The Legal Triad – Set Up Your Business Legally
When it comes to legalities it can be overwhelming and scary. We get it!
That’s why I actively work to bring you the step-by-step information you need to get your business legally protected efficiently and affordably so you can get back to doing what you love…serving your clients!
While setting up a legal business has many moving parts – primarily in three major phases.
#1 The Legal Triad – liability protection to protect yourself personally
#2 A Contract Timeline – the chronological and proper use of contracts
#3 Owning Your Brand – protecting the intellectual property we depend on
It is recommended to start with this legal triad!
If you’re a new entrepreneur, a must start! If you’re a veteran entrepreneur, it’s a good yearly re-evaluation guide!
I will caution you not to gloss over these topics because you think you have then “on lock”.
Go step-by-step through this, take notes and get yourself protected.
Word-for-word transcript (so it’s not perfect!)
Rachel Brenke: One of my favorite things to say to clients is you never have an issue until you have an issue, whether it’s during a pandemic, or just in normal times, whatever that means. Right? But you never have an issue until you have an issue. And I’ll tell you what, I travel to speak nationally, internationally, on legal stuff for entrepreneurs all the time. Well, when we could travel. And inevitably, every time that I go to a conference, I’m speaking about contracts and liability and some of the things we’re going to learn in this. And, oh man, I can’t even tell you the multitude of times that people will come up to me after and say, “Hey Rachel, that was a wonderful presentation. Thank you so much. Good to hear the info. But you know what? I’ve never had that problem. Someone’s never stolen any of my brand visuals.” Or, “No, I just don’t use contracts in my business because I haven’t had a problem yet.”
Within a year, they’re in my inbox at the law firm, asking for help. Happy to help you all, but here’s the thing. It is cheaper and easier to prevent issues than having to play cleanup on aisle four later. And one of the little silver linings, if you want to call it that, coming out of COVID, is that so many business owners recognize that they were not prepared. They were not prepared for liability protection. They were not prepared in their contracts or services or sales to their consumers. They were not prepared in case they ended up getting sick or having to shut down.
My name is Rachel Brenke. I am a business consultant and intellectual property attorney for entrepreneurs. I absolutely love all the things legal, not just because I’m an attorney, but because I’m an entrepreneur, just like you. I would rather be spending time focused on my business and my family and my life and myself and the goals and dreams that I have than having to deal with the legal stuff. Before we dig into all the legal specifics, I have to give my big disclaimer. While I am an attorney, I’m not your attorney, unless you want me to be. And we can talk about that later. All the information in these videos are going to be specific to United States. And they’re only for general information, because you’re the CEO. You’re the head. You are the thought leader in your company. You should know all the facets of it, including legal.
This doesn’t necessarily mean that I’m saying take this information and run with it and do it yourself. But you should be able to formulate a checklist by the end of this so that you can take it to local counsel to make sure you’re doing the right steps. So just understand, this is general information. It’s pretty good for across the United States, but there might be specifics in your individual state that you want to have checked out.
Legal stuff is so important, being proactive, because it’s not if you have an issue, it’s going to be when. And I’m saying this to you as an entrepreneur just like you. Yeah, I’m a lawyer, but I also run non-legal businesses. And I would rather be focused on those businesses, and my family and doing hobbies and things I enjoy, rather than having to spend a lot of time, money, and energy with a lawyer to clean it all up later. I promise you, it is cheaper to do it on the front end. So I invite you, dig into all of these. Even if you think you have each of these sections on lockdown, listen to it anyways. I’ll be throwing little nuggets out, and either it will tell you, oh great, here’s a change I can make, or it could reinforce and give you more confidence that, hey, I’ve done it right already. You can check that item off.
Anytime that I work with entrepreneurs, I always start with what I call the legal triad. So whether you’re brand new, you’re going to need to be going through this, or you’ve been in a while, use it as a recheck. It is three main tools that are going to protect you from liability in your business. No matter if you’re service-based or product-based, virtual or brick and mortar, you want to have these things in place. It’s going to be your business entity that is set up separate from yourself, having business liability insurance and utilizing the right legal contractual documents in your business.
