Mentorship and Advice from Attorney Nina Kaufman, Esq.
June 18th, 2008
All three of our Seeds For Success finalists recently had the opportunity to sit down for meetings with Nina Kaufman, Esq., a New York attorney who specializes in small business and entrepreneurship. Nina’s website is www.askthebusinesslawyer.com. She has generously provided all of us with six vitally important matters to consider when launching a business. Here are the first three:
Entrepreneurship is a wild ride. You’re riding high with the rarefied air of possibility and creativity. Add to that the blessing of the Yahoo! Seeds for Success grant, and you might even start feeling invincible. It’s at that point that entrepreneurship meets law . . . and you feel like a bucket of ice-cold water has just been dumped on your head.
As a business attorney who has advised thousands of entrepreneurs, including our Seeds for Success finalists, I’m used to being the “wet blanket” in the business equation. But starting and running a successful business involves more than a wing and a prayer: it takes “management.” That’s where the pesky details of legal (and accounting) issues come in.
Our finalists (I’ll keep the specifics of our conversations confidential) had a number of questions that many entrepreneurs face. They include concerns about the legal form of business, how to work with freelancers, trademarking a logo, business partners and investors, and finding a good attorney. Here’s a quick tidbit on each one.
1. Form of business – how to choose?
Many small business owners are trying to choose between an S Corp (so-called because it is a corporation taxed under the rules in Subchapter “S” of the Internal Revenue Code) and a limited liability company (LLC). Which is better? The short and obvious answer is . . . it depends. It depends on who will own the business. If you want to have passive investors who are not part of the day-to-day management of the company, then an LLC will let you structure that more easily. If you’re a sole owner who would prefer to stay that way, then (from a legal perspective) either form would serve you. However, S Corps and LLCs are taxed slightly differently and have different financial and tax advantages. An LLC may have a lower tax rate (depending on your state), but an S Corp may allow you greater leeway in dealing with self-employment taxes. An LLC may cost less than an S Corp in annual accounting fees but more than an S Corp in formation fees.
Like the old scales of justice, there’s no hard and fast answer. You need to weigh and balance the different considerations to come to the decision that’s right for your situation. That’s why it’s so important to have an accountant on your team who understands the ins and outs of these issues too.
2. Legal issues with freelancers
Freelancers are an amazing resource for small businesses. Freelancers enable them to get quality service without having to hire staff full-time (and take on all the costs of employment taxes, overhead, benefits, training, etc.). But freelancers are business owners too. So there are several points you want to make in writing with any freelancer.
· Services. What do you have the right to expect? How many revisions will you get of the work (if applicable)? What’s the deadline – when can you expect to receive it?
· Price. What is the fee you will pay and how is it calculated? By the hour? By the project? Is payment at milestones or on certain dates?
· Satisfaction. What happens if you’re not satisfied with the work? Can you cancel the contract early? Are you entitled to a refund?
· Work for Hire. Don’t pussy-foot around with this language. Your agreement should clearly state that the work is being done as a work for hire for you and that you are entitled to all the rights.
· Confidentiality. To enable the freelancer to do the best work for you, you may need to divulge some of your company’s sensitive and proprietary information. Make sure your agreement states that they cannot use the information for any purpose but the work done for you. Also make sure the agreement has “teeth” – penalties if the freelancer breaches that provision.
· Independent Contractor Status. Don’t mess with this either. Make it clear that you’re treating your freelancer (especially if the person is operating his/her business as a sole proprietor and not as a corporation or LLC) as an independent contractor and that the freelancer is the one responsible for paying employment taxes.
Did I say agreement? I sure did. Don’t dismiss me because I’m an attorney – agreements dealing with the transfer of intellectual property rights (in this case from freelancer to you) MUST be in writing.
3. Trademarking a logo
When’s the right time to do so? Hard to say. Your logo is like a website – it can change and develop and your company changes and develops. But each time you change it, you need to file anew. So there’s definitely a financial investment. On a shoestring, decide what’s an absolute necessity. And understand that for trademark purposes, there’s a subtle difference between your company name and your “trademark.” The two are not necessarily identical. What will bring more “bang for the buck,” as it were? How do you want to be known in the community? You may want to start with one tag line or logo and roll out the others over time as cash flows in. An intellectual property/trademark attorney can help guide you through a strategy that fits your needs. Remember too, that the quest doesn’t end once the Trademark Office grants you the ® — you then need to monitor the mark for the rest of the life of the mark to make sure no one it using it. And that costs money, too.
Read on for more of Nina’s advice to our finalists!
