Should you form a corporation?

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

Perhaps you have heard of terms like “S-Corporation,” “C-Corporation,” “limited liability company,” and “limited partnership.” This is by no means an exhaustive list, but these are examples of some the various types of separate entities under which your business can be organized. An attorney – or perhaps a comprehensive internet search – can educate you about the various types of entities available and help you decide which is best for your business. Or, if you are interested, you can go straight to the source in Title 17 of the Ohio Revised Code, which sets out the general laws regarding the types of entities available to Ohio business owners. But, before you get to the question of what type of entity you want to consider, you will want to determine whether you want to form a separate entity at all.

Drawbacks to incorporation are few, but there are some. The secretary of state of the state in which you are filing will have a fee schedule. While generally pretty reasonable, it is an additional expense. Taxes will be filed separately from your individual returns, as your business will exist as a separate entity with its own identification number, meaning more paperwork and accounting costs. Finances should remain separate, and you will want to establish separate bank accounts from which you pay business expenses versus personal expenses; and, caution is necessary when characterizing an expense as “business” or “personal.” And, of course, if you will ultimately be looking for funding sources, you will likely lose some ownership and control over the entity as a result (for example, by selling shares in exchange for venture capital funds.)

That said, most small business owners find that the benefits outweigh the drawbacks. Liability is one of the primary reasons business owners choose to incorporate. Let’s say your customer wants to sue for damages stemming from his or her use of a widget that you invented, or someone slipped and fell in your store, or maybe their roof leaked after you repaired it. Your existing insurance coverage may or may not be sufficient to cover damages and any resulting attorney fees – or perhaps coverage is denied altogether – and plaintiffs’ lawyers will be looking to collect however possible. If your business exists as an entity separate and apart from you, your business assets will be at risk, but your personal assets will be protected from the lawsuit. Otherwise, you could be stuck holding the bag when the customer’s property was damaged, or worse, a person was injured.

Incorporation has other financial benefits, as well. You will likely find that you have increased tax flexibility and benefits, and more favorable deduction rules. You also may have some flexibility as to the state in which you organize. Delaware, for example, is generally considered to have very favorable corporate laws, and you may be able to organize in one state while being physically situated in a different one. Your business will likely be considered more credit-worthy than you are as an individual, making it easier to obtain the money you need to grow your business. Finally, your own estate planning becomes easier because a business can exist in perpetuity, making it easier to pass your legacy down to your heirs.

The question of whether or not to organize your business as a separate entity is vitally important to its growth and continued health, and should be part of your business plan from the start. It simply makes good financial sense, not only to protect your business interests, but also to protect yourself and your livelihood.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.

2023-11-10T13:38:13-05:00August 18th, 2016|Estate Planning, Incorporation|

Choosing, protecting your business identity

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

One of the most important steps in starting a business – after identifying the good or service you are going to be selling, of course – is to select your name. Marketing a business is an art as much as it is a science, and a name is a descriptor as much as a reflection of your brand identity.

You may choose to simply use your own name. Or, you may choose something catchy, straightforward or creative. Whatever you choose, you will want to make sure it looks good, sounds good and evokes the image you are intending.

Once you have found that name that will look great on your business cards, it is time to do a little bit of legal legwork.

Check to see that the name is unique. Most businesses have an Internet presence nowadays and, even if a business does not have a dedicated web page, it is likely the name will appear somewhere online, even if only in an online phone directory. It is most prudent to do a quick Internet search to determine if the name you have so carefully chosen is already in use.

If someone somewhere has already used the same name you are hoping to, tread carefully. While opening up “Mom’s Restaurant” is not likely to ruffle many feathers, opening a “Katz’s Delicatessen” might. And, even if you are in the right, the battle can be long and arduous (just ask the owner of the domain.)

Trademark/service mark suits are expensive. Avoid them altogether by determining at the outset whether your name violates any registered trademarks or service marks. A search on the website for the U.S. Patent and Trademark Office will help you to find out if a similar name, or any variations of it, has been registered already.

Consider whether you should seek your own protection of your mark, in order to protect your brand. And, if you opt to get such protection, make sure your advertising materials or packaging – essentially, anything with your name on it – indicates that the mark is protected.

If you plan to incorporate your business or register it as some type of limited liability entity, you will need to check with the Secretary of State to determine if it is already in use. While similar names may be permitted, identical names will not. When this happens, small adjustments are often enough, but you nevertheless may opt for a different name altogether in order to differentiate your brand.

Finally, while you are at it, consider reserving an appropriate domain name or two early in the process. Some companies even go so far as to purchase domain names that represent the most common misspellings of their name, or those representing the most likely mistyping of the name. “Cybersquatting” is real. Federal legislation now exists to combat it, but you simply do not need the additional headache when you are trying to get your new business up and running.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.

