Consider these 5 legal things now to protect your business
Sometimes in business, it’s tough to know what to prioritize. So many things need attention: marketing, hiring, content creation, product development, sales… the list goes on. It can sometimes feel like we’re pulled in a million different directions. For that reason, a lot of people new to business don’t feel that prioritizing the “legal stuff” (taxes, intellectual property, contracts and agreements, etc.) is important; they have so many other things to worry about. Some also think that there can’t be any real legal consequences if you’re making under a certain amount of money or if they haven’t hired anyone yet.
As a lawyer, I have to tell you: leaving the legal stuff ‘til last is a sure fire way to get you in big trouble. The consequences of not dealing with it right away (even before you start hitting sales targets or hiring anyone) can be catastrophic. Read on to find out what you should deal with right away—and what could happen if you don’t.
Does any of this sound familiar?
“I don’t need to worry about the legal stuff until…
- I’m making $10,000 in sales per month
- I hit 6 figures
- I hire my first team/staff member”
Maybe you’ve heard other people say it, or maybe you’ve even said these things yourself. The truth is, lawsuits and legal trouble can start at any point in your business journey, no matter how much (or little) money you’re making, or if you’ve been flying solo in your business and haven’t hired anyone. So here’s the stuff you need to pay attention to right away:
1. Your business structure
If you haven’t considered the structure of your business, you’re most likely operating as a sole proprietorship. But have you considered the needs and goals of your business? Do you want to separate yourself from your business so that, in the event you are sued, creditors can’t go after your house and car?
A sole proprietorship might not be the best structure for you. Think about the size of your business, your revenue, and your assets. If you want to protect your personal assets, you might consider forming a Limited Liability Company (“LLC”) (read more on that in this blog post). If you’re a large business and will have shareholders, perhaps a corporation would be a better fit.
The main types of business structures in the US include:
- Sole proprietorships;
- Corporations; and
Check out this post for a better idea of what is appropriate for you. Once you choose, get registered! A Google search can also help you find out where and how to register your business with your state (check out the .gov site for your state).
If you don’t deal with this: your assets could become at risk, tax time can become chaotic, and paying yourself from your business can get complicated.
2. Intellectual property
If you’re a regular to this blog, you may have already read these posts:
They’re a great primer on the facets of intellectual property, like trademark, copyright, and patent.
If you haven’t, here’s a quick rundown:
A trademark is something that identifies and distinguishes your brand from someone else’s, like a symbol, design, word, or phrase (for example, a logo).
Copyright is a form of protection that “protects original works of authorship including literary, dramatic, musical, and artistic works, such as poetry, novels, movies, songs, computer software, and architecture”.
In other words, a trademark protects your brand, and copyright protects your work/content.
For example, if your company name is XYZ COMPANY, that is a trademark, but if you have an ebook or videos that you sell under XYZ COMPANY, those would be protected by copyright law. Similarly, a course name (for example, “ABC Course”) could be registered as a trademark, although the course materials (i.e., worksheets, PDFs, instructional videos) would be protected by copyright.
A patent is something that gives rights (for a limited period of time) relating to an invention.
It’s a good idea to register your trademarks, copyrights, and patents with the federal government. The USPTO handles trademarks and patents, while the US Copyright Office registers and records copyrights.
If you don’t deal with this: you might accidentally infringe on someone’s trademark, copyright, or patent. You may face legal proceedings and end up being fined thousands (or millions!) in damages and be forced to completely rebrand.
It’s a good idea to sort out item number 1 in this list, your business structure, first. That will give you a better idea of how to approach your taxes.
Before tax time even rolls around though, you should be keeping records of any and all transactions coming in and out of your business. Complete and thorough records will help you through tax season and assist you in the event of an audit from the IRS.
Become familiar with the necessary forms you will need to file your business taxes. You’ll need to know about Forms 1099-MISC and 1099-K (here’s a blog post about them in plain language to help you understand them), 1040 or 1040-SR, and others. The business section of the IRS website is a great resource to anyone trying to figure out their business taxes.
One of the best things you can do when it comes to your taxes is to hire an accountant (especially a Certified Public Accountant (“CPA”)) or speak to a tax professional. Taxes are something you don’t want to mess around with, so do your due diligence and make sure they’re done right the first time.
If you don’t deal with this: If the IRS becomes aware of any discrepancy in your reporting or records, or if you’ve not filed properly, you could face a huge tax bill. Making the IRS mad? No thanks, hard pass!
Having a contract in place with an independent contractor you’re hiring or a new client you’re taking on is essential.
If you intend to sell any goods or services and you want to get paid for them, a contract is necessary. For example, if you’re hiring a freelancer to design some marketing materials for you, you’d best put a contract in place that irons out your rights (and theirs). A contract should stipulate who’s involved on the project, who owns the copyright to the work, when the project should be completed, and what happens if either you or the other person don’t follow through with the tasks agreed to.
Contracts also show you’re serious about your business and your work and their value. They can ward off potentially shady people. I strongly encourage you to read this post on how contracts can help you avoid nightmare clients.
If you don’t deal with this: You could end up with a client who doesn’t deliver and have no legal recourse to deal with it. A client could take your intellectual property and use it for their own gain.
5. Website legal stuff
If you scroll to the very bottom of this page, you’ll see a website disclaimer. This is a basic piece of information you should add to your website to protect your business legally (but be careful to craft your own or have a lawyer do it for you, since my disclaimer is protected under copyright law!).
If you don’t deal with this: costly, stressful, and time-consuming lawsuits.
The bottom line: get the legal stuff out of the way first. It’ll save you time, money, and stress later. (Plus, Elle Woods would be proud of you!)
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For other ways to protect your money and business, watch the free masterclass: How to Legally Protect & Grow Your Online Business So You Can Keep More of the Money You Make