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Opening a Business? Don’t Forget a Lawyer! Licenses and Leases

Congratulations, you have decided to go into business for yourself! Tired of working for others, and you are ready to take the leap. If you are opening a business in Washington State, there are many things to keep in mind, and a lawyer can bring help make the process more manageable. More importantly, a lawyer can help minimize the chances you’ll make a costly, avoidable mistake.

Funding

If you are not applying for outside funding, you may not yet have put together a business plan. If you haven’t put together a business plan, do start with that. It will help you figure out how to get on a successful path. There are a lot of resources to help you with your business plan. This article does not tell you how to make a business plan. Instead, this and other articles focus on some legal issues to consider before opening for business. By now, you have already decided on a type of entity structure for your business (e.g., corporation, limited liability company, partnership or sole proprietorship). If you haven’t  yet determined the right entity structure, don’t worry, your lawyer will be ready to help you figure out some solutions.  But now, let’s look at licenses and leases.

Licenses

Most people know they need a business license to do business in this state, need to be listed with the Department of Revenue, and Department of Labor and Industries, and possibly also the Secretary of State’s office (depending on entity type you have chosen). But you may also need a license in the city you will be working in. It is safest to assume your business will need to be licensed in your city, but because each jurisdiction handles things a little differently, it’s important to know what your jurisdiction requires.

In addition to a basic business license, do you also need a specialty license? Food and beverage businesses (restaurants, bars, food trucks, artisinal food and small batch producers, etc.) are obvious examples. Be sure to check whether the type of goods and services you will provide have special licensing or permitting requirements in your jurisdiction.

Leases

Opening a storefront or office? Great! You’ll probably be looking to rent. Don’t forget to have a lawyer help you with that process. Leases are legal documents that are important to the lifeblood of your business. Most landlords have lawyers prepare their standard leases, and that lawyer’s duty is to protect his or her client – the landlord. Who will look out for your interests? YOUR lawyer. Level the playing field and have a lawyer on your side.

For example, besides the base rent, what are you – the tenant – expected to pay for? Is it a triple net lease? How long is the initial term – and is there an option to renew? How much will the rent change if the lease is renewed? What happens if the business takes off and you want to move to a different location (or if the business is less successful than you’d like) ; can you terminate the lease early? Is there a penalty to do so? How much notice must you give the landlord if you want to leave? What happens if the landlord sells the building – must the new owner honor your lease, or can you be kicked out? These and many other questions are an important part of negotiating for terms that best suit the needs of your business. Many important terms are in the “boilerplate” sections that cause most normal people to fall asleep. But remember, lawyers are the ones who draft the boilerplate, so get a lawyer on your side.

Unless the space was used for the same kind of items you plan to sell or services you will provide, the space will need some remodeling to suit your needs. Who will pay for that? Tenant improvements are often paid for by the tenant, but sometimes the landlord will contribute, or allow a reduced rent while the space is being renovated.   These issues are typically addressed in the lease.

Try to find out what your jurisdiction requires when a new business is going into a space that will be put to a new use, so you can plan your budget and timeline as realistically as possible. What permits (if any) do you need simply because a different use of the space is planned? Is the space in a location that is zoned to allow the type of business you want to open, or would a variance have to be sought? Is it in an historic building that might have restrictions on what renovations can be done? How much work will be needed to make the space right for you (and what is it estimated to cost)? It is helpful to look into these sorts of issues and consider negotiating for an exit provision in case the building codes prohibit the renovations needed for your particular venture (or make it prohibitively expensive).

As you know, there are a lot of things to be done before ever opening your doors; level the playing field by hiring a lawyer on your team.

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Keeping Your Business Healthy With Legal Checkups

What is a “legal checkup”? It’s an annual checkup for your business.  Just as with your personal health, things change and checkups catch issues before they turn into serious problems.  A legal checkup is important in keeping your business healthy.

A.      Review Your Entity Status

Is your company’s “entity” status still the right form for you? If you are not incorporated, should you be? If already incorporated, have you been holding annual meetings among the owners? Have you documented action taken during the meetings? When you have a lawyer review your company’s documents, those loose ends can be addressed.

