How To Avoid 3 Common Legal Mistakes Small Business Owners Make

Marie Forleo: Hey, it’s Marie Forleo and you are watching Marie TV, the place to be to create a business and life you love, and this is kind of like Q&A Tuesday. I’ll tell you what’s going on. There’s a topic that hardly anybody talks about and it is so important. In fact, it’s so important that if you don’t get it handled, it’s the kind of thing that can take you and your business out. What I’m talking about is how to protect yourself legally, especially if you’re an artist, creator or entrepreneur. Now, you all know I am not a lawyer and nor do I play one on Marie TV. However, I have brought an amazing attorney and today who’s going to help me out, and this woman is incredible.

Marie Forleo: She is one of our B-School grads. She is so smart and she’s someone that I turn to when I need legal advice and counsel. Jo-Na Williams’ story began 15 years ago as a background vocalist for independent artists and it took a fortuitous turn when she was not credited or compensated for her work. As a result, she’s committed her life to educating and protecting artists and entrepreneurs through her work as a lawyer and business advisor through her companies; J.A. Williams Law – The Artist Empowerment Firm and Artist Empowerment Group. Her clients include Grammy nominated musicians, award-winning coaches, talk, show hosts, international speakers and bestselling authors.

Marie Forleo: Jo-Na, thank you so much for being here.

Jo-Na Williams: Thank you so much Marie. It’s so great to be here.

Marie Forleo: Well, I’ll tell you, I have wanted to cover this topic for a long time because we get a lot of questions about it and I know it’s a very big subject area and of course, we could sit here for days, but we ain’t going to do that. We’re going to keep it focused today about three main areas, really the most important areas that we need to get handled legally if we want to move ahead and really have a strong legal foundation. So the first is choosing the right business structure. What do we need to know, Jo-Na, about choosing the right business structure? How do we make that decision?

Jo-Na Williams: Well, first of all, Marie, I’ll just tell you, there are lots of misconceptions about this. Most people think that you should just jump and just register whatever. But the bottom line is, is that the most important thing that you need to know about having a business structure is that it protects your personal assets from the debts and liabilities of your company. So it’s basically putting a shield around you personally and allowing your company to contract with your clients or provide services and things like that. So you really want to make sure that you pick the right one for you and you don’t want to just jump to an LLC.

Jo-Na Williams: And that’s what most people do. They think, oh, business structure, perfect. I’ll just go register an LLC. But that might not be the best option for you because it depends on your tax situation. You may have kids, you may have other assets, your company might want to grow to a different level. So you really should just talk to an accountant and a lawyer to decide which one is best for you.

Marie Forleo: I love that. And just coming back to my own story, when I first started, I was terrified to even talk to a lawyer because I felt like, oh, I can’t afford that. So actually what I did was talk to my accountant. And that was the best thing that I did because exactly as you said, we went through my specific tax situation and you also asked me about where do I see the company going? And that’s how we made that decision. So I love that. So for people watching, it doesn’t have to cost that much money, right? I know that money is always the big thing. That was my big thing, oh, I can’t afford it. So when it comes to choosing your business structure, if you can’t necessarily afford to go to a lawyer right now, an account is a good choice.

Jo-Na Williams: I think that that is a really great option. If you decide that you can’t afford to have a lawyer work with you, then yes, talk to an accountant if you’re strapped for cash, and the most important entities that give you the legal shield are the C-corp, the S-corp and the LLC. So you want to speak to your accountant and find out specifically which one would actually work for you based on your tax situation. But I want to talk a little bit about the misconception about a lawyer being a lot of money.

Marie Forleo: Yeah, absolutely. Because I know that’s what holds so many of us back from even thinking that we can get all this stuff handled is I can’t afford it. So what do you have to say to people if that’s their excuse?

Jo-Na Williams: Well, as you know in our industry, it’s often that people want to pay for solving a problem versus prevention, right? And that’s all of us. When the stuff hits the fan, that’s when-

Marie Forleo: That’s when we’re ready to pay, of course. I didn’t want my dog to go pay for him to prevent him to get fleas, but once he got fleas, I spent hundreds of dollars to get rid of them and now of course, I want to prevent them from ever happening again. So same thing.

Jo-Na Williams: Yes, absolutely. And so I like to liken it to if you have a car, for example, you want to pay for regular oil changes, tire rotations and things like that so that your engine doesn’t break down. So that’s going to cost you a lot more money than if you were to just pay for preventative care. Or if you go to the doctor, for example, instead of going when you’re getting sick, just going regularly and getting your checkups and making sure that your health is okay. It’s the same thing with having a lawyer for your business because your business is its own entity, so it needs to be taken care of, right?

Jo-Na Williams: So it needs to have that legal health. So you want to make sure that you have a lawyer on your team, kind of like a doctor for your business.

Marie Forleo: Yeah. No, I mean it’s great. And that analogy because think about it, and I know this, as the business gets bigger, if you don’t have the right legal foundation in place, something happening legally can be fatal for your business.

Jo-Na Williams: Absolutely.

Marie Forleo: It can totally take you out.

Jo-Na Williams: And I actually had a client come to me a long time ago and this was the situation that happened with her, she didn’t get the right advising about her business structure and she ended up paying 50% of what she made that year in taxes. And it did shut down her business. So it was heartbreaking for me, but luckily we were able to take care of it. But you don’t want to have like that happening just because you weren’t able to talk to a lawyer or an accountant about the right business structure for you. So it’s something that’s really important to your business to make sure you get that handle.

Marie Forleo: Yeah. So what do we need to know about protecting our goods and services?

