Small Business Matters

by Tom Makeig, a lawyer who serves entrepreneurs

About this blog

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Thomas H. Makeig, with offices in Fairfield, Iowa, is a 1981 alumnus of New York University School of Law and is admitted to the practice of law in Iowa and New York. This blog does not offer legal advice, which requires confidential personal communication with a lawyer. NOTICE TO THE PUBLIC: The determination of the need for legal services and the choice of a lawyer are extremely important decisions and should not be based solely upon advertisements or self-proclaimed expertise. This disclosure is required by rule of the Supreme Court of Iowa.

Wednesday, October 7, 2009

Q: What to do first? A: (a) hire a lawyer; (b) kill all the lawyers.

The answer, (a) or (b), depends on who you ask.  In Shakespeare's Henry VI, Part 2, a conspirator - imagining a utopian future once his faction comes to power - suggests, "The first thing we do, let's kill all the lawyers." The line was a winner with Elizabethan audiences.

If you ask Ellen Rozen writing in The New York Times Business Section, the answer is (a). Rozen's article makes a succinct case for putting the retention of counsel at the top of a new business owner's to-do list:

Step 1 in Starting a Small Business: Hire a Lawyer

When do you really need a lawyer? Despite the proliferation of both self-help books and Internet advice, when starting a business even the most sophisticated of businesspeople find ... that they need an individual lawyer to guide them through the most basic of decisions as well as the more complicated ones, like financing and property issues.
[T]he founders should consider the structure of the business — corporation or partnership. The structure chosen may depend on whether the entrepreneur expects to have outside investors in addition to friends and family members, and whether the client needs to limit liability while having the tax benefits of the gains and losses from the business, Mr. Gersz said.

Additionally, an entrepreneur should also consider whether there are key contracts needed to conduct business. Those ... can range from an agreement with a co-owner, a sales representative or an outsider, like a vendor or important client.

The business owner also should think about any intellectual property assets that will be used by the new company. At a minimum, product or company names should be researched online first, even though a lawyer should ultimately perform a trademark search. The owner must also think about how to protect other assets — designs or processes, for example — when starting up. While it may be simpler to contribute the assets to the business, Mr. Walsh said that licensing them to the business could be a better option, because “you can maintain some control over use of the invention.”

Two other related issues that most entrepreneurs overlook are exit strategies and succession.

My answer is a little different from Ms. Rozen's. Over the years I have found that new business owners' most immediate and costly mistakes arise from inadequate accounting and financial controls, so for a first priority I vote for retaining an accountant and bookkeeper to set up and manage your accounting system.  Once that's done, or as your accounting is being organized, then hire (not kill) the lawyer, for all the reasons Ms. Rozen suggests.

Friday, August 28, 2009

Don't fence me in!

The entrepreneur is creative and expansive: an outside-the-box, visionary, don’t-fence-me-in personality. If you wanted or were able to conform, you'd get a job.

A lawyer, perhaps by temperament and certainly by training, is a strategist and tactician and his form of warfare is conventional. A lawyer's greatest joy is to take an entrepreneur's unprecedented idea and give it a mundane structure that will conform smoothly to legal requirements and not break new legal ground. The lawyer is all about putting the expansiveness into boundaries.

All this can feel like a drag on your progress, but remember, your lawyer is not an agent of the Borg, relentlessly assimilating you into the Collective.  Your lawyer is protecting you from the Borg.

It may seem that your lawyer is trying to bring this great force of nature, your imagination, to heel when in fact he’s trying to set you free. Both contributions are needed for a business to succeed.
Thanks to Cathy Orpet for contributing this insight.

Thursday, August 27, 2009

Leverage your brand with Internet domain names

You should consider taking aggressive steps to secure Internet domain names ("URL's" or web addresses) that fit your brand even as you pursue trademark protection.  It's easy to shop for available URL's by using, for example, This website catalogs who is asserting ownership to any URL that you search, and it helps you to obtain the URL for yourself if it is not in use.

The primary target of your URL acquisition campaign should be URL formulations of your business name, your product name(s) and your tagline(s). You should also consider common misspellings, and you should check the websites of close variations that are in use to determine whether they are infringing on your trademark rights, or indeed, whether you may be infringing on theirs.  When you obtain a URL, the simplest use you can make of it is to point the URL toward your main website, a task you can easily accomplish yourself without the intervention of your IT consultant. You can embellish your use of the URL by creating special pages tailored to persons who are likely to seek out the URL.

Remember to keep your trademark lawyer informed of the steps you have taken to secure relevant domain names.

