united-1434437-640x480

Learn From Other’s Mistakes: 3 Practical Ways to Avoid Startup Failure – Part 3

In the final post of our series, “learning from others’ mistakes,” we discuss the importance of flexibility.
Set Goals, Not Expectations
 

If you’re running a startup, you’ve likely got big plans for your business.  In fact, we recommend that you develop a formal business plan that details how you would like to see your business develop in the next year, five years, etc.  Contained within that business plan are your goals for your business.  While we all hope our endeavors are successful, expecting them to be only sets us up to be disappointed.  That’s why it’s important to acknowledge the difference between goals (which are good) and expectations (which can be destructive).  Goals might be met, or you might fall short.  Not meeting expectations, though, can lead to disappointment.  Such disappointment often breeds poor judgment when making business decisions.

Don’t Quit…Adapt
 
Truthfully, the odds are high that you will fall short of your business goals.  Maybe it’s because the market isn’t as strong as you’d hoped or your launch was mistimed.  Maybe the product you’ve developed has flaws that need to be sorted.  Perhaps people on your core team are underperforming.  Or maybe your initial goals were unrealistic.  Whatever the reason, the key to successfully managing these shortcomings or unpredictabilities is flexibility.  Something that successful business owners recognize is that plans change.  Your willingness and ability to adapt to new circumstances and demands is a determining factor in the success of your business.
This post is not intended to be legal or tax advice.  Formeller & Formeller LLP’s Chicago startup attorneys have helped numerous clients form and operate their businesses.  Our skilled Chicago attorneys can help counsel you with employment issues and assist you with establishing proper employment hiring and employee management procedures.
Please contact our law firm today for a free legal consultation if you would like to discuss forming a startup or existing business operational issues.
commitment-1578037

Learn From Other’s Mistakes: 3 Practical Ways to Avoid Startup Failure – Part 2

In the first post of our current series, “learning from other’s mistakes,” we examined the first of 3 common mistakes that successful entrepreneurs avoid when starting up their businesses.  Next, we focus on choosing your core team wisely.

Don’t found your business with the wrong people.  

One of the first decisions you will make when starting a business is whether you will be doing it on your own or founding with partners.    If you pursue the latter route and decide to include additional founders, choose wisely.  Be cautious and deliberate when selecting your business partners.  The decision should be based on a variety of factors.  Being friends with each other or finding one another easy to work with should not be the only reasons you’re partnering with each other (though getting along with your partners is crucial to the success of your business).  Instead, ask yourself what each partner has to offer the business.  Assess your own skills.  What can you bring to the table: the idea?  The implementation of the idea? The business know-how? Access to a group of vital investors or business channels?  While you’re at it, assess your weaknesses.  If you know where you’ll need assistance in order to get your business running successfully, you can often narrow your pool of potential founding partners.  Working with those whose skills and assets complement yours will achieve a well-rounded team.

Surround yourself with the right teammates after founding the business.

Once your business has been founded and begins operating, thinking that you (and your founding partners) can do it all yourselves is a very common, but misguided operational approach.  Not only does that type of attitude lead to burnout, but it can actually hinder your success.  We touched on this thought in our last post: the idea of trying to save money by performing certain tasks or business functions on your own.  However, these tasks or functions are often important to the success of your business and should be done properly.

There are a lot of components to running a business.  A few examples are bookkeeping, technology set-up and maintenance, legal needs and risk management, intellectual property, human resources, and sales.  Surrounding yourself with the right team to execute these (and other) components not only makes your life easier, but it ensures that things are done properly.  We continue to stress that it is always better to have something done right – from the beginning and at a reasonable cost – than to have to bring someone in to clean up a mess (usually at a higher cost).

This post is not intended to be legal or tax advice.  Formeller & Formeller LLP’s Chicago startup attorneys have helped numerous clients form and operate their businesses.  Our skilled Chicago attorneys can help counsel you with employment issues and assist you with establishing proper employment hiring and employee management procedures.  Please contact our law firm today for a free legal consultation if you would like to discuss forming a startup or existing business operational issues.

Click here to visit the Formeller & Formeller LLP website.

Learn from Others’ Mistakes: 3 Practical Ways to Avoid Startup Failure – Part 1

More than half of first-time entrepreneurs fail in their first business venture, a portion of those failures are due to legal pitfalls and unnecessary exposure to litigation.  In this series, we examine 3 common mistakes that successful entrepreneurs avoid when starting up their businesses.  This week, we focus on spending money.

