Making It Legal:

Life is short. Time is limited. So when you see that someone has phrased something “just right,” can you take it?  Even just a wee snippet? Aw, c’mon!

I came across the example of a consultant who wanted to use song lyrics in publishing her book. The U.S. Copyright Office said “ask for permission.”  A smart, safe, standard answer. But the consultant came upon one of those gray, somewhat subjective areas in the law called “fair use.” Many people interpret that to mean that if you take only a tiny bit, it’s OK.

It’s not.  Whether a use is, legally, a “fair use” depends on a number of factors:

1. What’s the purpose of the work–does it try to supersede the original?
2. What’s the nature of the work you’re taking–fact or fiction?
3. How substantial is the portion you’re taking (note that “substantial” doesn’t just mean “amount”; it could mean a key phrase or concept that connects people to the work–like riffs in music sampling or recognizable song lyrics).
4. What’s the effect on the market for the original work–and can the connection of your product to the work diminish the value of the original work?

Safest strategy is to ask for permission.  If the tables were turned, wouldn’t you want the courtesy of someone asking you for permission to use your work? And bear in mind that it may not just be “little ol’ author” looking out for infringement (in which case, you may be tempted to think you’ll fly under the radar). That “little ol’ author” could be represented by a major publishing house or agency, in which case you’ve not crossed the line with a mouse–you’ve crossed the line with a mammoth.

Consider, too, what you might be getting yourself into:

• Sued for copyright infringement
• Have to destroy all copies of the infringing work without compensation
• Pay damages to the original author
• Pay attorney fees
• Redo the work so that it no longer contains the infringing items

If you’re determined to proceed, consult with an intellectual property specialist to more closely evaluate your risks of getting embroiled in litigation. Otherwise, you could find that that little ol’ shortcut is going to lead you down a long, expensive road.

With the July Fourth holiday upon us, what are you doing to declare your independence? Have you found ways to streamline your business so that you’re not enslaved to repetitious drudgery?

One of the best-known phrases from the Declaration of Independence reads:

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.

Does your business bring you joy, as well as profits? Does it bring excitement to your life (the positive kind, not the anxious kind)? Are you counting each one of your daily victories? I tend to lump them all together, as in “I wrote blogposts today,” and then say that I accomplished only one thing.  But there are many other successes embedded in that single one:

• Each blogpost written is a single victory.
• Each colleague whose blog I tracked back to is a colleague whose relationship I strengthened.
• Each subject I spend time reading and researching is a quest for knowledge.
• As I love writing, the time I spent writing is time I spend in a task that I enjoy.

Speaking of profits, one way to ensure that you’re not enslaved to the drudgery of collection calls is to find and mind clients carefully. Are you taking on any client with a pulse? Have you told clients in no uncertain terms what your rates are?  If not, you’re at risk of staring down collections nightmares. Check out my program How to Train Your Clients to Pay You and put an end to the long days and sleepless nights!

Here’s hoping that happiness pursues you this holiday weekend . . . and throughout your business!

Q:  I have invented something that could almost be considered reinventing the wheel.  Here is my question.  If I built and used my own invention (not just a prototype), would I still have protection if I only have a provisional patent on it? I don’t want to manufacture it myself; I want to sell the idea to a manufacturer in the industry that it was targeted for. I also want to retain licensing rights to the invention.

A:  The short answer is this:  If you file a provisional patent but don’t follow up with a full application within one year, someone else could come along and grab the patent rights, and you could lose any opportunity to later file for the patent rights–regardless of whether you’re already using or selling the invention.

Selling or licensing the idea to a manufacturer could be a lucrative approach, but chances are that a manufacturer paying for those rights would want to know that they could be protected.  If your time clock is running to file the full patent, I’d strongly suggested that you consult with a patent attorney to get clear guidance on your next steps and ways to structure a sale or license of your invention.

What are the odds?  Is your business primed for success, financially?

If you’d like to know (and “knowledge is good“), then check out StartUp Nation’s “Success Calculator.”  Perhaps the most important question is “timeframe.”  It gets you to think about your real goals for your company and where you want to be in one to five years’ time.

Remember, the results don’t have to be a predictor–if you don’t like what you see, now’s the time to tweak to ensure you’ll reach your goals!

One of the key components of a strong business is making sure you always have “stuff” in the pipeline. As we move into summer and the (theoretically) warmer weather, there are lots of delicious options for networking. Outdoor terraces, harbor cruises, events in public parks–they’re a wonderful way to enjoy a bit of natural beauty in a more relaxed setting, while keeping your foot on the gas, so to speak.