2023-11-10T13:38:14-05:00August 21st, 2015|Incorporation, Trademark|

Much work to be done after the idea hatches

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

So you want to start your own business? Hopefully, you have already determined what it is you’re selling, and you know whether or not you are going to have one or more partners in the business.

Ideally, you have some manner of business plan in place – whether formal or informal, written or merely in your mind – meaning you have a pretty good idea of to whom you are selling, and how you are going to sell it.

And you perhaps already have the capital you will need to start, run and grow your business, or else you have at least some idea of how you intend to go about getting it. Once these important business issues are settled, it’s time to consider the legal issues.

Whether you are working with partners or going solo, consider forming a business entity. In Ohio, most likely, you will want to register with the secretary of state as a corporation, a limited liability company, a professional association, or a partnership.

Obviously, no one wants to think about being sued, but the sad truth is that it is a possibility, and by operating as an entity rather than as an individual, you will have some protection for your personal assets. While you are at it, you should also consider what type of insurance might be appropriate for your business, potentially including liability, malpractice, or workers’ compensation.

If you are going into business with anyone else, you will want to put in writing how your business will be run. Even if it seems like everyone is in agreement now, the best protection is a well-drafted partnership agreement that outlines important information such as how business decisions will be made, how everyone gets paid, where any capital contributions will come from and how they will get reimbursed, and what happens if someone wants to leave the business.

Intellectual property concerns also must be considered. If you have invented something, it will be important to be certain your invention does not infringe on an already patented idea, and you will likely want to seek patent protection. Copyright issues could come to the fore, particularly if you are in software, music or the arts. And, trademark protection could be useful if you have a clever name or tagline.

Finally, you must be aware of laws that affect your business. If you have employees, you will want to make sure you are paying appropriate wages, practicing fair and legal hiring practices, allowing at least the minimum required number of breaks, etc. If your business model will require your customers to sign a contract, you must check the consumer protection laws for any mandatory consumer rights that you may need to provide, as well as any specific contractual language that might be required by law. And, if you are going to provide a service, you will want to make sure the outstanding marketing campaign you are planning is allowed by law.

When in doubt, the expertise of a professional is invaluable. You should not hesitate to seek out advice from an attorney, an accountant, or another trained professional when establishing your business. After all, the last thing you want to do is risk the integrity of your business and your own success by making easily preventable mistakes.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.

2023-11-10T13:38:14-05:00April 16th, 2015|Business Startup, Incorporation, Trademark|

Starting a business? Know when to call a lawyer

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

Are you starting a small business? If so, are you thinking of structuring it as a limited liability company or partnership? Are you hoping to incorporate your business?

Are you forming an S-Corporation or a C-Corporation? Are you in business with some partners? Do you want to clarify your and your partners’ respective rights and interests with a partnership agreement? Are you looking for investors? Do you want to trademark your business logo? Patent your invention? Enter into an agreement for consulting services? Are you looking at these questions and panicking because you don’t know what these terms mean? If you answered yes to any of these questions, you should consider whether you need some legal help.

Good legal advice costs money, no doubt about it. For that reason, many people try to handle it themselves. To be certain, if you don’t mind doing your own legwork, an overwhelming amount of information – from statutes to case law to blogs and scholarly articles – is available on the Internet free, and a quick Internet search will turn up several free or inexpensive document templates. Or, you can pay a flat fee and sign up for a company like LegalZoom or Rocket Lawyer, both of which have entire sections of their websites devoted to small business issues. Companies like these provide access to a number of different types of forms, and indicate they provide some basic guidance in completing them.

These going to be good enough, right? After all, standardized form documents are pretty useful. Even experienced lawyers make use of them. Not so fast. Before you head down this path it is imperative that you ask yourself if you can be certain these form documents are going to accomplish what you actually want them to. Are you confident they will stand up to a legal challenge down the road? How big of a problem is it for you if they don’t? Registering your new LLC with the office of the Ohio Secretary of State is easy. You need only fill out a form or two and send in with the appropriate payment. Determining that an LLC is the right corporate option for you is far more difficult. re you willing to take the risk that you get it wrong?

There is an old joke about a homeowner who calls in a plumber to fix a broken washing machine. The plumber arrives, studies the machine for a few moments, pulls out a pipe wrench and gives the machine a hard whack. The washing machine starts working again, and the plumber presents a bill for $200. “Two hundred dollars,” exclaims the customer. All you did was hit it with a wrench.” So the plumber presents an itemized bill: “Hitting the washing machine with a pipe wrench – $5. Knowing where to hit it – $195.”