Thinking about adding a new member to the ownership team? Your entity documents should address this – Is a procedure specified?  There should be.  And if there is, the procedures must be followed or else there may be objections later on if disputes arise among the owners.  Think of documents such as your company’s by-laws (if a corporation) or operating agreement (if an LLC) as a contract between owners.  It may need to be updated to reflect new owners, changes you want to make in structure, etc.

If you are a single-member LLC, and are thinking of bringing in another owner, you need an operating agreement in place.

If your company is an LLC and you are planning to be taxed as an S-Corp, does your existing operating agreement reflect this?  There are a few things that can happen to cause your company to inadvertently lose its S-Corp status, and your operating agreement can help protect against that.  Your lawyer can address these issues and help keep your company protected.

B.  Licensing

Has your business changed, such that you are working with different kinds of customers?  If so, you may need a new license for the type of work you are now doing.

For example, if you are an interior designer, do you provide products to your customers? You may need a reseller’s license, otherwise you may be liable for sales tax for what is sold to your customers.

If you are in the construction trades and worked for another company (even as an owner), do you have the right license?  Do you now need a General Contractor’s or Specialty license in your own name? You may not be sure of what you are supposed to do.   Your lawyer can address this in a checkup.

Have industry requirements changed? Are you in compliance?  For example, for painters and remodelers, 2010 marked a big change, with the implementation of “RRP” rules (Renovation, Repair and Painting), applicable to work on buildings constructed before 1976.  The rules include specific precautions to contain possible lead dust. Washington’s Department of Commerce is enforcing the EPA’s rules on RRP and there can be hefty fines for non-compliance.  Sure, you may have your RRP certification, but do you have the right paperwork to give your customers?  You are working hard and don’t have time for the paperwork, but these things can be streamlined.  Your lawyer can help set up a process to make compliance easier.

C.  Contracts

Are your company’s contracts up to date?   Have there been any changes in caselaw or statutory law that might affect them?

Do you have a risk exposure that you were not previously aware of?  For example, if you are an engineer or an architect, did you know that recent decisions by the courts affect how well your contracts might protect you?

Do your contracts address issues that you are concerned about?  You may have learned from business experiences over the past year or two of a few issues that might be better addressed in your contracts – such as payment schedules, etc.

There are many other issues which come up with contracts, including making sure you know of important automatic renewal dates (is there a vendor you’re unhappy with? Don’t get locked into another contract term by failing to notify the vendor by the deadline); warranties and maintenance schedules (was a vender supposed to update your equipment annually? Has it done so?)

Who writes your contracts?  Is it a form that gets filled in a by a salesperson? What terms can the salesperson change?  Do you have an internal review process to make sure you are tracking what the salesperson is committing the company to do?

Determine whether there are business relationships not covered by a written agreement, but which should have a written agreement.  For example, are there long-time customers you started with on a handshake basis?  Family members with whom you initially felt squeamish about discussing business terms and contracts? Things happen. It’s prudent to get those relationships formalized in a written contract.

D. Leases

Leases are contracts, and have a full set of complications of their own. If your company is planning to lease space, it may need guidance on key issues. How long is the lease term? Is it automatically renewed or not? How much notice will you want to give in case you want to relocate?  Should the lease be assignable in case you don’t want to or can’t stay the entire lease term (otherwise you might be on the hook for the balance due on the rest of term if you terminate the lease early)?

If your company has a lease, review it to determine compliance with its provisions – e.g., must your company maintain certain kinds of insurance?  Who is responsible for basic maintenance of the premises?  Who keeps the sidewalk clear?  What is the condition of the property and is there anything that should be reported to the landlord for it to fix?  (notice requirements).  Think of it this way – if someone tripped and fell, who could be held liable? Depending on who had maintenance responsibility in the area where the customer fell it might be the landlord, or it just might be you.

