Legal Issues Facing Your Home-Based Business

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An Overview presentation of Legal Issues facing a Home Based Business (This is not legal advice)("No representation is made that the quality of services to be performed is greater than the quality of legal services performed by other lawyers")

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Legal Issues Facing Your Home-Based Business

  1. 1. Legal Issues Facing Your Home-Based Business
  2. 2. Overview <ul><li>Choosing the Best Legal Entity </li></ul><ul><ul><ul><li>Factors in Determining Which is Right for You </li></ul></ul></ul><ul><ul><ul><li>Major Types of Business Entities </li></ul></ul></ul><ul><ul><ul><li>Advantages and Disadvantages of Each </li></ul></ul></ul><ul><li>Legal Issues Involved in Getting Started </li></ul><ul><ul><ul><li>Business Licenses </li></ul></ul></ul><ul><ul><ul><li>Zoning Ordinances and Other Land-Use Restrictions </li></ul></ul></ul><ul><li>Operation of Your Home-Based Business </li></ul><ul><ul><ul><li>Insurance </li></ul></ul></ul><ul><ul><ul><li>Employees </li></ul></ul></ul><ul><ul><ul><li>Contracts </li></ul></ul></ul><ul><ul><ul><li>Going to Court </li></ul></ul></ul>
  3. 3. Choosing the Best Legal Entity for Your Business <ul><li>Five Major Factors In Choosing a Legal Entity for Your Home-Based Business: </li></ul><ul><li>Liability Exposure </li></ul><ul><li>Amount of Debts (Present and Future) </li></ul><ul><li>Number of Involved Individuals </li></ul><ul><li>Ease of Day-to-Day Administration </li></ul><ul><li>Tax Considerations </li></ul>
  4. 4. Choosing the Best Legal Entity for Your Business <ul><li>Major Types of Business Entities Used by Home-Based Businesses </li></ul><ul><ul><ul><ul><li> Sole Proprietorship </li></ul></ul></ul></ul><ul><ul><ul><ul><li> General Partnership </li></ul></ul></ul></ul><ul><ul><ul><ul><li> Corporation </li></ul></ul></ul></ul><ul><ul><ul><ul><li> Limited Liability Company </li></ul></ul></ul></ul>
  5. 5. Sole Proprietorship <ul><li>Simplest form of business entity </li></ul><ul><li>You and the business are the same </li></ul><ul><li>Only one ‘owner’ or ‘manager’ is allowed </li></ul><ul><li>Due to the ease of creation and operation, most home-based businesses use this type of entity </li></ul>
  6. 6. General partnerships <ul><li>Basically the same as a sole proprietorship, but a general partnership is for 2 or more people. Creation and operation is still simple and inexpensive </li></ul><ul><li>A written partnership agreement is not legally required, but should be considered a necessity </li></ul><ul><li>Each partner owes the other partners the highest legal duty of loyalty, good faith and fairness </li></ul><ul><li>You and your partners are the business </li></ul>
  7. 7. Corporations <ul><li>Unlike sole proprietorships and partnerships, a corporation is a separate legal entity from the individual or individuals who own or manage the corporation. </li></ul><ul><li>You and the corporation are not the same. </li></ul><ul><li>Can have 1 or more managers and/or shareholders </li></ul><ul><li>Registration with the State is required to organize and operate as a corporation </li></ul>
  8. 8. Limited Liability Companies <ul><li>Again, a limited liability company (or L.L.C.) is a separate legal entity from the individuals who are members or directors. You and the L.L.C. are not the same. </li></ul><ul><li>The L.L.C. is a new form of business entity that has evolved in a way beneficial to small businesses </li></ul><ul><li>Registration with the State is required to organize and operate as an L.L.C. </li></ul>
  9. 9. Advantages & Disadvantages <ul><li>No safe way to avoid initial expense; attempts to do on-line or from form could be detrimental </li></ul><ul><li>Initial startup cost is more than sole proprietorship or corporation. </li></ul><ul><li>Owners have limited personal liability for business debts and judgments </li></ul>LIMITED LIABILITY COMPANIES <ul><li>Corporate Record “Black Book” </li></ul><ul><li>Retain an attorney who has programs for small businesses </li></ul><ul><li>Initial startup cost is more than sole proprietorship </li></ul><ul><li>Operation of corporation and paperwork is burdensome </li></ul><ul><li>Owners have limited personal liability for business debts and judgments </li></ul>CORPORATIONS <ul><li>Carry increased amount of business property and liability insurance; added cost of insurance may be burdensome </li></ul><ul><li>No liability protection; you will be liable not only for ALL business debts and judgments of the business, but also your partner. </li></ul><ul><li>Simple and Inexpensive to Create and Operate </li></ul><ul><li>You and your partners are the company </li></ul>GENERAL PARTNERSHIPS <ul><li>Carry increased amount of business property and liability insurance; added cost of insurance may be burdensome </li></ul><ul><li>No liability protection; you will be liable for ALL business debts and judgments </li></ul><ul><li>Only 1 ‘owner’ allowed </li></ul><ul><li>Simple and Inexpensive to Create and Operate </li></ul><ul><li>You are the Company </li></ul>SOLE PROPRIETORSHIP Ways to Overcome Disadvantages Major Disadvantages Major Advantages Type of Entity
