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Taking the Legal Temperature of Your Business By Renea Saade

For many, it is the quintessential American dream to run their own business. This is especially true for more and more women in our country. According to most measurements, the number of women-owned businesses is increasing at nearly twice the rate of new businesses owned by men.

Although this influx of women in business is exciting and inspiring, women business owners still confront a handful of obstacles regularly faced by most minority business owners. The most cited barriers include negative perceptions about their ability to run a business, differential treatment by customers and suppliers, and lack of access to capital.

To overcome these societal barriers, women usually have to work a bit harder than their male counterparts to build a solid reputation for themselves and a brand for their business, surround themselves with a reliable support network of friends and other professionals, and above all, remain persistent.

Unfortunately, tenacity and a positive attitude are often not enough to keep a business afloat. There are additional challenges that most women business owners face that can be avoided, or at least tackled head-on, by addressing certain legal issues. And although it is clearly better to address these possible legal issues early on, it is never too late to take a business’s “legal temperature.”

A list of the most common legal issues women business owners face is found below. While this list is not an adequate substitute for proper legal advice, it should provide women business owners with an initial “checklist” they can later review with a trusted legal advisor.

1. DETERMINING WHAT KIND OF CORPORATE ENTITY TO CREATE AND CREATING IT ON TIME.
Many women in business are not sure whether they should create an “S” Corporation, a Limited Liability Partnership, a Limited Liability Corporation, or operate as a sole proprietor doing business as (“d/b/a”) a particular business name. They also often fail to create the proper entity early on. Once the appropriate business entity is initiated, it is critical that all the necessary paperwork be completed (e.g., licenses, articles of incorporation, bylaws and/or managing agreements), formally recorded and updated each year.

2. DISTINGUISHING PERSONAL ASSETS FROM BUSINESS LIABILITIES AND PROTECTING BOTH.
Many women start their businesses using their savings, retirement funds or credit cards. It is also common for women to grant personal guarantees or other security in order to obtain financing for their business. This practice exposes women to unnecessary liabilities and prevents them from building a business credit history for the future.

3. CHOOSING THE EMPLOYMENT STRUCTURE FOR THE BUSINESS MODEL.
Deciding whether to hire independent contractors or employees can be difficult. Whether or not to make the owner an employee of the business is another tough decision. Often, the wrong employment structure is chosen and, as a result, the most appropriate employment policies and practices are not put in place early enough.

4. DECIDING TO USE NONCOMPETE, NONSOLICITATION, AND/OR NONDISCLOSURE AGREEMENTS AND WHEN TO ENFORCE SUCH AGREEMENTS.
Many women are hesitant to use noncompete, nonsolicitation, nondisclosure terms and conditions with their employees and vendors. Some women incorrectly believe that such agreements cannot be enforced even if they are in place. These agreements can be drafted in a manner that is fair to both the business and the other parties.

5. RECOGNIZING AND MANAGING INTELLECTUAL PROPERTY.
Recognizing and managing intellectual property is often overlooked by women in business. Before deciding on a trademark, a business owner must make sure it can be protected and does not infringe on another trademark. Once that is determined, it must be registered and protected in agreements with employees and business associates. Intellectual property should be reviewed at least annually, since businesses usually generate additional intellectual property as they grow.

6. IMPLEMENTING APPROPRIATE VENDOR AND CLIENT CONTRACTS.
Too often, women in business fail to put the terms of their business transactions in writing. Business owners sometimes hesitate to insist on a written deal, fearing that the other party will feel a lack of trust. All transactions of significance (irrespective of monetary value) should be documented in writing. Also, contracts proposed by vendors and clients should not be accepted without question. Owners should take the opportunity to negotiate more favorable terms. If an owner does not speak up for herself, who will? Usually, suggested changes are positively received. And, even if the other party refuses to accept the proposed change, at least the groundwork has been set for future negotiations.

7. ADDRESSING CONFLICTS THAT ARISE WITH FRIENDS HIRED AS EMPLOYEES.
Hiring friends as employees is a common approach taken by women business owners. Hiring friends is often easier than hiring strangers since their backgrounds are known and there is a level of trust already established. However, it is often difficult to make sure the friendship does not blur the employer-employee relationship to the detriment of the business. By setting out written vacation and sick-leave policies as well as performance expectations, conflicts and stress can usually be drastically reduced, if not eliminated.

8. ADDRESSING CONFLICTS THAT ARISE WITH PARTNERS AND INVESTORS.
Going into businesses or accepting investments from friends, families and business acquaintances presents the same risks and potential conflicts as does hiring friends. Again, the key to reducing and hopefully avoiding such conflicts is to be proactive. Business owners should talk about and plan for the “what if,” and then put that plan in writing from the outset.

9. LEARNING HOW TO NEGOTIATE APPROPRIATE TERMS AND CONDITIONS FOR COMMERCIAL LEASES.
This common pitfall is similar to the one concerning vendor and client contracts. Too often women in business do not consider their legal rights or investigate the current marketplace before signing commercial property leases. Business owners need to have all the information before they can weigh the pros and cons of signing a lease. Each lease should be read thoroughly and any term or condition that is unfavorable should be questioned. The worst thing a landlord can say to a proposed change is “no,” but at least then, the owner will have all the information necessary to make an educated choice on whether to sign the lease.

10. DETERMINING HOW TO APPROPRIATELY AND EFFECTIVELY HANDLE COLLECTION MATTERS.
Unfortunately, all businesses have to deal with outstanding accounts receivable. Learning her business’s legal rights and how to implement effective account origination and collection policies and practices is the best way for a woman in business to ensure success. With proper planning, outstanding accounts are a manageable nuisance, not an overwhelming problem that disrupts the success of her business.

Renea Saade is an attorney specializing in representing emerging and growing businesses. She leads a women in business group with other women attorneys in Schwabe, Williamson & Wyatt’s Seattle office. Renea can be reached at rsaade@schwabe.com and additional info about her firm’s group can be found at www.schwabe.com/womeninbusiness.aspx.

©2008 Caliope Publishing Company