on guiding you through your business,
providing a roadmap of sorts, in order to help you minimize your risks.
i decided to go to law school while working as a paralegal in a small law firm that
afforded the opportunity to form relationships with each client. While in law school
and after becoming a licensed attorney, i worked at a large law firm [we’ll call it “Big
Law”] acquiring great experience on various litigation matters. However, being at a large law firm,
i had an opportunity only to work on large litigation matters that did not afford the chance to cre-
ate personal relationships.
after leaving Big Law, i joined the in-house legal department of a Fortune 500 company. While act-
ing as corporate counsel, i realized that i loved working with businesses addressing the daily legal
needs a company faces. also, as corporate counsel, i recognized that i enjoyed not having to keep
detailed time notes in order to produce a client bill. However, i also realized that i wanted to work
with smaller businesses, those businesses that did not have the need or budget to employ a legal
department, or even a full-time attorney.
after working in-house, i re-entered the realm of litigation where i protected large companies in busi-
ness and securities disputes. it was while working in litigation the second time around when i realized
i really wanted to work with entrepreneurs in a context where i could form real trusted relationships
with them. But, i don’t want to be just another lawyer, but someone my clients can count on.
i launched my own practice based on a non-traditional legal business model. My law firm does
not typically work on the billable hour, but, instead, is hired on a flat fee or a perpetual plan. the
perpetual plan is valued by my clients because we work together to help them minimize their
litigation risks and keep them protected in their businesses. Being a small business owner myself,
i am actively in tune with my client’s needs, both legally and businesswise. the clients i represent
vary, but they all have the commonality of being entrepreneurs who love their business, not just
the financial aspect, but really love what they provide.
42The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
Ann Penners Bergen
raised by Dutch immigrant parents in tucson, arizona, i have loved business
and economics as long as i can remember. i left tucson to attend college at
Pomona College, in Claremont, California. after i graduated from Pomona with
a B.a. in economics and before i entered the legal profession, i worked with
several successful small businesses, including an insurance agency that helped
small businesses with their health insurance, a manufacturer’s sales represen-
tative which helped small businesses sell their wares to drug stores and a small
newspaper which helped drive customers into the door of its ad space clients.
Looking back, i think the common theme was the emphasis on marketing and
growth for those businesses. so, when i went to Loyola of Los angeles Law
school, i knew that i wanted to help business owners.
after i graduated from law school, i ended up helping business owners litigate their disputes and
provided general business legal advice. i both prosecuted and defended lawsuits involving large
and small companies. i went to trial and obtained 12-0 verdicts in favor of businesses against
the companies that sold them faulty equipment. i defended companies against claims of sexual
harassment and failure to pay commissions, and scores of other problems faced by businesses. i
helped draft contracts and did due diligence for companies purchasing other companies.
i couldn’t help feeling, however—in fact, i heard it from many of my clients—that i wish i could
have been on the scene earlier to help my clients with their contracts and their business dealings
BEFORE litigation started. However, unlike large companies that had their own legal depart-
ments – called general counsel – very few lawyers provided ongoing legal advice or counsel to
small companies. Because a major lawsuit can costs hundreds of thousands of dollars and even a
minor lawsuit can wipe out any kind of profit, the need for helping small companies was crucial.
However, just like a general counsel at a larger company, a lawyer representing small businesses,
also had to use “business sense” – knowing when to fight or when to fold – as well as “legal sense.”
so, after working at several very good law firms in the Los angeles area, in July 2009 i started
Penners Bergen, a Law Corporation. the best part of my practice is being part of my client’s busi-
ness team and helping them realize their entrepreneurial dreams! My clients include entrepre-
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43The California Entrepreneur’s Guide To SurvivinG Your FirST YEar
neurs starting their businesses, start-ups, professionals and small businesses.
One of the biggest reasons that small businesses don’t seek legal advice before they make deci-
sions is the fear of not knowing how much that legal advice will cost them and having to pay a
lawyer on an hourly basis – which causes them to see a “meter” running whenever they pick up a
phone to call their lawyer. that’s why i avoid the billable hour, if possible. to do this, i charge fixed
fees for almost all services, such as reviewing a contract, incorporating a business or drafting
corporate minutes. also, at the requests of clients, i also have implemented monthly subscrip-
tion services. For a reasonable monthly fee, subscribing clients can call me as they need me to
answer legal questions as they arise. Most importantly, on the membership plan, my clients and
i can be proactive, rather than simply reactive. and, yes, if need be, we can litigate. However, be-
fore making a decision to litigate, my clients sit down and make a plan with the goal of getting
into – and out of – litigation quickly.
Hopefully between flat fees and subscription plans and continual communications with me, my
clients can take control of the legal issues facing their business.