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Lynnmarie A. Johnson, JD, CPA

4488 W. Bristol Rd.
Flint, MI 48507

Office: (810) 820-2791
Fax: (810) 820-2794

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Legal Issues in Starting a Business


While you may not have the answers or the knowledge of all of the following issues, a successful business person must be aware of them and know where to find the answers. Most decisions allow you to select one of the choices. Other issues are traps to avoid and safety nets to have. An education on all of these areas could be a semester length class, but you should be ready to ask for help if any of these areas arise in your business effort.


Ask these questions:

Why will people leave another business and come to my business?
How could I describe the majority of my customers? (How do I advertise if I cannot describe them?)
Can I spend at least 30% to 40% of my time non-productively promoting my business?
How long will it take and how much money will it cost before I begin making a profit?
What do YOU have to lose in starting a business?
What type of liabilities or insurance is expected?
Can you protect your personal assets or "pledges"?
What about your home? (Can it be transferred out of your name?)

What type of business entity is best for you?
Sole Proprietorship is best for 90% of the owners starting out. (Plan to incorporate)
Unwritten Partnerships are the biggest cause of failure for business start-ups. Get a written agreement on sharing the work and money if one of you leaves, gets sick or quits.
Limited Liability Companies are usually the best as soon as you can afford to do so. It allows you to add shareholders or use it for estate transfers.

What are the liabilities in borrowing money or joining with investors?
Have a written agreement on how you value their interest or buy them out?
How much control do they(or their ex-spouses or estates) have?

Attention to Income Tax concerns can make the big differences in success.
Tax Liability
Transferring assets to your business
Home based businesses

Living Dangerously or buying an existing business. It is normally a sure recipe for disaster.
Purchasing 70% of assets is a "Continuation" even if the business was closed down
Bulk Sales Transfer Act.  You must give notice to avoid unknown debts.
Hold Harmless agreements (if there is a solvent seller.)
Michigan Treasury Release
MESC notices and withholding liability if not closed for three full quarters


Can Insurance protect me from lawsuits?
Your most valuable legal insurance policy - a file cabinet called a "paper trail."
It is hard to hook a big lawsuit in murky waters where you provided a release.
The "$5,000 retainer" case that the other attorney will describe still wins for you.

Business Associations are an unquestionable resource and legal form supplier.
What is a "Legal Issue"? -- "There is a enough money or business time at risk."
NEVER leave a customer angry.  They sue to get even, not because it did not work.
How to deal with a government agency? Be Nice! Ask Questions! Be Stubborn!
Prepaid legal services or selecting an attorney
(Look for experience in similar matters, and does he or she speak your language?)
Consumer Protection Laws do not require that you intend to violate them.


Bankruptcy and Security Interest Overview:
Chapter Seven - liquidate all nonexempt items and pay all the debts with what is left, now.
Chapters Eleven or Thirteen - continue in business and pay a little as you go
Security interests and liens - Construction Lien Act and Uniform Commercial Code
Uniform Commercial Code Presumptions can be written out of a sale.

Anything that you say, show, write or do can be used against you in court as a Warranty
A "Confirmation Letter" is evidence of agreement unless there is a response disagreeing.
Actual warranties are promises that you or the manufacturer made orally or in writing.
Implied warranties are, that it is going to work as well as a normal product would and it will work for the specific use you recommended to for the consumer.
"Liquidated Damages"  You only get a new roll of film or a specific dollar amount.
Limited warranties - You must state what is not covered.

What is a contract?
A legally enforceable promise where two parties, who were able to agree, agreed as to the legal subject and the terms while giving, or giving up, something valuable.
Personal Liability or corporate liability?
How do I break it or declare it over and finished?

Employment Laws - Do you want "Employees" or "Independent Contractors"
Tax Withholding
Unemployment Taxes

RULE ONE:Keep 'em happy!
RULE TWO:Keep a good paper trail.
RULE THREE:Watch out for the sharks - or nobody is selectively dishonest, and if it is too good to be true - it is not true.  Do not invite the sharks to lunch!
RULE FOUR: Always trust your instincts, first and last!

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© Lynnmarie A. Johnson, JD, CPA • All Rights Reserved.

Any information that you obtain at this site is not, nor is intended to be, legal advice. Before taking any action based on this information, you should first consult an attorney in your area about your specific situation. No Attorney-Client relationship is formed unless it is first agreed upon in writing.

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