4 Legal Considerations Every New Business Owner Should Make
Many parts of the Dallas/Ft. Worth area are booming with new businesses, such as Deep Ellum, Richardson, Hebron, and so on. Many new business owners are not aware some of the important legal considerations necessary to mitigate future liability on the part of the business, between the owners of the business, and each person themself. Here are 4 things every new business owner should consider to help decrease chances of future liability, headaches, and issues between business partners.
What type of business formation do you need? In other words, will you have partners, other shareholders, etc? What would benefit you (and/or your partners)?
The first thing every potential business owner should consider is how to structure your company. Each organizational method (corporations, partnerships, limited liability companies, limited partnerships, etc.) can provide you with different levels of protection. For instance, if you have a partner, do you trust them to run the business, or would you rather have that person be a limited partner, that would not be able to enter into agreements and other business decisions, but would also not be held liable in any lawsuit against the partnership. Do you want someone to have equity in your company but no control whatsoever? A c corporation may be the best for you because it would be possible to sell shares to an investor and limit the amount of control, if any, the investor would have in the day-to-day operations. Each type of organization offers different sets of liability and control issues, and it is important to choose the correct formation.
Do you plan on having employees or independent contractors work for you? Do you know the difference?
Recently, there has been much ado about Uberization and what that means for the economy of the future. Well, right now, the courts are hearing arguments as to whether Uber workers are employees or independent contractors. In a recent Secretary of Labor advisory opinion, the Secretary of Labor listed a number of factors to determine this issue, but one of the more important factors (though not decisive in and of itself) is whether or not the worker depends upon the employer exclusively for his or her income. If he/she does, then that person is an employee, according to the Secretary of Labor. While that is not a binding decision, between that opinion and Judge Chen in California deciding that some Uber workers may join in a class-action arbitration, what determines an employee versus an independent contractor is changing. It is important as a business owner to protect yourself from liability by creating worker contracts that will address these issues.
Tips to Avoiding Personal Liability
If you do have a corporation or LLC and not a partnership, you are provided extra protection and are a step removed being personally liable for actions of the corporation or company, a "corporate veil." However, certain acts as a business owner will allow a Plaintiff in a suit against you to prove that the corporation or company was merely a smokescreen for your personal benefit. Acts such as comingling funds between business and personal accounts, paying for personal items through a business account, using business assets for personal use, among others creates a chance for you to be held personally liable. Talk with your attorney today about your financial decisions to ensure you protect yourself from personal liability.
NDA, NCA: What Are They and When Should I Use Them?
Do you have any work product attributable to you alone that you will need to use in your business, and do you have partners? If you do not protect your trade secret properly, you may not be able to keep potential business partners from using your idea in their own business model. Non-Disclosure agreements and Non-Compete agreements can be used in these situations to protect your trade secret. They are heavily regulated and if drafted incorrectly can render them useless. However, if drafted correctly, they will protect you from losing your trade secret, and if your trade secret is used without your authorization, you will have a greater chance of succeeding in court.
Charlton M. Messer, Attorney at Law
This blog is intended for informational and educational purposes only. Contact your attorney today if you think you may need help with any topic covered in this article.