Spend money early on to save money in the long run.  

Most successful entrepreneurs will stress the importance of allocating startup funds carefully in the beginning because every cent counts.  Operating on a lean budget can really help a business owner in a pinch, but it can also hurt a business in the long run.  While it may seem sensible to stash your cash instead of hiring an outside expert or company to perform certain tasks or accomplish certain goals, the fact of the matter is that those experts and companies exist for a reason.  You likely can’t perform that task or accomplish that goal by yourself.

Our firm often assists entrepreneurs and business owners who have elected to try and save money by negotiating deals on their own, using a template agreement or implementing a “handshake deal.”  As a result, they pay significantly more after the fact to have our firm renegotiate a bad deal or review deficient contracts, or even litigate issues in court.  Had they hired corporate counsel at the outset to properly draft their agreements or negotiate the best possible deal, they would have saved money in both legal fees and lost profits, and could have avoided court altogether.

This advice isn’t unique to legal needs.  It applies to experts in other industries, such as tech developers, accountants, and marketing teams.  It is always better to have something done right from the beginning at a reasonable cost than to have to bring someone in to clean up a mess at a higher cost.

Bottom line: you’ve got to spend money to save money.

Next week, we will examine the second way to avoid startup failure: choosing your core team wisely.

This post is not intended to be legal or tax advice.  Formeller & Formeller LLP’s Chicago startup attorneys have helped numerous clients form and operate their businesses.  Our skilled Chicago attorneys can help counsel you with employment issues and assist you with establishing proper employment hiring and employee management procedures.  Please contact our law firm today for a free legal consultation if you would like to discuss forming a startup or existing business operational issues.

Click here to visit the Formeller & Formeller LLP website.

10-dollars-1425033

Common Mistakes Startups Make When Hiring Employees: Part 4

Last week, we examined the third in a series of mistakes that Startups commonly make when hiring employees.  (You can read that post here).  In the final post of this series, we examine another mistake Startups commonly make:

Violating Wage and Hour Laws.  

Once a startup hires employees, compensation becomes a chief issue.  One question we hear often is: how much should we pay our employees?  The answer to that question is generally up to the employer.  However, employees must be paid at least minimum wage.  Under Federal law, most types of employees must be paid a minimum wage of $7.25 per hour.  Some states have higher minimum wage requirements.  For instance, in 2015, Illinois increased the minimum wage, requiring private businesses to pay their employees a minimum of $8.25 an hour.  A related problem startups encounter is the failure to pay employees overtime.  Both Federal and Illinois law classify employees as either “exempt” or “nonexempt.” Exempt employees are generally salaried employees (as opposed to hourly employees) who are paid at least $23,600 per year and perform exempt job duties, such as executive, professional or administrative duties. Employees who perform “computer” duties under Federal law are exempt when paid at least $23,600 annually or at least $27.63 an hour.  All other employees are nonexempt and they are entitled to 1.5 times their regular rate of pay for time worked in excess of 40 hours in a week.  Therefore, it is important for Startups to track employee hours and to pay overtime.

Another issue is a startup’s failure to pay its employees timely and in-full.  As many startups commence with an unpredictable revenue stream, it is important to ensure that employees are paid according to Federal and Illinois law.  Illinois law requires employers to pay employees all wages earned at least semi-monthly.  Further, all wages are to be paid no later than 13 days after the end of the pay period in which the wages were earned.  Additionally, for employees who receive commission, employers must pay commissions at least once per month.  Failure to pay employees their full compensation can result in Department of Labor actions or private lawsuits for backpay and statutory interest and penalties.

Startups must ensure that they are in compliance with all wage and hour laws.  In addition to having severe consequences for the business, in certain instances, business owners themselves can face personal liability for violating wage and hour laws.  Startups should establish a proper timekeeping system with appropriate records.

In sum, all of the above-mentioned mistakes are avoidable and preventable.  Working with legal counsel to establish proper procedures and craft necessary documents and records is a good start to paving a relatively smooth path forward in running your business and managing your employees.