Especially while the economy is a little shaky, networking intelligently can ensure that people remain interested in you.

How can you do that? According to Liz Lynch, author of Smart Networking and the Smart Networking Blog, people will be interested in you when you tell then what’s in it for them.

Let face it: As human beings, we’re hard-wired for survival. And we love stories. As Lynch points out, if you’re able to combine the benefits of what you do (which enhances the other person’s “survival”) and can do so with examples (stories), you’ll go a long way to making–and keeping–solid connections.

Today’s post deals with the conundrum, how to account for business expenses without a company bank account, and how to set up a company without business funds?

Q.:  “I recently formed an LLC to create an online store. Because I saved diligently I had enough money in my personal savings account to cover all setup costs for the company (ex: LLC formation, website development, logo creation, etc.). I have initially paid for all business-related expenses with my personal AMEX because I did not yet have a business bank account set up.

A lawyer told me that I would be able to account for the use of my personal AMEX/savings by issuing promissory notes from my business to my personal self. I wanted to know how you would suggest using my personal funds to fuel my startup and how I should properly account for this in my business books in order to keep my personal and business separate.”

A.: The attorney you spoke to had a good point: If you are treating the money you put into the company for startup as a loan and not as a capital contribution, a promissory note would be in order. Make sure you also provide for a reasonable interest rate–the IRS doesn’t look kindly upon no-interest loans. Somewhere between 4 percent and 6 percent is common–and state when the company will start making payments. In addition, you may want to have the LLC issue “minutes” (a brief write-up) acknowledging your contribution and confirming that the funds will be repaid.

However, as to setting up your books and deciding how much should be deemed a capital contribution and how much should be a loan (if any), it’s best to speak to your accountant. Definitely set up a separate bank account for the LLC.  Once that decision has been made, a bookkeeper can help you keep track of it.

Got 10 minutes?

For anyone starting and running a business, making sure that clients pay you on a timely basis is a huge consideration.  Check out this StartUp Nation podcast, “Training Your Clients to Pay You.” I’m interviewed by Rich Sloan, the co-founder and Chief Startupologist of StartUpNation.  The site also has a lot of handy information and step-by-step advice on starting a business, so be sure to visit.

I mentioned it last week, but now there’s a new reason to attend NYC StartUp on June 24: I’m one of the panelists at the conference.

I’ll be speaking on the legal side of “Do you have what it takes to get started?” identifying the major issues that entrepreneurs face when getting started.

The one-day conference is ideal for NYC-based corporate professionals looking to create a new business as wel as for existing business owners looking for greater levels of success.  Attendees will enjoy:

• Stories of successful NYC entrepreneurs

• Presentations by heads of all the NYC agencies providing funding and resources for new businesses

• The Next Big Idea Business Contest, where a panel of VCs and industry experts will review business plans

• Lunchtime table networking with VCs and industry experts from the green, media, technology and healthcare industries

• Practical experts giving hands-on guidance

Space is limited, so register today at westcoastgroupny.com!

Once again, I’m asked whether you can take what someone else has made and simply sell it to a new market . . . even (and especially) if the original manufacturer hasn’t had the wisdom to move into the new area.  Just think of the money they’re leaving on the table!

Unfortunately, in many cases, it’s their money to leave on the table.

Q.:  “I have developed several ideas of new markets for an existing product that the manufacturer is not currently selling into. They hold the patent on their product; the markets I see do not require any changes to the current product, so I cannot develop a new patent. Is there a simple way, perhaps a common contract that we both could agree to where I would be compensated for my ideas if they like them, and do end up selling into these new markets ?”

A.:  You may be able to work out a license agreement with the patent holder, but it would require your doing the legwork to sell the product in the new market. However, it’s not likely that they would pay for the idea to sell to the new market (”hey–why not sell your baby carriages to dog owners?”) unless you could back it up with a sound marketing plan, contacts and meaningful projected revenue. You’d also need to carefully screen whether the manufacturer has thought of the idea previously–it’s entirely possible that the manufacturer has already considered it and chosen not to move into the market you identified for lack of staffing/infrastructure or other reasons.

License agreements are not something you want to treat as an off-the-shelf item. Their terms can vary widely concerning how you get paid. Make sure you speak to an attorney in your state who understands product licensing so that you’re getting the counsel you need.

