1. Choosing a name
2. Licensing
3. Can I break my lease?
4. To incorporate or not?
5. How can I protect my idea?
6. ADA -- does it apply?
7. Can I restructure my business to be classified as a minority business?
8. What signage must be legally posted in my business?
9. "Can I be held to a noncompete clause with my former employer?"
10. Protecting the name of your business
11. How good is a LLC (Limited Liability Company)?

The name of your business is a major decision which requires careful investigation. You don't want a name that is already being used, so check your county courthouse and secretary of state's office to see if it is already registered. If not, you can register at your county's courthouse. To protect your name statewide, you can file your business name with the secretary of state's office. Also, you may obtain national registration through a trademark. This is handled through the U.S. Patent and Trademark Office in Washington, D.C. If you have questions, contact a patent and trademark attorney.

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Licenses and permits vary depending on the type of business and the state or local area of the business. For a sole proprietorship, you need to contact city and county government offices to determine if licenses are required for the business type. If dealing with regulated areas, a special certification may be required on the federal level. If dealing with a product/service that requires the collection of sales tax, a sales tax permit will be required. Also, city and county offices may require registration. You will need a federal identification number from the IRS if you have employees, as well as a state number from your state department of unemployment for the purpose of unemployment taxes. For a partnership, a detailed agreement should be written and agreed to by all active partners, outlining responsibilities, profit-sharing and other situations that could arise. Also, before the business is up and running, the owner(s) should seek the services of a qualified attorney, accountant or business adviser to ensure compliance with all requirements of local, state and federal laws.

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Q: Cash flow is tight and I want to find less expensive space to rent. How can I get out of my current lease?

A: When you sign a lease (whether for office space, equipment or even an automobile), you financially commit to the full lease term. If your lease is for three years at $650 per month, you've actually agreed to pay $23,400 whether you occupy the space or not. If you move out early, the landlord can still hold you liable for payment of the full lease.

There are a few things you might be able to do. First, carefully go over your lease and look for options. Can you sublet? Is there an escape clause with a penalty? What are the landlord's legal rights if you don't fulfill the lease? Next, meet with the landlord or property manager to discuss your situation. If the building has a high occupancy, your landlord may help find someone to take over the lease. Even if you have to take less than $650 a month from the new tenant and make up the difference yourself, it may still save you money. Another option is to make a buyout offer. If you still have two years left on the lease ($15,600 in our example), you might be able to offer a buyout of $5,000. If there is a good chance the landlord can rent your space within a few months, he will actually be dollars ahead. Also, if occupancy is good and rental rates for space comparable to yours have increased, the landlord may be enticed into accepting your buyout offer.

Learn from your mistakes; investigate your next lease thoroughly. Instead of entering a three-year lease, try to get a one-year lease with an option to extend it for two years. This may cost you a little more in the monthly rate, but you may save considerable money and legal problems if the location doesn't work out or if times don't get better. Request an escape clause that would allow you to get out of the lease by paying a lump sum penalty based on how long you actually occupy the space. Before you sign any lease agreement, have it reviewed by a professional. Make sure you understand every clause and condition to which you're agreeing.

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Q: I've heard that by incorporating I can protect my personal assets in case something goes wrong in my business. Others say incorporating will not protect me. Who is right?

A: I wish I had an easy yes or no answer, but the only answer is maybe. When you incorporate, you establish a business entity separate from yourself (as a sole proprietorship or partnership) and basically set the "stockholders" outside the legal liabilities of the corporation. You, as a stockholder, then risk only the financial investment you have. It's no different than owning shares in IBM or Xerox. However, you as a corporate officer and director take on liability.

When the courts hold an individual liable for the actions of a corporation, it's known as "piercing the corporate veil." The courts will usually not allow you protection from liability solely on the basis of operating as a corporation. A common example: when you provide a personal service (such as consulting or computer programming), incorporation may protect you for the actions of an employee. However, if you personally provide the services, the corporation more than likely will not offer a great deal of protection.

Many instances of piercing the veil are self-inflicted because business owners fail to properly administrate the corporation. They don't keep corporate minutes up-to-date and don't represent themselves as officers of the corporation. They pay personal bills out of business checking accounts. These and other actions are carryovers from their sole proprietorship days. If the principal treats the business like a sole proprietorship, the courts will treat it as a sole proprietorship, regardless of its legal structure.

Before incorporating to protect yourself from personal liability, learn the rules that govern a corporation. A good first step is to purchase a book about how to incorporate yourself. These publications usually include information about maintaining the legal integrity of the corporation. It's also advisable to visit with an attorney who can evaluate your specific situation.

Having said that, there's one situation in which you should incorporate -- if you're in business with someone else. A general partnership, the worst form of business structure, is an accident waiting to happen. Not only are you liable for your actions, but you also take on personal liability for the actions of your partner.

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Q: How do I stop other people from copying my idea for a new product?

A: Protecting your idea depends on what it is. You may be able to patent it or treat it as a trade secret ... or you may just have to be the first one to produce it and market it like there is no tomorrow.