This post is not intended to be legal or tax advice.  Formeller & Formeller LLP’s Chicago startup attorneys have helped numerous clients form and operate their businesses.  Our skilled Chicago attorneys can help counsel you with employment issues and assist you with establishing proper employment hiring and employee management procedures .  Please contact our law firm today for a free legal consultation if you would like to discuss employment or operational issues.

Click here to visit the Formeller & Formeller LLP website.

teamwork-2-1236611

Common Mistakes Startups Make When Hiring Employees: Part 3

Last week, we examined the second in a series of mistakes that Startups commonly make when hiring employees.  (You can read that post here).  Now we examine another mistake Startups commonly make:

Mischaracterizing Employees and Independent Contractors.

When it comes to hiring, Startups commonly confuse employees and independent contractors.  While there are several distinctions between employees and independent contractors, the two most important distinctions are: (1) while employees are subject to wage and hour laws, independent contractors are not; and (2) the hiring of employees or independent contractors has different tax consequences for your business.

It is important to note that courts in Illinois employs a multi-factor test to determine whether an individual is an employee or independent contractor.  So, while you may label an individual as one or the other, Federal and State laws dictate what constitutes the individual’s employment classification.  As you will see with next week’s post, violating wage and hour laws due to the mischaracterization of an employee as an independent contractor can have disastrous consequences for a new business.

This post is not intended to be legal or tax advice.  Formeller & Formeller LLP’s Chicago startup attorneys have helped numerous clients form and operate their businesses.  Our skilled Chicago attorneys can help counsel you with employment issues and assist you with establishing proper employment hiring and employee management procedures .  Please contact our law firm today for a free legal consultation if you would like to discuss employment or operational issues.

Click here to visit the Formeller & Formeller LLP website.

chains-1209744

Common Mistakes Startups Make When Hiring Employees: Part 2

Last week, we examined the first in a series of mistakes that Startups commonly make when hiring employees.  (You can read that post here).  Now we examine another mistake Startups commonly make:

Failing to evaluate a new employee’s previous employment details.  

Here are some questions that may not be at the top of your list when hiring a new employee.  At the time of hire, is your new employee violating a noncompetition agreement that they agreed to with their previous employer?  Are they improperly soliciting clients from their previous employer?  Did they bring any intellectual property that would constitute a trade secret violation?  While a court may eventually rule that a noncompetition or nonsolicitation agreement is invalid, that doesn’t mean that your business doesn’t have to fund a defense for hiring an employee who originally signed said agreement.  Performing a simple audit of new hires can save your startup a lot of costs in the long-run if a new hire is shackled by previous covenants.

Next week we will examine the importance properly classifying employees and independent contractors.

This post is not intended to be legal or tax advice.  Formeller & Formeller LLP’s Chicago startup attorneys have helped numerous clients form and operate their businesses.  Our skilled Chicago attorneys can help counsel you with employment issues and assist you with establishing proper employment hiring and employee management procedures .  Please contact our law firm today for a free legal consultation if you would like to discuss employment or operational issues.

Click here to visit the Formeller & Formeller LLP website.

Common Mistakes Startups Make When Hiring Employees: Part 1

While most startups are formed by an individual or a small team of founders, they often plan to hire employees relatively quickly in order to grow their business and increase revenue.  Hiring employees isn’t as cut and dried as it seems.  Failing to comply with employment laws and regulations can have serious consequences for both new businesses and business owners.  Here is the first of four common employment mistakes made by new businesses:

Using Poorly Drafted Employment Documents and Agreements (or failing to use Agreements altogether).  

Often times, as an effort to save on costs and time, startups use improper “form” employment agreements and other related documents.  Worse, some startups fail to have new employees execute certain crucial documents altogether.  These business practices can expose Startups to all sorts of uncertainties and liability.  Proper employment agreements provide protection by clearly outlining the responsibilities and obligations of the employer and employee and by answering specific questions that can lead to future litigation if left unanswered.  For example, can a specific employee be terminated without notice?  Can that employee only be terminated for cause?  If the employee generates work product, who owns that work product?  These details are a few examples of what should be sorted out and clearly defined in a properly drafted employment agreement specifically tailored to your business and industry.

Next week we will examine the importance of an employer doing its due diligence in evaluating an employee’s previous employment details.

This post is not intended to be legal or tax advice.  Formeller & Formeller LLP’s Chicago startup attorneys have helped numerous clients form and operate their businesses.  Our skilled Chicago attorneys can help counsel you with employment issues and assist you with establishing proper employment hiring and employee management procedures .  Please contact our law firm today for a free legal consultation if you would like to discuss employment or operational issues.