For the very first one, for business entity, I see this happen so often with entrepreneurs. Many of us are in industries where it is not regulated. You’re not required to set up an entity like a lawyer or a CPA might be. You can simply set up a Facebook page, set up a website, and you’re in business. When you do that, you’re considered what’s called a sole proprietorship. There is no division between you and your business. It’s all together. There is no division between you and your business. It’s all in one.
Think of it like a bucket. You have one bucket. You put in your business assets and your personal assets. That is all together, co-mingled. What does that mean for you all? When there’s a problem, that customer can come along, they can pick up that bucket, and they can touch both your personal and your business assets. What we’re wanting to look for is being a business entity, creating at the state level either a limited liability company or a corporation. There are other structures available, too. These are the main ones that I see that many solopreneurs or smaller entrepreneurs focus in on.
So what do these do for you? Well, instead of one bucket, we have two buckets now. One bucket holds your personal assets. Another bucket holds your business assets. Separate bucket liability protection. This isn’t a be all and end all. You have to make sure you maintain the filings. You do all the corporate formalities that are required by the state and make sure you’re not doing things to do what’s called piercing the corporate veil, but for the most part, if an issue happens, all right, not if, when an issue happens, that customer can come along and what can they touch?
Well, the goal is for them to only be able to touch the business assets. Well, if at all. We’re going to be going through the other legal triad tools here, because we’re going to try to keep them from getting to touch anything. Because again, it’s not if a problem happens, it’s when. So make sure that you have the proper business entity formation done, make sure that you maintain it, and also make sure that you are reevaluating as your business grows to see if that’s what’s best for you.
I will identify here a word of caution. When you’re going to do these filings, I highly recommend that you do not do them yourself unless you got into a course or you have the other documents needed, because here’s one of the big downfalls. The government does provide the initial documents to get set up with them, but they don’t provide additional documents, such as operating agreements and bylaws, et cetera, that are required by many states in order to have that full two bucket liability protection structure set up.
So what happens, many entrepreneurs will go, “Oh, I’m going to go sign up for my LLC. I did it. I’m good to go.” That’s not the be all and end all of it. You really need to ensure that you’re checking off all of the corporate formality boxes, because when a problem happens, a savvy attorney on the other side could realize, hey, they don’t have their operating agreement, they’re not tying their contracts to that LLC, they’re not doing X, Y, and Z. And that’s a work around to keep you guys from having liability protection. They work around it and go right to you, and can touch both personal and business asset buckets.
My second big tip for this is please don’t have a CPA make the decision for which entity to be. CPAs and accountants are absolutely wonderful. I have my own. I recommend them. They come into my courses and teach, as well, because I know enough on taxes to be dangerous, but I highly suggest that you have an attorney and a CPA work in tandem, because CPAs are fantastic on the tax side of things, but they’re not licensed to think about the liability aspects. We want to make sure that we have both working together. So that’s just a little word to the wise, to stick with having both on your team and in your corner to making sure that you’re doing the right thing for your business formation upfront.
The second legal triad protection tool is maybe not so much legal, but it can come into play when legal issues arise, business liability insurance. This is ensuring that you’re going to be able to have an insurance policy to assist you when a problem happens so that they can help to resolve it for you. In fact, let me pause right here real quick. With this triad, typically looks like this, I want you to consider them more like hurdles between you and your customer, who may have a problem. You may have done everything in the world right, but they just are unhappy or just life circumstances and they are unhappy and want to come at you. These triad tools are going to try to be the hurdles before they can get to you. We start with business entity, then we’re moving to business insurance, and then the last one on the outer is going to be contracts, which we’ll get into all of that here in a second.
But just keep in mind, having business liability insurance is extremely important. Don’t rely on homeowner’s or renter’s insurance because they often exclude business for liability and for equipment. But you want to make sure that you have a good policy in place.
