Legal, passive and active defense.
Welcome to BizBaby and in this chapter we will talk about legal stuff. Passive and Active legal defenses. Most first and second time small business owners get absolutely frozen when they hear the words “legal” or “lawsuit”.
Let’s warm you up a little and get you more comfortable navigating these topics. Let’s get prepared together!
When starting your first or second business, setting legal defenses is not on your list of priorities, matter of fact, you might not even know of such a thing.
DIsclaimers: BizBaby is not your legal counsel. Always consult with your lawyer before considering using any of the material in this or any other video from our channel.
Protections:
- Protecting yourself from company liabilities.
- Personal responsibility to IRS
- Contractual relationships of yourself as officer of the company
- Protecting yourself as guarantor on purchases or agreements
- Establishing employment contracts for key employees, such as managers.
- Creating employee handbooks.
- Outsourcing contracts
- Splitting company into sub-companies
- Protecting intellectual property
- Trademark protections
- Don’t directly own your business, create a layer of protection between you and operations. Create a company that owns your business and it’s shares.
That way, if you need to split your business into different entities, or add additional investors or even sell it, it’s done by your umbrella business.
- When you form a company, you list a responsible party to IRS. If a company's list of officers or owners change, you need to make sure to update the responsible party.
- As an officer of the company, you are responsible for some part of the business operation, for example, the company treasury is in charge of the company's finances, but not it’s day to day operations. You want that to be written in the contract.
The Treasury might sign payroll checks, but not know employees' hours and schedule, and in case of the labor dispute, you want to be protected. More so, I suggest using stamp signatures, to be even more removed from the actual check signing process.
Order a stamp for your signature, you can do it online, it’s easy and cheap. Keep in the safe place of course, only allow trusted people access to it and review all the carbon copies of made checks.
- As a business owner, you will be required to guarantee some purchases and leases. In some cases you might get away without it with some extra payment as a deposit. When it’s absolutely required, create a document of all debt and contracts you are guaranteeing.
After a while, this can get messy and you might forget some of the things you guaranteed.
- In larger companies, every employee has an employment contract, however it almost never happens in smaller businesses.
However, consider having one with your key employees, such as management, you don’t want them to wreak havoc and leave like nothing happened.
- Creating an employee handbook for every employee, and update them from time to time. Important to note that it’s not an actual employment contract and they are hired at-will.
And can leave or can be terminated without reason. (unless your state doesn’t have employment at will)
- Do you outsource part of your business to a different company? Did you know that in some legal cases, if company you outsource to, runs into legal problems, some of it could be potentially placed onto you?
If the offensive side considers that your relationships with them are enough to include your business in the lawsuit too, you might run into some serious problems, unless you have a contract in place that protects you as a business owner and your company.
Filing a lawsuit against anyone is cheap, defending yourself from it, is expensive.
- Splitting the company? Are you crazy you ask?
Imagine you are a bakery that also delivers baking goods to restaurants and hotels and you have 3-4 full time drivers. What you really have now is a bakery store business and a logistics business.
To go one step further, you also have a management company that does employee management. So technically your employees don’t work for you. They work for another company and you hire them to staff and manage your operations.
That way, any labor disputes or union issues are 1 step removed from your actual business.
- When hiring any of the outside firms or contractors, always have a contract in place that says any of the intellectual property they create belongs to you.
By default, a freelancer that creates a website for you, owns the code, even though you paid for it.
- File a trademark application. It’s cheap and it’s worth it. To file a trademark, costs $450-500 and it protects your brand on so many levels.
BizBaby Story: One of our brands started getting alot of traffic on google search and one of the competitors decided to take advantage of that.
They started running google ads pretending to be us, many customers were clicking on those ads thinking it was our brand, and placing order with them instead.
Thankfully we had trademarked our brand name 10 months before that happened. So we opened the trademark violation case with google and were able to force the other company to stop it. Definitely worth $450 trademark application.
Let’s summarize everything we talked about in this chapter:
- Protecting yourself from company liabilities.
- Personal responsibility to IRS
- Contractual relationships of yourself as officer of the company
- Protecting yourself as guarantor on purchases or agreements
- Establishing employment contracts for key employees, such as managers.
- Creating employee handbooks.
- Outsourcing contracts
- Splitting company into sub-companies
- Protecting intellectual property
- Trademark protections
Congratulations!
Now you know how to set proper legal protections for your Business Baby.
