Posts made in September, 2013

What Types of Insurance Should I Have For My Business?

Posted by on Sep 18, 2013 in Uncategorized

Branching off from our discussion of whether you need an entity for your business, one related issue that’s important to keep in mind is what types and amounts of insurance you should obtain and maintain with respect to your business. Whether the insurance policy is personal in nature (such as a policy to cover your personal automobile or home) or commercial in nature (worker’s compensation, professional liability, etc), insurance plays a vital role in the minimization and management of risks associated with the operation of your business. We will go over insurance that is more commercial in nature next time, but for now, we will talk about insurance that is more personal. What Types Of Insurance Should You Have? While the overall answer will ultimately depend on the nature of your business, there are some types of insurance, particularly personal in nature, that are always a good idea to obtain and maintain because they protect you on a personal level– no matter what happens to the business. To the greatest extent possible, business owners should strive to minimize and manage their personal risk so that their capacity to focus on the business operations will not suffer as a result of a personal loss. While this may seem like common sense, if you’re a business owner who also owns a home, you’re going to want to make sure you have homeowner’s insurance of an adequate type and amount, which can help protect you from accidents that happen at home or may have occurred due to your own actions. In order to run your business, you need to make sure your home, and items inside the home, is adequately protected–so all of your resources can be focused on the business. This concept also applies to business owners who do not own a home, but who rent. Renter’s insurance is equally as important if you are a renter to protect your home and items inside your home (which may or may not be useful in your business). While there are other coverages which probably seem like common sense (e.g. personal automobile insurance or health insurance), you probably get the point concerning insurance which is personal in nature and are more curious about insurance which is commercial in nature. We will visit commercial insurance coverages next time, but before we leave this topic, it is important to drive home one more point: Because many small business owners operate their businesses as sole proprietors (i.e. entities for which there is little to no separation of assets, profits, liabilities and obligations), it is especially important to consider how best to protect your personal assets which may directly or indirectly impact the operation of your business. If you have questions concerning insurance or how best to manage and minimize risk for your business, please talk to an attorney–or an insurance...

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Do I Need An Entity for My Business? Cont…

Posted by on Sep 13, 2013 in Uncategorized

As we discussed before, most people end up operating their business through an entity of some sort. However, there are some individuals who do not necessarily need an entity and can operate their business as a sole proprietorship. Without going into details concerning the various types of business entities, it is important to remember that a sole proprietor is personally responsible for the debts and obligations of the business (i.e. there is no “shield” or “veil” of limited liability as in a corporation or LLC). While this may sound scary, it is actually not that big of a deal for some people–and the good news is that sole proprietors do not have to pay Tennessee Franchise & Excise taxes (which are typically between 6%-7%). We will discuss a bit more concerning the various factors that you should consider when trying to decide whether to create an entity through which to operate your business: #1: The kind of service or product you are providing. If you’re providing a risky service or product, that is an argument in favor of having an entity for your business. There is a huge difference between someone who is manufacturing tires and someone who is taking photographs of people. While photography may entail certain risks (risks particularly related to personal identity, images and/or other intellectual property rights), those risks are inherently less risky than the tire manufacturer scenario. Keep in mind that there are many other factors to consider in addition to the type of service or product you are providing, and we will discuss those in more detail later. However, for now, explore whether the level of risk your business entails may be curtailed by purchasing an insurance policy to adequately cover those risks. There are many types of businesses that can cover their risks adequately (and in a way that agrees with the business-owner’s risk tolerance) by purchasing general liability and other insurance policies to cover things like services which cause or are alleged to have caused bodily injury or property damage. If your risks may be covered by insurance policies which are less costly than the TN F&E taxes, it may be a better idea to stay a sole proprietorship and avoid the TN F&E taxes. This is a very brief and general discussion of a rather important topic, so we strongly recommend that you discuss your business with an insurance broker and an attorney so that you can fully understand how best to curtail the risks associated with your...

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Do I Need An Entity For My Business?

Posted by on Sep 9, 2013 in Practice Pointers, Your Entity

(*Note: this discussion presupposes a basic understanding of limited liability entities and alternatives, which have been discussed before and which we will discuss more in the future.) Many people starting a business often wonder if they need to set their business up as a corporation, LLC or some other entity. It is also common to encounter entrepreneurs who just automatically assume that they’ll structure their business as an LLC without really questioning whether they need to do so. By default, if you do not have an entity for your business, you will be considered to operate your business as a sole proprietorship, essentially meaning that the debts and obligations of the business will be considered to be your personal debts and obligations. Again, while this may be scary-sounding, it isn’t always that big of a deal for some people. While having the limited liability offered by a corporation, LLC or some other entity may be a good baseline, there are some individuals who will have businesses that could actually be operated as a sole proprietorship without any entity structure at all. How Do You Know If A Sole Proprietorship Is Okay For You? First and foremost, if you have partners or other individuals with whom you work closely on your business, you will more than likely need to be another type of entity (maybe even a general partnership, but probably another type of entity). Therefore, you really should only be considering a sole proprietorship if you operate your business alone. Whether you need an entity at all will depend on a number of other things, including (but by no means limited to): The kind of service or product you are providing. The degree to which you expect to make or lose money in the beginning. Whether your business is or will be open to the public (i.e. a place or portal where the public can access physically or digitally). Whether you plan to have employees or independent contractors. The degree to which you will borrow money or seek investors. How many assets you own in your name (home, stocks, etc.). Your personal risk tolerance. While we will discuss these issues in more detail over the next couple of weeks, it is important that you seek advice from legal counsel if you are starting a business or operating a business and have questions concerning your...

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Planning for the End in the Beginning

Posted by on Sep 3, 2013 in Uncategorized

Succession Planning When most people start a business, their main focus is, understandably, on building a successful brand, service, or product. There is excitement for the road ahead—networking with mentors and possible investors, signing new leases, testing new technology. Often, people go into business with their good friends or a family member, and rarely do new business owners contemplate in those early stages all that could possibly go wrong if personal relationships fall apart or if one person decides to leave the business. A thoughtful and thorough business succession plan can protect the business and its owners in the event of a voluntary or involuntary departure of a business owner. Whether you draft a separate buy-sell or shareholder agreement or include detailed provisions in your operating agreement outlining what happens when one owner, member or partner of the business leaves, setting ground rules upfront before a problem or departure arises can help alleviate the stress and emotions that any business breakup might bring. Departure of one owner can take any number of forms and a good agreement will contemplate involuntary or unexpected events such as death or illness and voluntary departures such as a move or decision to pursue other interests. Finally, it is important to draft an agreement that accurately reflects the owners’ future goals for an exit strategy. Many new businesses rely on standard language in form agreements and fail to openly discuss specific needs or possible departure scenarios. Developing an exit strategy in the initial stages helps owners understand their options and plan for the successful growth and development of the business. Some things to consider: Trigger events for sale of ownership interest Transfer of a business interest to an heir or family member Restricting ownership transfer or control How the business will be valued How will the business pay a departing owner (does the company have the necessary capital to buy out the partner, insurance for certain owners, will the business need to find a...

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