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.