Get Your Business Off To The Right Start By Incorporating and Putting The Proper Agreements And Disclaimers In Place.
Corey Lederman and Elena Volkova, Esq. on July 14, 2015
Incorporate
Incorporating allows you to protect your personal assets, your intellectual property and allows for better estate planning by ensuring that the business you’re creating will live and operate independent of you.
While you’re doing the wonderful work that you do, you also need to be thinking about the worst: What if I get sued? All it takes is one disgruntled client that misunderstands or misrepresents what you told them or what they thought you agreed upon to take you to court. The cost of defending that suit, even if you win, could be thousands of dollars – coming straight out of your pocket.
Incorporating adds a level of insulation between the business and your personal bank account. Thus, the business account is responsible – not your personal account. And if the business account can’t pay for lawyer fees or a judgment against it, then that’s it (for the time being at least). In other words, except in limited circumstances, you will not be personally liable for that debt and it won’t affect your personal credit. The business owes the debt.
And Act Accordingly
Once you become a more structured entity, you need to act like one. By that, I mean use your corporate name, not your personal name, in all business transactions and on business stationary. Every single document or check made out to you should have your corporate name on it, not your personal one. And be insistent that people use the corporate name. It’s an indication to customers that they are dealing with the business, not you personally, and it’s an indication to the courts that your personal assets are not on the line.
Consider Forming an LLC
An incorporated entity, be it a limited liability company (LLC) or a regular business corporation (Inc., or Corp.), is a container for your business, an entity that is going to have its own separate bank account, its own agreement, and its own name. It actually is an entity that can live longer than a natural person.
If you are in business by yourself, then more likely than not, being a limited liability company is the right choice for you. Unlike the older partnership models, LLCs are more streamlined and provide more protection to the owners. LLCs also have a more open-ended format, in which the structure of the entity is delineated in an operating agreement that you create.
And for purposes of choosing your tax treatment, more likely than not, your accountant will tell you to check the box as “sole proprietor,” which means you will be filing your taxes on Schedule C.
But Don’t Stop There: Put The Proper Agreements In Place
Having good agreements in place is another level of insulation between you and your clients. Good agreements will protect you in a more specific way from every single client. And you can put a lot of different provisions in your agreements that are advantageous to you. For example, you can prescribe the method and mode of payment, the scope of the employment relationship, and the cancellation policy. An often overlooked provision is where you state that if there is a failure to pay and you have to get a lawyer and sue them, the client is responsible for those legal fees.
Free contract templates on the internet are a good starting point, but cannot protect you fully. In fact, some of the clauses might work against you, depending on your specific situation. But it might be good to consider them when you’re starting out.
Don’t Forget Disclaimers
As a coach, you also need to make certain disclaimers. You need to make it clear that you are not providing specialized professional services that necessitate a license (if you do not have a license). If you’re dealing with people who have mental or health issues, then you have to be mindful on how to structure your agreements and disclaimers in a way that fully discloses what you can and cannot do to keep you clear from scrutiny, penalties, or liability.
The disclaimer in your agreements (and possibly on your website) should make it clear that the services rendered are purely advisory in nature, do not constitute a doctor-patient relationship (or other professional relationship), does not guarantee results, and does not constitute any specialized advice.
Start Thinking Bigger: Protecting Your Intellectual Property
There is an economic benefit to writing down everything that you know and teach.
Take as much as you can out of your head and onto paper by documenting processes and any intellectual property that you created. You want your business to be able to license its course materials and presentations. And you want someone else to be able to step in if you get sick, and continue the business and everything it has to offer, without starting from scratch and rebuilding the materials.
Stand Out From the Crowd By Branding Yourself
Build a really unique brand that gets your message out to the world and allows you to make money doing what you love. A savvy way of protecting your intellectual property right out of the gate is by trademarking your original and distinct company name. It is probably your number one asset and will continue to grow in value over time as you create good will in the community. Additionally, you may want to consider trademarking the names of your seminars, signature programs, and any products that you sell (with unique and really evocative names).
A little upfront investment in the proper structuring of your business will allow your business to grow as an entity with valuable tangible and intangible assets. By incorporating, using proper agreements/disclaimers, and branding yourself properly, you will be taking the proper steps to increasing the value and longevity of your business, while also protecting yourself from liability.
There is a Cost To Incorporating, But It’s Outweighed By The Benefits
In New York, incorporating your business as an LLC could cost up to $1,500. That includes New York’s unique requirement that you publish notice in relevant newspapers, letting the public know that you have arrived. Publication alone costs roughly $700-$1,200, depending on where exactly you are located.
Filing with the Department of State costs about $250 and for another $10, you can get a certified copy of your articles of organization, which is useful when working with banks or insurance companies, in securing loans or insurance.
If you’re merely a sole proprietor (meaning not incorporated) you literally have to ask permission from clients to have someone else come in and work in your place. However, if you incorporate and the proper processes and agreements are in place, it will be seamless for somebody to step in and fulfill your contractual obligations to your client.
Incorporating also creates general mental awareness of how money is being made in the business. You understand how to keep expenses and revenue separate from your personal bank account. You start looking at your numbers more effectively.
Stand Out From the Crowd By Branding Yourself
Build a really unique brand that gets your message out to the world and allows you to make money doing what you love. A savvy way of protecting your intellectual property right out of the gate is by trademarking your original and distinct company name. It is probably your number one asset and will continue to grow in value over time as you create good will in the community. Additionally, you may want to consider trademarking the names of your seminars, signature programs, and any products that you sell (with unique and really evocative names).
A little upfront investment in the proper structuring of your business will allow your business to grow as an entity with valuable tangible and intangible assets. By incorporating, using proper agreements/disclaimers, and branding yourself properly, you will be taking the proper steps to increasing the value and longevity of your business, while also protecting yourself from liability.
This article is for general information only. It does not constitute individualized legal advice, and you should consult with a licensed attorney to determine how these general statements of the law apply to your particular circumstances.
About The Author:
Elena Volkova, Esq., is the founding member Volkova Law Group PLLC, a Manhattan law firm serving the legal needs of local businesses, non-profits and families. Elena works with start-ups and mature businesses helping them incorporate, raise financing, acquire or sell assets and negotiate complex service and employment agreements. Before starting her own practice, she was a capital markets associate at LeBoeuf Lamb (2002-2006) and Linklaters (2006-2011).
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