Kristen Leibensperger lives in New York and runs a law firm focused on general business law and Intellectual Property. She left the big law firm world to work more closely with entrepreneurs who own small-to-mid-sized businesses—including designers, makers, restaurant owners and fashion companies. She advises clients on everything from trademark and copyright protection and licensing issues to consulting agreements, corporate governance documents, and distribution agreements. Additionally, she’s developed a network of specialists in employment, tax and real estate law with whom she regularly consults. As part of our ongoing resource guide for makers, we picked her brain for the top 10 mistakes you need to avoid if you’re running a small business.
1. Not hiring an attorney. (It’s more affordable than you think.)
Hiring an attorney will likely save you money and headaches in the long run. Attorneys typically bill by the hour (time spent working), so having one review a brief (but potentially impactful) contract may be more affordable than you think. The right attorney will work with you and your budget and help you prioritize what legal work is the most necessary. There are also government and non-profit services focused on supporting small businesses in many cities. Sometimes there are even small business clinics where you can have your most basic issues reviewed by an attorney for free, or a small fee.
2. Not filing as a corporation or LLC. (You need to know who owns what.)
Filing as a corporation or LLC is important for liability reasons, possible tax implications, and, if there’s more than one founder of the business, it’s necessary to clearly define who owns what. Filing as an LLC or Corporation is the first step. Then, if there’s more than one owner, or member, of the company I encourage you to work with an attorney to draft an Operating or Shareholder agreement that will outline how the company will be run, and who will make important decisions.
3. Not hiring an accountant. (They’ll help you with tax & employment law.)
I recommend working with an accountant and a bookkeeper as soon as possible. These professionals will help you stay organized and allow you to focus on running your business. Your accountant should know tax and employee tax requirements.
4. Not using contracts. (They’ll save you money in the long run.)
A standard contract is a great way to save some money. Depending on what your business does, you can ask your attorney to draft a couple of the most common agreements (Confidentiality, Distribution, Consulting) and you’ll be able to tweak the agreements yourself and use them multiple times.
5. Not considering customs laws (especially if you import/export).
If your business imports or exports, you want to work with either an attorney who specializes in customs laws; or with an agency that specializes in importing goods. This is a specific area of law and it’s unlikely that a general business attorney will have the expertise you may need.
6. Not registering your trademark (especially if you import/export).
It’s especially important to prioritize trademark registration if you’re importing your goods. If your mark is a registered trademark, U.S. customs officials can stop counterfeit goods from being imported under your mark.
Importantly, and applicable to everyone, a federally registered trademark can give you exclusive rights to use the mark nation wide (whereas an unregistered mark only has rights where it is sold (i.e. it can be limited to a state or states).
7. Not protecting your intellectual property. (A lawyer can help you prioritize what to protect.)
Intellectual Property is a broad category, and different strategies will help to protect different IP. I suggest discussing IP protection strategies with an IP attorney. An IP attorney can provide an outline of what IP you should be thinking about protecting, and he/she can prioritize what you should dedicate financial resources to first.
8. Not considering confidentiality. (Be careful what you share.)
In addition to having a confidentiality agreement with employees, consultants, and third parties, companies should limit disclosure of intellectual property and only share it with essential parties/partners. Confidentiality Agreements are difficult to enforce. For additional protection, it’s best to only share confidential information in a limited way.
9. Not owning your own copyright. (Make sure your logo is really yours.)
Sometimes, small business owners don’t understand that copyright ownership remains with the artist unless there’s a written agreement specifying that it’s a work made for hire, or an agreement that assigns the work to the company. This issue comes up frequently in regards to logo and web design. You should have a written agreement with the graphic designer or web developer (even if he or she is your friend!) that specifies who owns the copyright. It can be a disaster to realize five years later that you don’t own the rights to your own logo.
All materials have been prepared for general information purposes only. The information presented is not legal advice, and is not to be acted on as such.
Thanks, Kristen! To learn more, visit Liebenspergerlaw.com.
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Illustration by Kristen Solecki