The limits of limited liability

A business owner should always conduct his or her business through a limited liability entity, typically a corporation or limited liability company. This ensures that under most circumstances the business owner will not be liable for the obligations of the company, and the owner's or owners' investment will be limited to money and property contributed to the company.

There are important exceptions to the rule of limited liability. A NON-EXHAUSTIVE list of business obligations for which the business owner can be liable includes

  • Payroll, sales and use taxes
  • Obligations that you have personally guarantied
  • Business torts (like fraud or intentional interference with another's business) committed by the company through the acts or omission of an individual or individuals
  • Losses of investors in the business if the company and its promoters have failed to comply with the registration or anti-fraud requirements of the securities laws.
Professionals (doctors, lawyers, accountants, architects, etc.) in most states also cannot eliminate their liability for professional malpractice.

A creditor can overcome or "pierce the corporate veil" (hold an owner responsible for an obligation of the company) under a variety of circumstances. The most common weapon for piercing the veil is an allegation of fraudulent transfer, meaning that the obligor (the owner in this case) made certain transfers of money or property from a limited liability entity under circumstances that left the entity unable to meet its current or anticipated obligations. For this reason, establishing your limited liability entity should be done carefully and EARLY, long before insolvency looms.

Schindler's short-list

"A man needs a good doctor, a forgiving priest and a clever accountant."
- Oskar Schindler,
Schindler's list

Oskar left out mentors, supporters and a good business lawyer, all of whom should be on any entrepreneur's short list.

Orlando Conference 8/27/09: Powerpoint presentation

View my powerpoint presentation to participants in the conference on entrepreneurship sponsored by David Stacey International, LLC, at Crowne Plaza Hotel Orlando August 27, 2009.

Choosing a name for your product or company

Naming your product, service or company is an important task that requires not only inspiration from you and your supporters, but also market research, a good branding specialist and a trademark lawyer. This is especially true if you are planning to introduce a product or service regionally, nationally or internationally.

A good name, as well as a logo, tagline and the look and feel of your product (its "trade dress"), identifies your product, distinguishes it from competitors, positions it within the marketplace (premium or discount, leading edge or reliable and proven, etc.), stakes out a mark that is exclusive to you and avoids infringing on someone else's mark.

Before you involve your branding and trademark team, do your own industry research, attend trade shows, spend hours researching your compeitors and customers online, talk to actual and prospective suppliers and customers, and talk at length with your mentors and supporters. If you are inexperienced in branding, get some general guidance from a branding specialist and read up on trademark law using guidance from Nolo Press or another reputable service. Also, do a "new user search" of the US Trademark Office "TESS" database of registered, pending and abandoned US trademarks and check the online databases of the secretary of state for your state. These databases are a good start and will flag some obvious conflicts (marks that are already taken) but THEY ARE NOT DEFINITIVE, as the trademark laws provide that under some circumstances an unregistered mark can have rights superior to the mark that you apply to register. 

Never rely solely on your search of the Trademark Office database: treat the results as preliminary and ask your trademark lawyer to conduct as close to a definitive trademark search as possible on your intended mark before you commit to it. You may learn that the exact mark you want is taken, or that a similar mark presents a possibility of conflict. Your trademark lawyer will also work with you in an effort to tweak your proposed mark to avoid potential conflicts.

When you do commit to a mark, you will want to register the mark with the US Trademark Office as well as in key overseas markets (if these apply). Filing an application appears simple and can be done using a service such as legalzoom, but you should follow your trademark lawyer's advice on this, because trademark examiners are increasingly following the time-honored practice of the Patent Office, which is to routinely reject applications with reasons given, in the expectation that the applicant will come back and negotiate amendments that will meet with the examiner's approval and result in registration of the amended application. This back-and-forth with the trademark examiner is best done by a trademark lawyer on your behalf.

Once you obtain your mark, use it consistently and follow your lawyer's advise on display, monitoring and enforcement of your mark.

Part of using your mark effectively is securing Internet addresses (URL's) that incorporate your mark.  See my post on this topic.

Who you gonna call?

If you educate yourself about the legal requirements of your business, you will acquire a good grasp of when to use an online service like or, and when you should get your lawyer's help.

For example, if you want to organize a corporation or limited liability company for your single-owner business, your lawyer or accountant can advise you on which entity to choose, with the main considerations being income-tax driven, but you may choose to organize the entity yourself through legalzoom or nolo or another on-line service rather than paying a lawyer to do it. Compare prices and make your choice.

