1. Form a Legal Entity.
If you have any personal net worth, it is imperative that you form a legal entity for your business to protect your personal assets. If you don’t, you take the risk of losing all or some of your hard-earned personal assets in the event of business catastrophe. Forming an entity in Ohio is a simple process that can be performed at very little cost. The basic requirements in Ohio to form a legally recognized entity are threefold. First, a business owner must register or file with the Ohio Secretary of State. Second, a Tax Identification number must be obtained for that entity from the IRS. Third, an Operating Agreement must be drafted and executed by the business owner(s).
2. Provide yourself with Exit Strategies from the Business.
Plan now for possible future events. In the event that you end up wanting to dissolve the company, sell it, transfer it, gift it, separate from other owners, add new owners, or many other possible future actions/events, provide yourself with an upfront planned exit strategy from the business. This can be accomplished in corporate documents at the time of formation of the company or later in other agreements, i.e., Buy-Sell agreements. Planning ahead will help to prevent arguments or litigation in the future.
3. Take Active Steps to Protect the Most Important Aspect of your Business-Its Assets!
You have taken your valuable time to create these assets; it only makes sense to protect them from others’ use. Ways to accomplish this include:
- Registering your Intellectual Property (Patents, Trademarks, & Copyrights) so that you can exclude all others from using them without your permission and/or being compensated.
- Having a third party sign a Confidentiality or Non-Disclosure Agreement (NDA) before sharing an idea or product. Doing this allows you to market your idea to others openly without fear that the idea will be taken from you.
- Having all Employees and/or Independent Contractors that perform work for you execute Non-compete, Non-solicitation, and Confidentiality agreements.
- Having Employee Handbooks that discuss all of these concepts.
Taking steps to protect your Trade Secrets, i.e., customer lists and marketing and business processes.
4. Get the Basic Terms of your Contracts In Writing!
If you can’t get terms in a formal document, at least have something in writing i.e., a series of emails that evidence an agreement and its basic terms. Ohio Courts have recently held that emails can constitute contracts. This becomes important when a dispute arises as to payment or the services or product being provided. Basic terms that should be included are: the date of the agreement, the parties to the contract, a clear definition of the goods or services to be provided, how and when they are to be provided, and the method, manner, and timing of payment. If you don’t define these basic terms, you may perform work or provide product for which you may never be compensated.
5. Execute Contracts with Customers and Vendors in the Name of your Legal Entity.
Make sure that all of your written contracts are executed in the name of your entity and not by you personally. Also, try to avoid executing personal guaranties whenever possible. Taking these actions will further protect you from personal liability in most instances.
6. In Consumer Transactions, Comply with the Ohio Home Solicitation Sales Act & The Consumer Sales Practices Act.
If your business is participating in transactions with Consumers (individuals purchasing products or services primarily for family, home, or personal purposes) – then you must investigate whether The Home Solicitation Sales Act (HSSA) and the Ohio Consumer Sales Practices Act (CSPA) apply your transactions. The HSSA is particularly applicable to Home-Based Businesses. The Act does not only apply to sales made directly by home solicitation but also to a business that operate out of an owner’s home and does not have a physical office open to the public. There are severe penalties for non-compliance, including possible rescission of any agreement to provide services/goods, even after you have provided such services or goods. In some circumstances, a consumer may also be relieved of her/his obligation to pay you for your services/goods. It should be noted that there are many exceptions to the application of the Acts to a business. For more information, see a full copy of both Acts at the Ohio Attorney General’s website.
7. Don’t Waste Valuable Time Trying to Collect on your Invoices.
Depending on the amount owed, use a Business Attorney, small claims court, or a collection agency to assist with Collections. Don’t use time you could be spending on your business chasing those who owe you money but refuse to pay. Hiring an attorney or a collection agency does not have to break the bank. Many times a short letter from an attorney can produce payment in full.
8. Hire an Accountant to Assist with Bookkeeping and Taxes.
If you are not an expert in the area of Accounting, hire someone who is! Taking this step will ensure that you are in compliance with federal, state, and local tax laws and could save you thousands of dollars. Don’t spend time trying to figure out tax issues when you could be working on your business.
9. Get Educated about Sources of Financing or Working Capital.
Seek out information regarding initial startup capital, lines of credit, business loans, bank financing, private investors, venture capitalists, angel investors, bridge loans, and collateralizing personal assets. There are many free services offered to the public that provide this information. These Organizations include: SBA, SCORE, SBDC at Columbus State, and the Ohio Department of Development to name a few.
10. Write a Business Plan. Write a Business Plan and update it once a year.
Doing this will help you define your goals and achieve them. Include items such as a marketing plan, financing, and financials.
11. Hire a Attorney to Assist in the Negotiation of a Commercial Lease for your Business.
Negotiating the best terms possible could save you thousands of dollars. Items to negotiate with a commercial landlord include, but are not limited to: Tenant Improvement or build-out funds; maintenance of HVAC and other systems; default provisions; placing caps on fixed and variable costs set forth in the lease, including CAM costs; personal guaranties; length of lease; and locking in future options to name a few. Even if you aren’t in the strongest position to negotiate, you still need to understand what you are signing.
12. If you Hire an Independent Contractor to Assist with your Business, Make Sure that that person really is an Independent Contractor under and not an Employee in Disguise.
There is a multiple point test set forth in an IRS publication, Ohio Case Law, and the Ohio Administrative Code that determines whether a person is an Independent Contractor or an Employee. If you hire an individual as an Independent Contractor but the person is really an Employee under Ohio law, State agencies such as The Bureau of Worker’s Compensation and Ohio Job and Family Services could audit your business to determine what your workers really are. If those agencies determine that your workers are in fact, employees, then they can recover back payments that should have been made to these agencies, among other costs. Interest and penalties could be included as well.
13. Take Time to Research Whether you Need any Special Permits for your Business, i.e. Vendor’s License and keep track of any Sales Tax you may owe.
If you do not take care of business in both of these areas, you could face stiff penalties from the various agencies who issue permits and the Ohio Department of Taxation which regulates sales tax payments.
14. Make sure you protect yourself and your Business with the correct and right amount of liability insurance.
Meet with a specialist in this area to find out what the best products are for your type of business.
Whether you are just taking your first steps as an entrepreneur, or you have an established business and are looking for new legal representation, Wick Law would like to offer you a one hour complimentary business audit. Setup an appointment…
