secrets of maximizing the value of your small business
TRANSCRIPT
Four Main Categories• Choice of Entity and Entity Formation• Partners, Employees, Contractors, and
Customers• Compliance with Federal and State Law• Miscellaneous Legal Compliance and Best
Practices
Choice of EntityTip #1: Sole proprietorships are a bad idea
• No liability shield• No perpetual life• Limited financing options• Suggests (to some) lack of professionalism
Choice of EntityTip #2: LLCs offer a lot of advantages for small
business—pass-through tax treatment, limited liability protection, structuring flexibility, low annual SCC fee, less formalities and paperwork.
Choice of Entity
Tip #3: Corporations are still popular in many situations
• Longer statutory history, more familiarity• Concepts better defined by courts• Some tax benefits• 401(k)/IRA rollover (ROBS) start-up financing plans
require a corporate structure
Choice of Entity
Tip #4: Don’t Race to Delaware• The Virginia corporation and LLC statutes are very
progressive, flexible, and pro-business• Unless you plan on going public (IPO) or attracting
capital from sophisticated, out-of-state institutional investors, there should be no compelling need to incorporate your business in DE.
Choice of Entity
Tip #5: You can be both an LLC AND an S Corporation
• It is possible • Organize as an LLC for state law purposes• File an “S” election (IRS Form 2553) or Form 8832 to
elect to be taxed as an “S” corporation.• Primary benefit relates to potential self-employment
tax savings, but be careful!
Entity Formation
Tip #6: Be wary of the DIY approach• The Internet makes everything seem easy and cheap• Be sure you understand what you’re getting (and what
you aren’t) with the LegalZooms of the world• Think twice before hiring the biggest downtown law
firm for your small business startup
Entity Formation
Tip #7: Get your entity formed first• Before you start engaging in business activities• Understand what MUST be in your formation
documents and what SHOULD be in your formation documents.• If plans change, you can always recycle an entity or
easily terminate its existence.
Entity Formation
Tip #8: Business Partners Should Memorialize Key Issues in Written Agreement
• Start-up phase is the best time• Average business relationship has 5-7 year life span• Money, management, control, transfers, and
succession planning issues are fundamental issues to address
Entity Formation
Tip #9: What’s in a Name?• Don’t forget about d/b/a filings (local and state)• Consider federal or state trademark registrations if
your serious about building a brand and growing your business
Entity Formation
Tip #10: Respecting the Entity• Observe proper business entity formalities• Pay attention to signature blocks• Keep the entity in good standing with the SCC• No commingling of assets• Consider foreign qualification requirements
PartnersTip #11: Choose Your Partners Carefully
• Trust and integrity are essential• Skill sets should complement one another, not be
identical• Memorialize the relationship in writing from the
beginning
Partners
Tip #12: Contributions, Control, and Conflict• 10-12 key issues to memorialize in a Buy-Sell
Agreement, Operating Agreement, JV Agreement, etc.
Partners
Tip #13: Address the Phantom Income Problem• Applies to pass-through entities (LLCs, partnerships, S
corporations)• Being allocated income for tax purposes without an
actual distribution of cash with which to pay taxes
Employees
Tip #14: Classification Issues• Employee vs. Independent Contractor• Interns• Potentially huge consequences if you get it wrong
Employees
Tip #15: Hire Carefully• Don’t underestimate the costs of recruiting and
training new employees• A systematic job posting, application, and interviewing
process is essential• Keep thorough documentation
EmployeesTip #16: HR Compliance is Critical
• Wage and Hour Issues• Employee Policies/Handbook—Document and Follow• Both federal and state laws apply
Employees
Tip #17: Vicarious Liability• Principal is responsible for its agents acting within
scope of employment• Training and monitoring are important
EmployeesTip #18: Terminating Employees
• At-Will Employment and Exceptions• Follow your own policies and procedures• Be consistent• Be professional, but show compassion and empathy
CustomersTip #19: The Cooling-Off Rule
• Federal and State Law Applies• Customers have 3-day right to cancel contract• Disclosure and documentation requirements
Customers
Tip #20: A Few Tips on Contracts• Protect Yourself by Getting it in Writing• Use clear, active language• Consider ADR or become familiar with GDC forms and
procedures
Recent Legislative Developments
Tip #21: Cordless Blinds• Lobbying efforts at federal and state level• Increases risk of litigation and liability• Adequate insurance coverage a must
Miscellaneous
Tip #22: Accepting Credit Cards• For B to C businesses, it’s a practical necessity• Potential liability of misusing or being careless with
credit card info; PCI (Payment Card Industry) compliance.
Miscellaneous
Tip #23: Third-Party Vendors• Get it in writing• Communicate expectations clearly• Have an easy exit
Miscellaneous
Tip #24: Don’t be Afraid to Outsource• Payroll, bookkeeping• Marketing• IT• Crowdsourcing becoming very popular
MiscellaneousTip #25: Don’t be Quick to Litigate
• Expensive• Time-Consuming• Unpredictable• Better options are usually available
Miscellaneous
Tip #26: Business Succession or Exit Planning• Few biz owners devote enough attention to this• Important to maximize enterprise value• Requires a team approach
MiscellaneousTip #27: Copyright Issues
• Any original work of authorship fixed in a tangible medium of expression.• Photographs—The photographer is generally
considered the copyright owner of the photo.• Best practice: Include consent/permission language in
your customer agreement.