Make It Legal

Perhaps the most challenging part of starting a small business is covering all your legal bases. "The law increasingly affects every aspect of small-business operation, from relationships with landlords, customers and suppliers to dealings with government agencies over taxes, licenses and zoning," says Fred S. Steingold, an Ann Arbor, Michigan, attorney and the author of Legal Guide for Starting & Running a Small Business (Nolo Press, two volumes for $24.95 each, 800-992-6656 or http://www.nolo.com

The best way to ensure you've got everything covered is to hire an attorney with small-business expertise who can give you advice in these key areas:

• Business structure. Will you form a sole proprietorship, partnership, corporation or limited liability company? Do you know the advantages and limitations of each?

• Written documents. Does your lease state who pays for utilities, maintenance and repairs? Do you have an option to renew? Can you sublet? Your leases and other written documents--purchase agreements and employment contracts--should be drafted in clear, precise language and spell out each party's expectations and responsibilities.

• Co-ownership agreements. What happens if your partner wants out of the business? Do you have a buy-sell agreement to purchase his or her interests? Does it contain a "noncompete" clause so he or she can't open up a similar business down the block?

• Licenses and ordinances. Does your industry require you to be bonded or insured? Will you need professional or product liability insurance?

• Employee relations. If you hire independent contractors, do you know how to classify them so you're not penalized by the IRS? Have you prepared an employee handbook outlining your firm's policies and procedures? What about trade secrets you want to protect?

• Future planning. Have you drafted a will or trust to protect your business assets and your firm's continuity in the event you die or become disabled?

It's not practical, economical or even necessary to contact a lawyer about every business decision you make that could have legal ramifications. "Handle the most routine matters on your own," says Steingold. For example, if you plan to run a homebased business, you can check out zoning laws and land-use restrictions on your own time to ensure your business complies. If a relative wants security for the money he or she is lending you, simply sign a promissory note, available at most stationery stores.

Another option: Sign up for a prepaid legal plan. Often compared to HMOs, these services give you access to a set amount of legal services and consultation time for a monthly fee as low as $20.

Steingold also suggests educating yourself about basic legal issues by studying books and software programs on how to start and run a small business. These resources give you access to dozens of standard legal forms that can be used as the basis for contracts you want your lawyer to draft.

Says Steingold, "You'll be able to make most day-to-day decisions on your own, then seek professional advice only when you truly need it."

This article was originally published in the December 1998 print edition of Entrepreneur with the headline: Make It Legal.