starting your biz the legal way

Top 6 Benefits to Starting Your Business the Legal Way

In Business 101, Contracts 101, Online Business Necessities by Shannon Montgomery

I spend the majority of my time counseling budding entrepreneurs about the importance of setting their businesses up the legal way. And I don’t just mean filing your taxes properly so the IRS doesn’t come after you. There is a lot that goes into doing thing the right way, and protecting what it is you’re building. I know the new trend is “messy action is better than no action” and that’s true…to an extent. There is only so much “messy” action you can take in the legal world before it lands you in some dirty water.

So, while I do absolutely want you to act on building the business of your dreams, I want it to be built on more than a hope and a prayer. A solid legal foundation will set you up for success.

Exactly what does it mean when I say starting your business the right way?

• Forming a business entity that is right for you
• Having all of the proper agreements in place to cover this entity such as an Operating agreement or corporate bylaws
• Obtaining the right permits or licenses when needed
• Having ALL of your contracts in place
o With employees
o With vendors
o With clients!
• Getting your website set up properly with the right documents in place
o Terms of service
o Privacy Policy
• Ensuring your business and product name is not infringing on the trademark rights of others

How will having all of the above things covered before you get underway as a business help you?

1. For starters, having these things in place will keep you from being fined for legal non-compliance. The privacy policy I mentioned isn’t just something I think you should have it’s something you have to include on your website if you collect personally identifiable information from your website visitors. I’ve written an article on this before, but thanks to CA law you could face extreme fines for failing to have a privacy policy.

2. Setting up your business entity even if it’s a simple LLC is perhaps the most important. This will shield you and your personal assets from liability for things your business does. A legal entity acts as a shield or cover and ensures that if someone is to sue you and win, the cannot take your personal assets like your home or your car. They’re only able to get to business assets.

3. Contracts? Yes! Having contracts in place with your clients will dramatically reduce the likelihood of confusion and disputes you get into. If both you and the client are on the exact same page as far as money, what you are providing, what you expect from them and so on, it will make the relationship that much easier. Your clients will know what to expect from you and this is so important! Detailed client contracts can save your business.

4. You need contracts with your employees too. Especially if you are working with people as independent contractors and not true employees. The IRS loves to give businesses fines for misclassification of employees (again I’ve written on this a ton so I won’t get into details here) but having a clear contract that spells out the relationship is extremely important. It also helps your contractors and employees know what to expect from the gig and you as their boss. You should have more than just a one-page employee handbook when you bring people onto your team. Although, you want that handbook too.

5. Using contracts within every part of your business will protect the most important (in my opinion) assets you have as a business owner, your intellectual property! Confidentiality clauses, and where allowed non-competes and non-solicitation clauses will help your business maintain its trade secrets, and other valuable confidential information such as client lists and marketing plans.

And finally number 6!

6. If you don’t do a proper trademark search and clearance before you start your business there’s a good chance someone will send you a cease and desist and ask you to stop using your chosen business name or product name. And that can cost you thousands in rebranding. Whether you decide to register your brand or business name with the USPTO is a question for another day. But, you should always clear your desired trademarks before you use them to avoid marketplace confusion and worse, infringement.

To sum it all up, starting your business with a strong legal foundation is key. It might be a little more work (and money) up front but the time and resources it will save you as you grow are priceless. If you want to grow your business into the huge success it should be, get these things done before it’s too late! If you have questions or need help on anything you’ve read here feel free to reach out to me at or 281-798-8778.