The parallel to legal services is pretty clear. The LegalZoom form may give you standard language for a binding arbitration clause. But it takes some legal analysis to determine whether your partnership agreement should include it.

The Ohio Secretary of State will give you the blank form to fill out to incorporate your business. But it takes some knowledge of corporate entities to conclude that incorporation is the best option for you. Unless you have some understanding of contract law, all of the blogs in the world won’t tell you if your service agreement would withstand a court challenge and ensure you get paid. And, if you use a form and you get it wrong, you have little recourse. Even paid services like LegalZoom and Rocket Lawyer have disclaimers clearly stating they are not giving legal advice or offering legal opinions.

When you start a new business, you are working through issues and making a multitude of financial decisions. It is tempting to skimp on lawyer fees and save some time by just using a form that you found online. Can you do this and get the job done? Sure. Should you? It depends. If you are willing to commit the time to learn “where to hit the washing machine,” you will minimize your risk of problems down the road. If you cannot devote that kind of time, you would be much better served by hiring a good attorney to help you get it set up right the first time.

After all, in the wise words of Benjamin Franklin, an ounce of prevention is worth a pound of cure. You can pay a little now to get it done right the first time, or you can pay a whole lot more down the road in litigation if it is done wrong.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.

2023-11-10T13:38:15-05:00April 18th, 2014|Business Startup, Incorporation, Trademark|

The legal basics of starting a new business

By Andrew Zashin*

This article originally appeared as a column for the Cleveland Jewish News.

Maybe you invented the world’s next best-selling product, and you want to start a business to market it to the masses. Or, perhaps, you have decided to set out on your own in a service-based business. If you are thinking about starting your own business you have probably already given some thought to your business plan. You may have already identified your target customer and started developing your marketing strategy. In other words, you have probably focused your efforts on the “business” aspect of things. But, have you considered the various legal aspects of starting your business?

A little forethought during the planning stages can save a great deal of hassle down the road. Depending on the nature of your new business, below are a few things you may want to consider:

Intellectual property protection: If you have invented something, you will want to consider patenting it and make certain that it does not infringe on someone else’s patent. Any prospective copyright protection issues should be considered as well, especially if you are working in the arts or if you are making use of software that you, yourself, did not write.

Incorporation: While no one starts a business thinking they will be sued, the truth is that it could happen. Maybe your employee gets injured on the job or a customer is unhappy with your services. The fact is that operating as a business entity, rather than as an individual, is smart. From partnerships to corporations, there are a number of types of business entities that may be appropriate for you. Determine which type best suits your needs and be sure to file any appropriate paperwork with the Office of the Secretary of State.

Licensure: Especially if your business is service-based, make sure you secure any appropriate licensure that may be required.

Insurance: Depending on the nature of your business, you may need to take out a liability insurance policy. Or a malpractice insurance policy. Or a workers’ compensation insurance policy. Or all of the above. Insurance may seem like an unnecessary overhead expense, but keep in mind that your monthly premium will probably amount to peanuts in comparison to an adverse jury verdict should you be sued, and even more importantly, the law might require certain types of insurance coverage.

Labor laws: Several laws exist regarding wages, non-discriminatory hiring practices, using contract labor versus employees, and the like. If you are intending to hire anyone to help in your business, you will want to become educated in the various laws and regulations involving labor and employment.

Taxes: Uncle Sam collects taxes from businesses, too. Seeking advice from your accountant or tax attorney at the inception of your business could save a few bucks down the road.

Contracts: Two words – partnership agreement. If you are going into business with anyone else, you should put in writing how your business will be run, even if it seems silly or you think everyone is in agreement. Such an agreement might cover the process by which business decisions will be made, how everyone gets paid, where any capital contributions will come from and how they will get reimbursed, and what happens if someone wants out, to name a few. And while we’re on the topic of contracts, check the consumer protection laws for any mandatory right of rescission periods that you may need to provide your customers.

Consumer protection and fair practice laws: If you are going to provide a service, you will want to make sure the outstanding marketing campaign you are planning is allowed by law. You do not want to risk the integrity of your company’s name by engaging in any unfair business practices.

Starting and running your own business can be every bit as scary as it is gratifying and as stressful as it is fulfilling. This is exactly why you want to consider potential legal aspects at the beginning. It is impossible to plan for everything, but some advance planning will go a long, long way toward preventing future legal issues and will allow you to keep your focus on the more fun and rewarding aspects of your new business.

*Andrew Zashin writes about law for the Cleveland Jewish News. He is a co-managing partner with Zashin & Rich, with offices in Cleveland and Columbus.

2023-11-10T13:38:17-05:00June 14th, 2012|Business Startup, Incorporation|
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