E. Document Retention Policies

“Document Retention Policies” sound dry but are very important and can protect your business when a conflict arises.  Should your company have a document retention policy? What types of documents are used in the course of daily business? (are you a consultant with access to your client’s confidential information?).  Do you have to keep records relating to your employees even after the employee left? If so, how long?

These and many other issues are the kinds of things lawyers look at to keep their clients protected. You hate staying awake at night worrying about the things that can go wrong; good preventative maintenance relieves the worry and helps protect the bottom line.

Schedule a legal checkup today.  Contact the Law Offices of Susan K. Fuller, PLLC to get started.

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Why Your Small Business Needs A Lawyer On Retainer

You’ve owned a business for the last few years.   Things are going reasonably well; the company took a bit of a hit during the last couple of years, but things are stable.

Nonetheless, there are a few things keeping you up at night.  You wake up worrying about the employee who was upset at getting fired – will he sue?  Will he go work for a competitor and try to steal your clients away?  What about that customer who is disputing a valid bill – the amount is too big to write off, but the conversation is one you just hate having.  You’d like to expand operations or update some of your old equipment, but are not sure you can afford it, and are concerned that the seller wants a personal guaranty.   These questions or others like them keep you up at night, and eat at you during the day.   What to do?

Do what the big companies do – call your lawyer.  The big companies have a General Counsel on staff.  Your company is not as big as that, but if you’ve been smart, you’ve hired a lawyer on retainer to help you answer the questions that keep you up at night.  When you have a lawyer on retainer (often a monthly fee) you will usually not get a separate bill for each phone call.   The point of a retainer is to know you have a lawyer who will be available to you, without worrying about how much each call will cost.

A “retainer” is, technically, a fee paid to a lawyer to secure the lawyer’s availability for the client.  Typically, the amount of the retainer is proportionate to your needs.  So, for example, if your regular needs are about 1-2 hours per month (one or two questions, with some minor research the lawyer might need to do, and discussion of the answer), the retainer will be approximately equivalent to 1-2 hours of the lawyer’s hourly fee.    The goal is to have a retainer that realistically reflects your company’s needs.   Retainers may be adjusted periodically as you and your lawyer see how your needs are being met over time. However, note that in Washington State, a “retainer” is, strictly speaking, not compensation for legal services.  Your lawyer may charge a fee for work such as filing or defending a lawsuit, and other non-routine matters.  In many instances, a flat fee can be negotiated to address your company’s ongoing needs.

The advantages of a retainer become clear once you realize you have an open line to a trusted adviser.  First, you have a fixed monthly cost you can plan for.  Budgeting is clear and predictable.  Second, you can finally get those worrisome things off your chest and someone to help handle them for you.

Third, you will notice you start thinking more proactively about you business.  You can get that employee handbook updated; instead of using the contract you got from some competitor as your model, you can get your contracts reviewed and tightened by someone who knows your business, and finally get an explanation of what all that boilerplate means  (your old competitor’s contract won’t help you.  A lawyer on your team will).

Fourth, if you do get threatened with legal action or if some alarming issue suddenly pops up, your lawyer is already there and already knows your business.

Fifth, if your lawyer sees an issue requiring the assistance of someone with specialized technical knowledge (a tax issue?  Permitting authorities threatening to shut you down?), he or she usually has the resources to track down the right specialist to help out.

Think of the lawyer on retainer as your company’s own General Counsel, who takes the “counsel” part very much to heart.  Your attorney may know an excellent banker who is looking for good candidates for an SBA loan; or she knows a CPA who has a gentle touch for those who are loath to deal with the books; an HR specialist who can consult on how to set up your employee files and keep you advised on the latest L&I category changes and posters you have to display; a good commercial insurance agent who can shop around for the right policies for your business and its key personnel.   Your General Counsel can do more than simply bail you out of a crisis; your General Counsel can help your business thrive.

It’s a complicated world for small businesses, but with a lawyer on retainer you have a knowledgeable and trusted adviser looking out for your interests.  Do what the big companies do, and have a General Counsel there to help you out.