Jo-Na Williams: The thing that you need to know the most about this area is, if you don’t have something written down, you’re creating a bunch of verbal agreements with people that have no terms. So it’s really important that you have a service agreement and the service agreement is going to outline what you’re providing the person, what they’re obligated to pay. You want to make sure you have your return policy clearly outlined. And for people who are in high risk type of professions, you want to make sure that you have some type of disclaimer because it’s just as important to know what you’re going to be responsible for and what you do as a service provider and what you don’t do.

Jo-Na Williams: So for example, if you’re a health coach, you want to make sure that you have some type of agreement or some type of disclaimer in there that says, hey, I’m not a therapist. I don’t prescribe medication, X, Y, Z. So these are the kinds of things that you want. But it’s really important that you talk to a lawyer about this part of it because then they’ll be able to look at what are the areas that you are providing services in and how they can prevent against the ones that you aren’t. So it’s really important to make sure that you talk to an attorney about that part of it.

Marie Forleo: So do you have any idea like a ballpark figure of what someone could expect to pay to get a service agreement and these kinds of disclaimers in place?

Jo-Na Williams: I think it really just depends on the lawyer because some lawyers, they charge on a hourly rate and some of them charge on a flat fee. But what you want to do is interview the ones that you’re thinking about hiring and then ask them what their fees are and what’s associated with it, and then you can make your decision from there.

Marie Forleo: I love that. And I love this idea of interviewing several lawyers because I’ve worked with many in my career and I wish I would have done more of that because you can really get a good sense of how people interact and all that stuff. So perfect answer.

Jo-Na Williams: It’s a relationship. So you want to make sure that if this person is going to be the general counsel in your business and they’re going to help you with developing your business and understanding what you need as you grow, you want to make sure you have the right person doing that. So it’s important to interview.

Marie Forleo: Okay. So our final area today is about business relationships. And I think this is the one that you are the most passionate about. So what do we need to do to handle ourselves legally with our team or anyone that we’re doing business with?

Jo-Na Williams: Well, Marie, this is one of the areas that I absolutely love talking about because so often, it is missed in our industries, especially when you’re an online entrepreneur. You are hiring VA’s, you’re hiring different team members and it’s so important to make sure that all of your business and that your personal information is protected. So you’re exposing them to passwords, client records, all kinds of credit cards.

Marie Forleo: Credit cards, yes.

Jo-Na Williams: So it’s really important that you have some type of agreement in place that makes sure that they are not going to take that information and distributed outside of your company. So you need to have some type of independent contractors’ agreement and you need to make sure that it has a nondisclosure in it. And that means that you come into my business and you can’t take anything outside of my business when you leave.

Marie Forleo: Yeah. Thanks. Sweet heaven. I remember a little while ago when I first started getting all of my NDAs in place, I breathed a sigh of relief because I felt terrified. There’s a lot of sensitive information and a lot of new projects and ideas and book things. And I know maybe not as the best thing in the world that some of us I’m like, oh God, what if that gets out? But it made me feel so much better and always makes me feel so much better.

Jo-Na Williams: It’s so true. And also when you’re an online entrepreneur, most of us don’t have the privilege of seeing our teams or flying them in. So you really need to make sure that you have the right people in place and how you take a preventative measure, so to speak, is to make sure that you have something that they’re signing that makes sure that they understand what it is that they’re going to be providing you for services, how you’re going to terminate the contract in the event that they don’t work out, and all of these various different things like protecting your IP, for example.

Jo-Na Williams: So it’s really important to have that. And the other thing, if you’re in the United States, if you’re planning on paying someone over $600 in a given year, you want to make sure that you get their W9 form as well because you’re going to have to issue them what they call a 1099 form at the end of the year so you can write that income off that you paid them. And it’s really important that you do that because you want as much money as you can get in your business and you want to keep than you want to pay to Uncle Sam.

Marie Forleo: Yeah, you want to keep it all tight and right and above board. And obviously, W9, that’s appropriate for contract-based workers, right?

Jo-Na Williams: Absolutely, absolutely. And also, what I always tell people to do is get the stuff right up front. As soon as somebody comes to you and they want to work with you and you’re like, “Great, this is going to be a great relationship. I want to work with you.” First thing you do is send them the independent contractor’s agreement and then send them a W9 to fill out. Because if the relationship doesn’t work out and you decide that you don’t want to hire or do you don’t want to use them anymore and you want to fire them, it’s going to be really hard for you to get that form afterwards. So set it up.

Marie Forleo: That’s like a pro tip.

Jo-Na Williams: Yes.

Marie Forleo: That’s a total pro tip. I love it. Get it up front.

Jo-Na Williams: Get it up front.

Marie Forleo: Jo-Na, thank you so much for being here today, this was fantastic.

Jo-Na Williams: Thank you so much Marie. It was so much fun.

Marie Forleo: So if you want to learn more, everything is right down below. So Jo-Na and I have a challenge for you today. If you don’t have all your legal ducks in the row, what’s one step you can take right now to start making that happen? Tell us about it in the comments underneath the video. Did you like this one? If so, subscribe and share it with your friends. And if you want even more great resources to create a business in life that you love plus some personal insights from me that I only talk about in email, get those sweet buns over to marieforleo.com and sign up for email updates.

Marie Forleo: Stay on your game and keep going for your dreams because the world needs that special gift that only you have. Thank you so much for watching and I’ll catch you next time on Marie TV.

Marie Forleo: I have to tell you, it’s so funny. When I signed this lease and it said, no rap sessions, and I was like, I can’t sign this lease because I like to rap. And there’s like no nudity. I’m like, I can’t promise that either.

Marie Forleo: What you want?

Jo-Na Williams: What you want?

Marie Forleo: [inaudible 00:12:45]. My name is Mary. Don’t forget it.