First, understand that you can't really protect an "idea." You must have a physical item for protection under a patent, trademark or copyright. You've probably heard some myths about what to do if you have an idea, but most are just that -- myths. For example, one suggestion is to write out your idea and mail it to yourself but don't open the envelope. That idea isn't even worth the postage. A second myth holds that you can sell your idea to a major corporation if you approach one. Quite the contrary, the only response you will get is a letter from the corporate legal department telling you they don't accept unsolicited concepts and ideas. That's so they can prevent lawsuits regarding ideas the corporation is already developing.

Begin by contacting the U.S. Patent Office to request its booklet on how to apply for a patent. You can also find information at a library, and Nolo Press publishes a good book about how to do you own patents (Patent It Yourself). Your main goal here is to get a basic understanding of how the whole protection process for "intellectual property" works.

The most important step you can take -- one that may save you thousands of dollars - is to do marketing research first. You may be the only one who thinks your idea is a gold mine. The U.S. Patent Office issues thousands of patents every year. More than 95 percent of them never reach the open market! This doesn't mean you don't have something that could become a marketing mania, but you have to first determine if people are willing to pay for such a product.

If you decide to "go for the gold" and formally protect the idea, start using an inventor's diary. This is any hardbound notebook (not a loose-leaf binder) in which to keep notes, discoveries and other specifics on your idea. This will help substantiate the exact process and dates of your product development.

Another myth: all you need is the idea. People will tell you that it isn't necessary to have an actual working model, and to a degree that's correct. But if you haven't made a working model, how do you know it will work?

Once the product is developed you're ready to open your checkbook and visit a patent attorney. Spending a few hundred dollars for a couple hours of good legal advice is not a step you should skip.

How much will a patent cost? From a low end of $5,000 to more than $20,000 for the patent application and legal work. Time-wise, figure about 24 months for application preparation, a patent search, application filing and waiting for the patent office to rule on your product. One last word of caution: there are companies, both reputable and scoundrels, who claim they can help you get your idea protected and marketed. Check them out carefully before handing over any money! Contact your state attorney general's office as well as the Better Business Bureau in the city in which the company is located. Ask the company for a list of at least 20 clients as references. It's also a good idea to ask what percentage of the company's customers realized profits that exceeded the cost of getting the products on the market.

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Q: What's the status of the Americans with Disabilities Act?

A: Since July 1994, all companies with 15 or more employees are covered under the Americans with Disabilities Act. You can get toll-free suggestions on how to accommodate employees with disabilities. Call 1-800-JAN-7234, which is operated by the President's Committee on Employment of People with Disabilities.

The group also provides information about the Americans with Disabilities Act. Based on data collected by JAN, the cost of accommodating workers with disabilities is frequently much less than many employers believe; approximately 70 percent cost less than $500 and 12 percent cost between $500 and $1,000.

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Q: I just finished a government contract and understand that if this company were minority owned it could get preferential treatment. How do I make my wife 51 percent owner, therefore qualifying as a minority-owned business?

A: True, minority owned classification includes not only nationality, but gender. And if you can qualify as a minority business, there may be more opportunities for you to get additional government business. However, while it used to be common to set up a business under the wife's name just to go after government business, you can't do this any more. You must qualify to be categorized as a minority business. In most cases this means revealing information about the business and the duties and liabilities of the owner (in this case, your wife) to demonstrate that she really is the majority owner.

Some questions you'll have to answer include:

• How much time does the minority person spend actually running the business?
• Does that person control the management of the business?
• Is that person financially at risk?
• What other immediate relatives are associated with the business?

These are just a few of the general questions. If it turns out that your wife isn't really key to the business, chances are unlikely that you'll qualify as a minority business.

Even if you think you only marginally qualify as a minority business, if can't hurt to get more information on the subject. Call your SBA office. Also, most states offer assistance for minority business through specific offices of their Departments of Commerce (small-business section). Large metropolitan areas most likely have one or more minority small-business organizations. Your local chamber of commerce should be able to provide you with a list of these.<

Remember, too, that not every government purchaser is required to set aside a certain portion for minorities.

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Q: I received information in the mail that said if I didn't have certain government information posted in my business establishment, I could be fined thousands of dollars. The mailer offered to send me the information for about $40. Should I send them a check?

A:This company is using scare tactics to get you to buy its products! As an employer, you are required to display certain posters notifying your employees of regulations. And, yes, if you don't post these notices you're subject to fines. However, the chances of being fined $1,000 a day for not having a poster in place is pretty slim.
Generally you should post the following:

• Fair Labor Standards Act poster
• State Unemployment notice
• Occupational Safety and Hazard Act notice
• Workers' Compensation notice

Other notices may be necessary, depending on how many employees you have and in what state you're located. For example: If you have more than 15 employees, you need a notice about the Americans with Disabilities Act. Your state may have additional requirements. Contact your state employment agency, chamber of commerce or state Department of Labor. These groups and agencies often have all the forms necessary -- for free, or at a minimal charge. Your question leads me to believe you're not aware of regulations or government agencies that affect your business. The hard way to find out about government agencies is when they come knocking on your door for the wrong reason. Contact every agency that may regulate your business (look them up in the phone book), most have booklets explaining small-business compliance. Some (but not all) to consider would be:

• Federal agencies
  • Equal Employment Opportunity Commission
  • Department of Labor
  • OSHA
  • Environmental Protection Agency
• State agencies
  • State employment agency
  • Workers' Compensation office

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Q: A recent casualty of downsizing, I will be starting my own business. However, my ex-employer has threatened me because of a noncomplete clause I signed. Can he stop me from competing against him?

