Making It Legal:

When is the right time to protect an idea? “About 10 minutes before someobody else tries to use it,” quipped an intellectual property attorney I know.

Budding entrepreneurs can become fixated on protecting their Next Great Idea. But, as Whitney Keyes points out in her post, “Avoiding Privacy Paralysis,” there’s a fine line to be drawn. Sometimes people are so worried about protecting their work from theft that they share it with very few and, as a result, it never gets seen/used/purchased. So you’re left with your pristine idea/product/work intact, but with nothing else to show for it.

An internet marketing mentor of mine takes the position that he would rather have his work shared by others than guard everything like a hawk and earn no money from it. [By the way, this guy "mints" money--I've seen his bank statements]. He finds other ways to have the money flow back to him–such as through affiliate links, etc.

A morbid thought as I’m sitting here blogging on the date of my wedding anniversary . . . but what would happen to my business if I got divorced? (I know the answer. What if it happened to you?)

Many business owners spend years of their lives trying to build a business, only to find that their spouse (or soon-to-be ex-spouse) wrenches it out of their hands, and they’re left with nothing to show for their years of hard work. For those who have started a company but not yet married, there are ways to protect it in a prenuptial agreement. (Or, depending on the laws of your state, with a post-nuptial agreement after you’ve married).

People shy away from prenuptial agreements for similar reasons (I think) that they shy away from business partnership agreements: They’re afraid that preparing one will jinx the relationship, and they don’t want to spend the money because they’re convinced that nothing will go wrong. “We’re in love.” Yup, so were the other 40 percent to 50 percent of couples who are now divorced.

Similar to furniture, cars and real estate, you can provide that what you brought to the marriage will be yours to take from it, should the big “D” arise. In many states, you have a much stronger claim to your educational degrees (and the earning power that results), investments and business assets if you created/accumulated them before marriage rather than during marriage (when it’s often seen as marital property, and should be shared). You may also be able to protect the increased value of those assets over time.

I know this sounds horribly clinical and detached. But not long ago a marital relationship was viewed to some degree as a business proposition and a property exchange. Traditional Judaism, for instance, has long instituted the ketubah, a form of premarital contract that was designed to ensure that the wife (usually entrusted with the running of the home and not earning her own money) would be provided for in the event of divorce.

I have a prenup. It doesn’t mean that I love my husband any less or that I don’t want to share the financial successes of my company. But I want that sharing to be on my terms, because I willingly give it and bring that to the relationship. Not because I have to. Raising the subject with my husband (then my fiance) was v-e-r-y difficult and awkward for me. (And I’m blessed that he was understanding and reponsive.) But it also gave me important training in raising tough topics with him–and plenty of those arise in marriage. We faced the issue head-on, discussed it, hired the lawyers, resolved it quickly and filed the document away. At most, the process took a little more than a month.

Consider it. You get insurance to protect your health and your belongings; why not a prenup to protect your business assets? There’s no harm in consulting with a matrimonial attorney in your state. You may well find that having these conversations with your “intended” about your expectations brings a well-needed clarity to your relationship that wasn’t there before.

Aside from the “two sets of books” scenario that provides the fodder for tabloid headlines and old movies, I tend to think of bookkeeping as, well, mundane (apologies to bookkeepers nationwide as well as to my own, Debbie, who’s a real firecracker). Not something sexy, just something that has to get done. Like brushing your teeth or doing the laundry. Ho hum.

But Lynnea Bylund’s May Intelligence Report made me think differently about it. (Lynnea happens to be co-chair of the President’s Small Business Advisory Council.) Just look at the legal (and other) problems that can emerge because of lack of proper bookeeping:

• Losing income because you haven’t kept track of who hasn’t paid you.

• Not qualifying for a business loan because you have nonexistant or insufficent financial statements.

• Over-paying taxes due to overlooked deductions.

• Not being able to sell your business because you have no measure of what the business is worth.

• Losing sleep from stress and anxiety.

• Setting prices at a level that you think is profitable, but actually isn’t.

• Getting into trouble with the IRS or state tax agencies because of missed or inaccurate tax payments, or the inability to provide supporting documentation.

• Deciding to rent and signing the lease for a larger office, but not being able to pay the lease after three months because your financial projections were inaccurate.

• Getting into legal trouble because you are paying someone as 1099 contractor when he or she is in actuality an employee.

• Not focusing on the work and growth of a business because you have no system to accurately monitor its financial health.

• Spending nights and weekends trying to manage the books yourself without sufficient training or software.

• Missing opportunities for business growth and development because critical information is missing or inaccurate.

From the people you love to hate, the IRS is offering a phone forum on Wednesday, May 21. All you need is internet access and a separate phone line. For registration information, visit the IRS Site.

Here is what the forum will cover:

Learn what you need to know as a small business owner:

• Classifying workers as employees or independent contractors as determined by law, not the choice of the worker or business owner;
• Depositing federal withholding employment taxes, called trust fund taxes, according to the appropriate schedule;
• Making quarterly estimated tax payments to cover your own income tax and social security self-employment tax liability;
• Keeping good records to protect your personal and financial investment and to make tax filing easier;
• Considering a tax professional to help you with Schedule C;
• Filing and paying your taxes electronically; and
• Avoiding abusive tax avoidance schemes such as the IRS’s 2008 “Dirty Dozen.”

There will be a question-and-answer session after the presentation. Be sure you register and get your pin number for access. Times are listed on the link as well. Sign up now and put yourself and your business on the right path!