Click here to visit the Formeller & Formeller LLP website.

Piercing the Protective Corporate Veil Part 4: Factors 10-11

The last post briefly analyzed the seventh, eighth and ninth of eleven factors that courts rely upon when determining whether an entity is merely an alter-ego of another entity or individual.  in this post, we will explore the final two factors:

10) Failure to maintain arm’s-length relationships

This factor is given substantial weight by Illinois courts.  Essentially, if a company is receiving a benefit that it cannot obtain on the open market because of an improper relationship, courts may heavily rely upon this factor in deciding to pierce the corporate veil.

11) The corporation is a facade for the dominant stockholders

This is an all-encompassing factor used by courts.  This factor allows courts to pierce the corporate veil even if some of the above factors are not met.

This post is not intended to be legal or tax advice.  Formeller & Formeller LLP’s Chicago startup attorneys have helped numerous clients form their businesses.  Our skilled Chicago attorneys can help counsel you on avoiding personal liability for your corporation or other limited liability entity’s actions.  Please contact our law firm today for a free legal consultation if you would like to discuss a new business venture or business ownership.

Click here to visit the Formeller & Formeller LLP website.

Piercing the Protective Corporate Veil Part 3: Factors 7-9

The last post briefly analyzed the fourth, fifth and sixth of eleven factors that courts rely upon when determining whether an entity is merely an alter-ego of another entity or individual.  in this post, we will explore the next three factors:

7) Division of assets from the corporate by or to a stockholder

Courts do not look favorably upon payments made to an owner that result in a harmed creditor.  This situation can have a strong impact on the court’s decision to pierce the protective corporate veil.

8) Non-functioning of the other officers or directors

This can be an important factor for courts’ analysis when it is determined that officers and directors merely hold their seat and do not actively engage in making company decisions.

9) Commingling of funds

Courts can pierce the corporate protective veil when they determine the occurrence of  a commingling of funds. Commingling occurs when company funds are transferred to a personal bank account or into another business’s bank account (or vice-versa) without a proper accounting as to why that money was transferred for a business purpose.

This post is not intended to be legal or tax advice.  Formeller & Formeller LLP’s Chicago startup attorneys have helped numerous clients form their businesses.  Our skilled Chicago attorneys can help counsel you on avoiding personal liability for your corporation or other limited liability entity’s actions.  Please contact our law firm today for a free legal consultation if you would like to discuss a new business venture or business ownership.

 

Piercing the Protective Corporate Veil Part 2: Factors 4-6

The last post briefly analyzed the first three of eleven factors that courts rely upon when determining whether an entity is merely an alter-ego of another entity or individual.  in this post, we will explore the next three factors:

4) Absence of company records

Courts will often look at whether the corporation or other limited liability entity maintains proper company records.  For instance, the absence of proper corporate tax returns, corporate bank accounts or written contracts which may be deemed to be necessary in order to transact business as a separate entity can be an important factor in a court’s decision to pierce the corporate veil.

5) nonpayment of dividends

Although not the most important factor if countervailing facts exist, courts may still pierce the corporate veil if dividends are not paid.

6) Insolvency of debtor company

When a plaintiff in a lawsuit attempts to sue an individual for a business’ debts, courts generally presume that if the business were solvent, it would pay its debts and that the plaintiff in a lawsuit would sue the business, not an individual.  Therefore, it follows that this factor is often construed in favor of piercing liability protection.

This post is not intended to be legal or tax advice.  Formeller & Formeller LLP’s Chicago startup attorneys have helped numerous clients form their businesses.  Our skilled Chicago business lawyers can help counsel you on avoiding personal liability for your corporation or other limited liability entity’s actions.  Please contact our law firm today for a free legal consultation if you would like to discuss a new business venture or business ownership.

Disclaimer

The purpose of this blog is to deliver news and information that are relevant to our areas of practice. The news and information reported on this blog represent the legal actions of attorneys throughout the United States. Our firm does not claim to represent plaintiffs or defendants in all of the lawsuits, settlements, and jury verdicts reported, only those noted as Formeller & Formeller LLP cases. This blog is not intended to be legal advice. Before considering legal action in a business matter, you should seek counsel from an attorney.