Located in Seattle/Greater Puget Sound area?  Call the Law Office of Susan K. Fuller, PLLC for an appointment.

© Copyright 2011 Law Office of Susan K. Fuller, PLLC

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Uh-Oh, My Company Has Been Sued – What Do I Do Now?

You just received a “Summons and Complaint”.  After recovering from the surprise, you see your company is being sued by a customer complaining your product did not work, or that they were harmed by the product, or that they slipped and fell in your store…or any number of other scenarios you can think of in which your business is being accused of doing something wrong.

There are two things to do right away:  (1) contact your lawyer, and (2) send a copy to your insurance agent.

1. Contact Your Lawyer

If your company already has a lawyer, let him or her know of the lawsuit, and send them a copy.  There is usually a 20-day deadline for responding to the Complaint, and you don’t want to miss the deadline.  If you miss the deadline and don’t even have a lawyer filing a Notice of Appearance on your behalf, you risk the Plaintiff getting a default order against you.  Best to avoid that.

2. Insurance

But even if you don’t have a lawyer, make sure your insurance carrier gets notified of the lawsuit. Usually the most efficient way is to have your insurance agent get it to your carrier.

Why get the insurance carrier involved at all?  Because when you opened your business one of the things you did was get Commercial General Liability (“CGL”) and/or other insurance.  This situation- a lawsuit – is something insurance is designed to address.

It is important to get the insurance carrier involved early in the lawsuit for many reasons, not the least being that for situations covered by your insurance policy, the carrier may provide you with a lawyer to defend you.  If that happens, you will not get a bill for that lawyer’s service – it’s part of what you get with your insurance.  This is a huge cost-saver for you.  The sooner you get the insurance carrier notified, the sooner a lawyer can be appointed to defend your company.

3. Reservation of Rights – What is it?

Sometimes when an insurance carrier agrees to pay for the defense of your company it does so with a “Reservation of Rights”  (“ROR”).   This basically means that if it eventually turns out the issues in the lawsuit are not something covered by the insurance policy, the insurance carrier “reserves its right” to stop funding defense of your company against the lawsuit, and/or reserves its right to refuse to fund a possible verdict against your company.  Because the insurance policy is a contract, the terms of that contract govern what is covered, and not all situations are covered by the policy.  Being defended under an ROR is not cause to panic.  Simply because an insurer defends your company under an ROR does not mean it is denying coverage.  But situations vary considerably, and it is important to have an adviser you can trust.

Note:  RORs are nearly standard in construction defect lawsuits.  If you are in the construction trades and your company gets sued for defects related to its work, chances are very high that if your insurance carrier defends you, it will do so with a Reservation of Rights.

All of this leads to back to step #1:

Call Your Company’s Attorney  (a/k/a “Personal Counsel”)

Lawsuits are confusing, and it is important to know you have someone watching out for your best interests. That is what your lawyer does.  If the insurance company appoints a lawyer to defend you in the lawsuit, that is great.  That person will work very hard on your behalf.

But it is important to know there are some limits on what the lawyer hired by the insurance carrier to defend you can do.  The insurance defense lawyer is required to focus on defending you against the allegations in the lawsuit, and their duty of loyalty is to you, the defendant/client. Because of this, he or she is prohibited by Washington law from addressing questions about what is or is not covered by your insurance policy.   Therefore do not be alarmed, surprised or disappointed if the insurance defense lawyer cannot address your coverage questions – the law does not allow them to do so.

Instead, your company’s attorney or personal counsel is the one who can address coverage issues.  An ROR can have serious implications, and it is important you understand from a trusted adviser what it means and what, if anything, you need to do to make sure your company is protected.

For the vast majority of situations, working with your insurance carrier is simple and straightforward.  The majority of cases are also defended without the carrier “reserving its rights”.   But there are situations that can be complicated and anxiety producing. Indeed, “Insurance Coverage” law” is a specialty in its own right.  Always remember you do not have to manage it alone.  Have a trusted attorney with you throughout the process.

© 2011 Law Office of Susan K. Fuller, PLLC