A: Courts throughout the country have interpreted noncompete agreements in different ways. The general trend is that such agreements are mostly smoke; the argument is that a noncompete agreement prevents a person from earning a livelihood.

Determine if the agreement is not valid, rather than trying to determine if it is. A rule for any contract is that there must be consideration to both parties. In your situation this means you must in some way benefit, usually financially. Let's say you had only worked for the company for six months and during that time you were in training at the expense of the company. You learned their sales techniques, operating methods and trade secrets. Upon completion, you decided you could go out on your own and make more money. In this situation the courts could very possibly uphold the noncompete agreement.

On the other hand, let's say you were in sales for five years and decided to go out on your own. Chances are the noncompete wouldn't hold up.

You can't, however, walk out the door with a printout of the company's customers, vendors, policies and procedures. Most noncompete clauses hold that the proprietary information you have access to does belong to the company. If you take your office with you when you go, your former employer could cause you a lot of legal grief.

In the case of a business sale, though, the agreement usually will include a not-to-compete clause for the seller. This is a valid and reasonable contract, as you certainly wouldn't want to buy a business for $200,000 and then have the seller open a store across the street from you. Likewise, when buying a franchise, you're usually restricted from operating any other type of business that competes with the franchise.

Legality of any noncompete agreement is predicated on the unique circumstances surrounding it. Similar situations may have just enough differences that one would be legal and the other wouldn't be. The question can come down to who has the deepest pockets and, right or wrong, whether you can afford to defend yourself in a court of law.

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Q: How can I protect the name of my business so no one else can use it?

A: It's important to understand that registering a name doesn't necessarily mean someone else may not be able to use it in another industry, county or state. What it does mean is that you'll establish some proprietary rights and could prevent a competitor from unfairly using the name of your business -- or too similar a name.

The most basic form of registering -- as an assumed or fictitious name -- applies to sole proprietors. If you use a name for your business other than your legal personal name, you have to register it. This is a simple process, and in many states is done on a county level. You fill out a one-page application and pay a small fee to file the name with the county courts. Some states require you to advertise a notice of your assumed name in the newspaper, which will cost you a few additional dollars. Some states register businesses on a state level (a policy all states should adopt). To find out the registration procedure in your state, contact the secretary of state's office or your local chamber of commerce.

If you'll be operating as a partnership, you'll probably need to file a formation notice with your state. The formal name doesn't have to be the same as your trade name -- just file a DBA ("doing business as") form either with your state or your county court. Again, your secretary of state's office should be able to provide you with the specifics.

If you decide to incorporate, when you file for incorporation with the secretary of state's office you'll automatically register the name in the state.

If you'll be operating on a national basis and are concerned with another company using your name in another state, consider a registered trademark. Getting a trademark can get complicated and takes more research and expense. If you're considering this, make a trip to your local library for a book on how to file for a trademark. You can also call the United States Patent and Trademark Office in Washington, D.C., to have information on trademarks sent out to you.

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Q: I've heard a lot about an LLC and how good it is. What's your opinion?

A: At the present time I'm not a fan of the Limited Liability Company (LLC) structure. Only on rare occasions do I suggest it.

An LLC supposedly provides you the tax benefits of a partnership and the liability protection of a corporation ... which sounds like an "S" corporation to me. I'm cautious on LLCs because the structure isn't recognized in every state yet. In the states in which it is recognized, many have different legal structures defining LLCs. What this means is that if you have an LLC and operate across state lines, the LLC may not protect you in another state.

LLCs haven't been tested in either the civil courts or the tax courts. In fact, the IRS isn't even sure how to handle an LLC. I recently made a couple of calls to the IRS, and asked them what year-end tax form an LLC should file: a 1065 partnership return or an 1120 corporate return. The response was that it depends on how the company operated and whether it was closer to a corporation or a partnership. I interpreted this as saying that if I filed a partnership return, there was the potential the IRS could come back several years from now and tell me I filed under the wrong return and was subject to penalties, interest and harassment.

I've also talked with numerous CPAs, attorneys and consultants who deal with LLCs and have yet to have anyone reasonably explain to me the specific benefits an LLC can provide that incorporating cannot.

For me, the LLC is still too new. Unless you have an attorney who gives you very specific legal reasons to use the LLC or an accountant who can show you a bushel basket of tax savings, I'd let someone else be the guinea pig.

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