Rolling around through the halls of Congress may be the latest bill to attempt to stop pirating, or knockoff, designs. It’s hard to say who’s helped (or hurt) more by this legislation. But, as Fortune Small Business reports, the Design Piracy Prohibition Act is sure to keep lawyers busy. For the time being, unless artists and designers can show that their designs were ripped off exactly, there’s great leeway given to “creative expression” . . .  even if it happens to look an awful lot like yours.

A little legal levity for a Friday afternoon. Enjoy!

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Advice from lawyers

George and Lenny decide to cross

George lets some hot air out of the balloon, which slowly descended below the clouds, but he still couldn’t tell where they were. Far below, they could see a man on the ground. George lowered the balloon to ask the man their location.

When they were low enough, George called down to the man, “Hey, can you tell us where we are?” The man on the ground yelled back, “You’re in a balloon, about 100 feet up in the air.”

George called down to the man, “You must be a lawyer.” “Gee, George,” Lenny replied, “How can you tell?” George answered, “Because the advice he gave us is 100 percent accurate and is completely useless”.

The man called back up to the balloon, “You must be a client.” George yelled back, “Why do you say that?” “Well,” the man replied, “you don’t know where you are or where you are going. You got into your predicament through a lack of planning and could have avoided it by asking for help before you acted. You expect me to provide an instant remedy. The fact is, you are in the exact same position you were in before we met, but now it is somehow my fault.”

From the BlawgIt blog of Iowa patent attorney Brent Trout comes this helpful post on the legal pitfalls of social networking. Many entrepreneurial bloggers use their blogs as an opportunity for product reviews. What’s not always known is that bloggers occasionally get paid for those product reviews. It make a difference, doesn’t it–knowing whether a review comes from someone completely objective or a paid promoter? If getting paid for your reviews were part of your business model, don’t you think that would color the kind of review you gave?

As Trout points out, the Federal Trade Commission has made it clear that if a paid endorsement “might materially affect the weight or credibility of the endorsement,” such endorsement must be fully disclosed. Trout goes on to talk about what constitutes “disclosure” and how you can be guided accordingly.

More naches and brag–this time on the issue of extending credit to customers. See Melanie Lindner’s piece in Forbes.com on “How Much Credit do Customers Deserve?” She and I talked about the changing economic climate (euphemism) and whether it made sense for businesses to extend credit to customers.

Whenever you extend credit (which occurs any time you don’t get paid at or before the time you provide your product or service), you take a risk of not getting paid . . .  at all. It doesn’t take a Harvard MBA to understand the negative impact that has on your cash flow.

One way to lessen the blow is to charge interest or late fees on outstanding balances. However, you can’t do this without letting your clients or customers know in advance–and courts won’t grant you interest (or late fees) unless they’re part of your written contract. So make sure you have this provision in your agreements . . .  and create a system for collecting debts so they don’t fester. The longer it’s outstanding, the less likely you are to collect the money that’s rightfully yours.

Did you know that yesterday was Law Day? I suppose that for many of you, the day passed with nary a whiff of the incredible celebrations to be had. Parades in the street! Inspirational speeches! Revelry! Bar associations around the country use it as a day to celebrate community and the importance that law plays in it.

50 years ago, May 1 was designated by a joint resolution of Congress as the official date for celebrating Law Day. Originally established by President Dwight D. Eisenhower (by proclamation), Law Day is a national day set aside to celebrate the rule of law and how the legal process contributes to the freedoms that all Americans share.

Before you start to tear your hair out about the ways that laws have complicated your life, take a moment to think about the ways that law has made our society great. People from all over the world risk life and limb, and leave their families behind, to come here. Laws contribute to this being the “land of opportunity.”

Law Day is not just a day to make lawyers feel good about themselves–if you think about what the world was like in 1958, when Law Day was first established, we had emerged from the ashes of World War II, seen two wars in the Middle East, gone in and out of Korea and watched the French get defeated in Vietnam. The U.S. Supreme Court case Brown v. Board of Education (”separate does not mean equal”) had been decided only a few years before and opened the door to significant social change in this country. Law was (and can still be) a way of righting a terrible imbalance of tyranny and unfairness.

We may debate whether laws are wise, necessary or fair, but few would dispense with them altogether. We use laws both to provide our freedoms and to protect our freedoms.

And now, I’m free to get off my soapbox and enjoy the rest of the day!

From the Department of Naches (Yiddish for “joy”) and Brag, I was interviewed by Forbes.com on one of my favorite subjects: business partners. How to choose them, what to look for and what to put in your business partnership agreement (or shareholders’ agreement or operating agreement–whatever the form of your business).

One of the tidbits I’m really glad made it into the article, “What to Look for in a Business Partner,” was the one stressing the importance of checking your partner’s credit history. It sounds “not nice” to ask such prying questions, doesn’t it? Here’s an ugly way the partnership can play out (I’ve seen it happen) if you don’t:

• Your company needs a bank loan. The bank checks the credit history of all owners (count on it). It refuses the loan because of your partner’s shaky credit history.
• You seek outside financing elsewhere. You can get it (e.g., credit lines) but your partner can’t (because of said credit history). To do so, you 1. mortgage the house or 2. provide a personal guaranty for the credit lines.
• The business needed more than your one credit line could provide, and now you’re both tapped. The business goes under. Guess who’s on the line to pay back the debt? Answer: It’s not your partner.
• Your partner is a slow (or no) payer when it comes to reimbursing her share of the debt. Does the bank or credit agency care? Answer: No. It’s your good credit that could be adversely affected if you don’t have the wherewithal to meet the monthly payments yourself.

Still think it’s “not nice” to ask about credit history?