  10. 10. What’s Good For You? GOOD Any # Allowed GOOD BEST LIMITED LIABILITY COMPANY WORST Any # Allowed GOOD GOOD STANDARD CORPORATION GOOD More than 1 Manager Required WORST WORST GENERAL PARTNERSHIP BEST Only with 1 Manager BAD BAD SOLE PROPRIETERSHIP EASE OF APPLICATION TAX CONCERNS NUMBER OF MANAGERS AMOUNT OF DEBT LIABILITY EXPOSURE
  11. 11. Getting Started (or Looking Back) <ul><li>Business Licenses </li></ul><ul><li>Zoning Ordinances </li></ul><ul><ul><li>Most residential zoning allows for home business </li></ul></ul><ul><li>Land Use Regulations & Restrictions </li></ul><ul><ul><li>Property Deed or Lease </li></ul></ul><ul><ul><li>Subdivision, Co-Op, Condo, Homeowners Association Restrictive Covenants </li></ul></ul><ul><li>Business Financing </li></ul><ul><ul><li>Financing obtained in Business Name </li></ul></ul><ul><ul><li>Personal Guarantees </li></ul></ul>
  12. 12. <ul><li>Now You are Organized </li></ul><ul><li>Now You Have Started Up </li></ul><ul><li>Are You Finished with Your Legal Concerns? </li></ul>There are still 30 Minutes Left in My Presentation . . . What Do You Think . . . .?
  13. 13. <ul><li>LEGAL ISSUES INVOLVING </li></ul><ul><li>THE OPERATION OF YOUR </li></ul><ul><li>HOME-BASED BUSINESS </li></ul>
  14. 14. Insuring Your Home-Based Business <ul><li>75% of home-based business owners believe that they are adequately insured </li></ul><ul><li>Nearly 2/3 of that 75% are WRONG, and are underinsured </li></ul><ul><li>Nearly all homeowners policies exclude property damages losses related to business pursuits </li></ul><ul><li>Homeowners also does not cover liability arising from business pursuits </li></ul>
  15. 15. Types of Insurance Needed <ul><li>Property Damage Insurance </li></ul><ul><li>Liability Insurance </li></ul><ul><li>Business Interruption Insurance </li></ul>
  16. 16. Property Insurance <ul><li>Nearly all of homeowner’s insurance policies exclude coverage for any losses or liability related to business pursuits. </li></ul><ul><li>Covers the loss of equipment, machinery, furniture and leased property used by the business </li></ul><ul><li>Also covers the loss of inventory, supplies and materials used by the business </li></ul><ul><li>Main Risks to Insure: flood, fire, hurricane, theft, power surges, lightning </li></ul>
  17. 17. Liability Insurance <ul><li>Liability insurance mainly protects the business from damages caused by the employees, products or property of the business </li></ul><ul><li>Main Coverages </li></ul><ul><ul><li>General Liability – Slips & Falls at property, other lawsuits </li></ul></ul><ul><ul><li>Employee Theft – Protects from employees stealing from you </li></ul></ul><ul><ul><li>Auto Insurance – Covers cars used for business purposes </li></ul></ul><ul><ul><li>Product Liability – Covers if your product causes injury </li></ul></ul><ul><li>If you are not adequately covered by liability insurance, anyone injured by any aspect of your business will attempt to come after you personally </li></ul>
  18. 18. Business Interruption Insurance <ul><li>This type of insurance covers you if for any reason you are forced to close down the business for a temporary period of time. </li></ul><ul><li>Will pay you a portion of your average income for a specified period of time. </li></ul><ul><li>Examples: </li></ul><ul><ul><li>Hurricane </li></ul></ul><ul><ul><li>Sickness / Treatment </li></ul></ul><ul><ul><li>Fire </li></ul></ul><ul><ul><li>Theft </li></ul></ul><ul><ul><li>Computer Crashes / Technology Problems </li></ul></ul>
  19. 19. Legal Issues Involving Employees <ul><li>Hiring Employees </li></ul><ul><li>A. Employment Contracts </li></ul><ul><li>> Non-Compete Agreements </li></ul><ul><li>> Confidentiality Agreements </li></ul><ul><li>> At-Will Employment Clauses </li></ul><ul><li>B. Background Checks </li></ul><ul><li>> Criminal </li></ul><ul><li> ~ Interaction with the Public, Other Employees and Children </li></ul><ul><li>> Driving Record </li></ul><ul><li> ~ Deliveries, Errands, etc. </li></ul>
  20. 20. Business Contracts <ul><li>No matter what the contract is for, no matter who it is with, get all contracts signed </li></ul><ul><li>Examples: </li></ul><ul><ul><li>Contracts to Purchase and/or Sell Goods, Services or Materials </li></ul></ul><ul><ul><li>Leases – No Oral Agreements to Lease Property </li></ul></ul><ul><ul><li>Employment Agreements (with job duties and pay amount) </li></ul></ul><ul><li>Always Keep Copies of All Contracts </li></ul>
  21. 21. GOING TO COURT <ul><li>Getting Sued </li></ul><ul><li>> Contact Lawyer Immediately </li></ul><ul><li>> Do not attempt to answer first; waive defenses </li></ul><ul><li>> Call as soon as you get letter or court paperwork </li></ul><ul><li>Suing Someone </li></ul><ul><li>> Contact Lawyer Soon </li></ul><ul><li>> Statute of Limitations </li></ul><ul><li>Collections </li></ul><ul><li>> Contact Lawyer when you are ready to get your money </li></ul><ul><li>> Statute of Limitations also applies </li></ul>

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