Business Legal Services for Entrepreneurs Legal Services of Eastern Missouri Community Economic Development Program

Program Overview  Free business legal assistance to Existing businesses AND Start-ups  Range of legal issues Entity formation Commercial leases Employment Contracts Intellectual property

Program Overview  Benefits to Businesses Avoid time-consuming, potentially devastating problems Help business grow  Services offered One-on-one legal representation Business legal workshops Legal counseling

Choice of Legal Entity  Operate as sole proprietor/partnership? OR  Form separate legal entity, e.g., corporation or LLC?  Factors to consider

Choice of Entity – Considerations  Liability  Taxation  Formal requirements and fees  Management and control of business  Ability to transfer ownership  Continuation of business

Main types of legal entities  Sole Proprietorship  Partnership  Corporation  S Corporation  Limited Liability Company

Sole Proprietorship  Business owned by one person  Duration limited to life of owner  Tax treatment Report business income and expenses on individual income tax return  Unlimited liability

Sole Proprietorship – Pros and Cons  Benefits Pass through taxation Easy to form and maintain Maximum flexibility for owner  Drawbacks Unlimited liability Difficult to get investments

General Partnership  Business conducted by 2 or more people  Not a distinct legal entity  Each partner files income and expenses on personal income tax return  Unlimited liability  Limited duration

General Partnership – Pro’s and Con’s Benefits  Pass through taxation  Easy to create and maintain Drawbacks  Easy to form  Unlimited liability

General Partnership – Practical tips  Business insurance to protect against personal liability  Written partnership agreement is essential

Corporation  Independent entity, separate from owner/s  Owned by stockholders  Managed by a board of directors and officers  Duration is perpetual  No personal liability  Pay corporate taxes on business income

Corporation – Pro’s and Con’s  Benefits Protection from personal liability Easy to transfer ownership interests Easier to raise or borrow money  Drawbacks 2 levels of tax Formalities to create and maintain Avoid “piercing the corporate veil”

Contract -- Signature  Sign with corporation name, not your name ABC Nonprofit Corp. By: _________________ Name: [Tom Jones] Title: [Chief Executive Officer]

S Corporation  Similar to C Corporation except: Pass through taxation More limitations with tax allocations Additional filing to establish Limitations on who can be stockholders

Limited Liability Corporation  No personal liability  Pass through taxation  Owned by members  Managed by members or a manager chosen by members

Limited Liability Company – Pro’s and Con’s  Benefits Pass through taxation Liability protection Flexible management structure Few ongoing corporate formalities Ownership allocation flexible  Drawbacks Difficulty transferring full ownership interests Tax filings can be complicated

Limited Liability Company – Practical Tips  Avoid piercing the corporate veil  Must have written operating agreement Required by law with 2+ members Strongly advisable with one member

Contracts  May be oral or written  Advisable to put agreements in writing  Clearly describe terms of agreement  Avoid “piercing the corporate veil”

Contracts (con’t)  Why Make a Contract?  Written Agreement: Less room for misunderstanding  Helps identify and resolve differences  Legally enforceable: Protect yourself from unfair business practices  Provides mechanism for settling disputes

Employment  Anti discrimination laws  Employee vs. independent contractor  Employer obligations  Policies and procedures  terminations

Employee v. Indep. Contractor  Pivotal Question: Who has the right to control when, where and how work is completed? Employer has right to control how the work is performed Independent contractors choose method of completing work

Employee v. Indep. Contractor (con’t)  Major Factors to Determine: Who supplies equipment? Who determines when person works? Method of payment Duration of employment Right to discharge  See Missouri and IRS 20 factor test at: ortable.asp#notreport

Employment Policies and Procedures  Employee handbook  Discipline  Regular performance evaluations

Employment - Terminations  “At will” relationship: can fire anyone for any reason as long as it is not an illegal reason BUT…

Employment - Terminations  Before termination, consider: Prior notice for unacceptable behavior Reasonableness of policy and fair application Adequate investigation Proof of policy violation Progressive discipline  3 rd person present in termination meeting

Real Estate  Commercial leases Total economic costs Other essential terms that could impact the business Do not rely on landlord’s attorney  Zoning  Other permits and licenses

Intellectual Property  Trademarks  Trade secrets  Copyright  Websites

Trademark  Word, symbol, and/or design used to distinguish a product service or business from others  Must be non-generic

Trademark (cont) Avoiding Infringement on Other’s Marks  Do not duplicate existing trademarks  Search US Patent Office web site ( and the internet to determine if there are existing trademarks in that namewww.uspto.gov  Letters from other businesses claiming trademark infringement must be taken seriously

Trade Secrets  Information that has independent economic value because it is not generally known to other people  Examples: recipes, client lists, business information  Non-disclosure agreement

Copyright  Original artistic expressions (e.g., curriculum, books, computer programs, databases)  Gives business/individual exclusive right to control the use, distribution, adaptation, display and performance of the work  Copyright created automatically

Copyright (con’t) Practical Tips  Avoid infringing on others’ copyrights: Generate your own pictures, images and marketing materials Do not copy software  If contractor prepares materials, have him/her assign ownership of materials to business

Copyright (cont)  For more information on copyright see:  ublications/files/fairuse.pdf

Patents  Right to exclude others from making, using or selling an invention  Two principal types Design patent: what the product looks like Use patent: how the product works

Patents cont.  Limited duration  Involves filing and maintenance fees  If you think you have a patentable design or invention only share it with legal counsel

Websites  Have a written contract with web designer/host  Use own pictures and other material  Can put links to other websites on your site

Work for Hire  Who owns intellectual property created for the business? Business if created by employee Individual if created by independent contractor  Can change these default rules by written agreement

Contact information Laurie Hauber, Staff Attorney Legal Services of Eastern Missouri, Inc. Community Economic Development Program 4232 Forest Park Ave. St. Louis, MO