And the third main tool that we want to have here are the proper legal contracts in place. Now, these may vary a little bit, depending upon the industry or the business that you’re doing. But for the most part, almost all of us are offering either products or services. So you want to have a services agreement or a product sales agreement. It could be terms on a website, terms on your Etsy shop. Anything like that needs to have outline to create the legal relationship with you and the customer. It also helps us set expectations between you and the customer. It provides you some structure and benefits that not having a contract does not.
There’s a common belief that, okay, a customer sues me, takes me to court, because it does happen all the time, that if I win, because you didn’t do anything wrong, well, I’ll get my attorney’s fees paid. That’s not the way it works. There’s only two general ways that you’re going to get your attorney’s fees. One, it’s in a contract, which is a services agreement or a product sales agreement, or two, they violated something in the statute. That’s probably not going to happen. More than likely, it’s going to be a breach of contract issue, whether you have a physical contract or not, and one of the only ways to get those attorney’s fees paid for, because you didn’t do anything wrong and you won, is to have it in an agreement. That’s just one example to put in play. So make sure that we have these contractual documents.
Now, more specifically, release of liability is going to be something that your client, consumer, your customer, whatever it is you call them, if they are coming into your business or you are working individually together, they’re going to be signing. Typically, they are for very extreme, dangerous type of activities, skydiving and so forth. But in COVID, it has really becomes super popular for almost all businesses, and I’m recommending it to my clients, as well, to have one of these in place that the client is understanding, if they come into your place of business, they have the risk of potentially getting COVID. No matter how much you work hard at it, they are assuming the risk of that, and they’re going to waive any liability pursuit that they could have against you.
We have two more types of legal documents to go through. One, really quickly, is your website terms and privacy policy. They are going to govern the relationship between you and a website visitor. And the privacy policy, which is required by many states now, and hopefully it’ll be all soon, is to be put into place to put the consumer on notice of how you’re getting info, whether it’s by tracking it with Google analytics, they’re filling out a form, and what you’re going to do with that information, how you store it, and what information is stored. We want to have that.
And the last major bucket of our legal documents is either have an intellectual property transfer document or a proper commercial licensing document. Think, you go to get your head shots or marketing photos done. If the photographer retains the copyright, they’re going to need a license to you the commercial use of those photos. If you want to own the copyright of those photographs, then that’s where the intellectual property transfer document would come into play.
Now keep in mind, I threw in a couple of extra contracts on here for you. When it comes to the legal triad itself, business entity of LLC or corporation, typically, business liability insurance. The major one for the third part of the triad is the services or purchase agreement. So make sure that you have those three on lock, because so many business owners during COVID realized that they didn’t have any of that. They were scrambling to get it done. And luckily, many of them hadn’t had issues yet. So if you’re someone that needs to get it done, make that a priority to get taken care of, because we don’t how long COVID is going to be. And even if COVID disappeared tomorrow, it’s a very important legal thing that you need to have in place.
I know that felt like a lot of information. I get it. It can be overwhelming. I hope that you guys have a really good solid checklist so that you can go back through and do these items. Now, keep in mind, this isn’t the be all and end all of what you need to do. This is a good little tip of the iceberg, but there are a lot of other steps that entrepreneurs need to take to protect themselves. I get it. It’s overwhelming. But you’re smart. You’re in business for a reason. You have all this time, money, and energy invested. Do the things to ensure that you can prevent issues and be set up if problems ever happen. Again, not if, it’s going to be when, at some point, and I want you to be able to have it in your corner, all the legal protections, so it can be resolved quickly, so you can get back to doing what you do best.
Whatever it is that your business is, the purpose that you’re set out for, legal is just a little part to help you to get there, to keep making an impact on this world and fulfilling your purpose so that you can create your real business so you can live the real life that you want to live. My name is Rachel Brenke. You can find out more information on legal education for entrepreneurs at rachelbrenke.com. We’ve got courses, downloads, free resources, videos weekly. So come check it out. I can’t wait to help all of you. And best of luck, don’t stress. You all got this.