On the other hand, if you are organizing a business with one or more partners or investors, read up on the subject - but consult your lawyer and expect him or her to prepare at least the most imporant documents that create your company, such as the shareholders or members agreement or investor subscription agreement. The reason for relying on a lawyer is that legal training and business law experience is especially helpful in helping business partners to formulate their mutual expectations, create an effective division of labor, allocate risks and rewards appropriately among partners, prevent unnecessary conflicts among partners, and offer "pre-nup" suggestions for resolving conflicts that do arise and achieve an amicable divorce if necessary.

When in doubt, call your lawyer and ask if his or her input is needed. A good business lawyer will not run up an unreasonable bill advising on when not to use him or her, and won't shrink from advising you to do for yourself and what not to do without help.

Appoint a general counsel

Even the smallest business is well advised to appoint a general counsel. Don't employ him or her in-house: overkill! Just form a relationship with a business lawyer, whom you keep informed about the plans and developments in your business. If a specialist is needed - e.g., tax, patents, government contracting - get your lawyer's input about whom to use or inform your lawyer whom you have appointed to give you that advice. This way, your business lawyer can coordinate their efforts to maximize effectiveness and minimize expense.

A good business lawyer knows how to (1) spot an issue important to your business that requires specialist advice, (2) frame the right input to and questions for the specialist using effective lawyer shorthand and (3) interpret the specialist's advice in the context of a thorough knowledge of your business and objectives. In this way the business lawyer, functioning as your general counsel, can achieve best results and maximum protection for you at minimum expense. By all means participate in conversations and be copied on correspondence between your business lawyer and the specialist: it's educational for you and it can save you money, because in the end, no one knows your business better than you.

Monday, August 10, 2009

What does an entrepreneur need from the law?

I met an entrepreneur from Kenya who told me that the number one need of every business is that the the government must promote the rule of law.

In the United States we get worked up over marginal tax rates, employer mandates, regulation and such. To my Kenyan friend, none of these are important. Being free from extortion, being able to enforce a contract in court and not having to bribe every high or low government official whose bailiwick touches one's business: These are the legal prerequisites to business success.

Puts things in perspective, doesn't it? Truth is, business can thrive wherever there is civil authority, relative peace, the rudiments of a justice system and civil servants whose primary agenda is not self-enrichment. (Remember last year's scandal over the BLM officials who partied at oil company expense while overlooking billions in lease underpayments? In many countries, this would be considered the norm.) Whatever our problems in the United States, our system of law and government make us the envy of entrepreneurs the world over.

The sales prevention team

Entrepreneurs love to hate lawyers. Their own lawyers are the "sales prevention team." Their adversary's lawyers are parasites ginning up claims on behalf of their falsely agrieved competitor, customer or vendor. Government lawyers embody all that bureacracy has to offer by way of obstacles to business success.

These views are widely held and provide a useful corrective to any lawyer who presumes to advise a businessperson. The lawyer serves his or her client best when the lawyer understands the client's business, appreciates the client's frustrations with legal processes, works proactively to help the client assume control of his or her own legal destiny, and works at minimizing fees and expenses.

Also, good clients make good lawyers. Good clients educate themselves (through discussion with the lawyer and through independent reading) about what is and is not possible in light of legal requirements. Clients serve themselves well by communicating diligently with their lawyer and involving the lawyer not only when execution is required, but when plans are being laid and strategy is being developed. Clients serve themselves best by making their expectations clear regarding both fees and anticipated results.

Saturday, August 8, 2009

Lead your legal team

Some lawyers complain about clients who try to be their own lawyers. They are out of their depth, they don't know what they are doing, they don't foresee the consequences of their legal efforts, etc. etc.

Twenty-seven years of serving entrepreneurs have shown me that business owners need to be their own lawyer, and then some. Educate yourself about the law as it relates to your business. Use excellent legal help sources available online and in bookstores, including and By all means use these resources to do your own single-owner incorporations, write your own simple promissory notes and file small claims.

At the same time, collaborate with your lawyer and keep him or her informed of the legal steps you are taking on your own, in case you need to take into account considerations that are unlikely to be foreseen without legal training and experience.

Most importantly, keep your lawyer informed so that he or she can help you strategize. Organizing a single-owner corporation or LLC in your own state is straightforward, but selecting an LLC over a corporation, or vice versa, and organizing it in your state rather than Delaware or Nevada, involve considerations that you may want to discuss with your lawyer.

Developing and implementing your business plan without a lawyer's input may seem penny-wise, but it can turn out to be pound-foolish. Develop a relationship with your lawyer that allows you to check in with your lawyer as developments occur and without being charged an arm and a leg. Your business lawyer would much rather charge you $150 for a successful planning session than $10,000 to clean up a mess that resulted from inadequate planning.