Do you know corporate professionals (working or laid off) in the New York City area who are considering creating a new business? Do you know existing business owners ready to go to the next level?

Then read on for this not-to-miss opportunity!

The NY Post is sponsoring NYC StartUp–a one-day event on June 24 featuring the stories of successful NYC entrepreneurs as well as presentations by heads of all the NYC agencies providing funding and resources for new businesses. There will also be a Next Big Idea Business Contest, where attendees will have their business plans reviewed by a panel of venture capitalists and industry experts.

Highlights of the day will include:

• NYC Economic Development Corp. and Deputy Mayor Robert Lieber on resources the city wants to provide
• Presentations by the CEOs of Clickable.com and Vault.com, the founder of DoubleClick, Joy Bauer of the Today show, the head of the Entrepreneurs Organization and many other successful entrepreneurs sharing their successes and mistakes
• Lunchtime table networking with venture capitalists and industry experts from the green, media, technology and health-care industries. Get ideas and find partners to join in business.
• Experts helping you think through “Do you have what it takes” to go out on your own?
• Don’t miss my colleague Sharon Melnick, Ph.D., a dynamic speaker and expert on helping busy and talented professionals get out of their own way.
• And much more guidance on how to get started and grow!

Space is limited, so register today at westcoastgroupny.com!

OK, so there aren’t many usable “Z” words in this context.    Today’s Basic Training post revisits that old, old lesson that you can’t just escape or quit your business by walking away.

Q.:   What are the ramifications if I walk away from my small business–just turn the keys over to the landlord and walk away? I paid the business loan off with a personal loan.  I have equipment at the site but no longer live in the state.

A.:  Walking away from your business is like walking away from a dead relative without having a funeral.  Someone has to dispose of the body–or, in your case, the equipment you’ve left at the site.  Someone has to wrap up estate matters–just as a business should be formally dissolved.  Someone has to take the time to handle outstanding debts–just as you now have this loan on your personal books that has to be paid.

There may be outstanding taxes, outstanding invoices, filing fees. If you walk away from the business, depending on your state’s laws, you may still be held personally responsible for these matters, regardless of whether you’re now living in another state. Do you have employees? Any recurring contracts (website hosting, other service providers)?  Any other regulations or notifications in connection with your particular industry? You may want to turn the keys over to the landlord, but the landlord may not accept that deal, in which case you’re still on the hook. Also, by not making sure you’ve tied up any possible loose ends, you run the risk of finding yourself embroiled in litigation you didn’t expect–especially if you personally have been hard to reach because you’re out of state.

Closing out a business needn’t be an onerous process–especially if there are few debts or assets involved.  But it does take at least some planning and forethought . . . to make sure you don’t get “zapped” by legal surprises.

In this challenging economy, I’m seeing a lot of entrepreneurs begin to re-evaluate their business  . . .  and, in particular, their business teams. When business is going well, it’s easy to overlook  the flaws and peccadilloes. Partly because we want to ride the prosperity wave.

But when the wave crashes, and you’re dumped onto the beach with the seaweed, the broken shells and the flannisters (you know, those plastic yokes that hold six-packs together), are you really shoulder-to-shoulder with a business partner you respect?

A Cautionary Tale (names changed to protect the ill-advised):

Dylan started a partnership five years ago after being approached by Pete, someone he “sort of knew” from his industry.  They verbally agreed to be 50/50 partners. Pete formed the company (in his name only), but p-r-o-m-i-s-e-d that Dylan would be put on the ownership papers as soon as they got investors. Dylan did most of the work; Pete put in most of the capital. But each time that Dylan asked about being included in ownership papers, Pete became indignant . . . with a “What–don’t you trust me?” attitude.  Eventually, Dylan got fed up and started exploring his rights.

Problem for Dylan is that without a buy/sell agreement (aka shareholders’ or operating agreement), Dylan’s in a bit of a pickle. Yes, Dylan can ask Pete to buy him out–or Dylan can offer to buy Pete out–but if Pete refuses to cooperate, Dylan has to go to court, which can get expensive and thorny.

An important first step for Dylan would be to speak to an accountant who understands business valuation to help value the company and its intellectual property. That does two things.  First, it provides reasonable numbers to work with when it comes to offering a buyout price. Second, it also helps gauge whether it will be worth the cost of litigating the matter, as there’s no point for Dylan to spend more in legal fees than he would get paid for his interest in the company.

Hindsight is always 20/20.  A buy/sell agreement at the outset would have alleviated a lot of these issues that will now be more expensive to resolve.