I just read an excellent post on the StartUpNation.com blog about cost effective ways to market a startup business.  The post provides some excellent advice on how to come up with, and implement, a good marketing plan.  I use a few similar techniques in my law practice, and have had some success in doing so.  You can read a blurb from the post below, or you can read the entire post by clicking here.

How much should I spend on marketing?

The answer is: It depends.  What are your revenue goals?  What kind of business do you have?  For some companies, it might be appropriate to spend more than others.  The key is to have a budget and use it wisely.  For many smaller companies, low cost and no cost marketing strategies such as networking groups, social media, publicity and direct mail can be very effective.

What marketing strategies should I use?

Again the answer is; it depends.  Strategies will differ based on what your business is, who your customers are, and where they are, and what your revenue goals are.

Survey what other companies in your industry have done that has worked and hasn’t worked.  Ask your CPA to help you with a budget, and then stick to it.  And most importantly, measure the results of your marketing efforts to you can understand what is working and what is not.

Indianapolis attorney, Hannah Joseph, recently launched a new blog called FinePrintLawyer.com.  The blog takes a stab at an interesting niche – which Hannah describes as “…the legal angles of social media, marketing and advertising…common sense explanation of the tiny writing that clutters up all that nice marketing copy.”

Check it out!

I get questions from friends and clients all the time about what is and isn’t ok to post on a blog in terms of copyrighted and trademarked materials.  The answer is not all that easy to explain, but Indianapolis attorney Kenan Farrel has an excellent post on his blog that does a nice job of explaining the issue.  You can read the entire post here (A Legal Primer For Bloggers – Intellectual Property), but I have included a few highlights below:

On copyright law, fair use, and transformative use:

Keep in mind that the law favors “transformative” use.  In other words, if you’re reposting another person’s original work, it’s more likely to be fair use if you’re using that work in a different manner or for a different purpose than the original.  While you may borrow directly from another source, adding your own commentary and content is better than strict copying.  Likewise, it’s better to repost only a small portion of someone else’s work than the work in its entirety.

On what to do if someone contacts you to remove their work:

Also, on a practical note, if you’re using someone else’s text or images and they contact you to ask you to remove them, you probably just want to go ahead and do it.  After all, there are lots of different ways to express an idea and usually hundreds of equally wonderful pictures to adorn your blog.

On nomative fair use of someone else’s trademark:

…while trademark law prevents you from using someone else’s trademark to sell your competing products, it doesn’t stop you from using the trademark to refer to the trademark owner or its products. That is called “nominative fair use,” and is permitted if using the trademark is necessary to identify the products, services, or company you’re talking about, and you don’t use the mark to suggest the company endorses you.

Again, you can check out the entire post, as well as two other posting in his “Legal Primer for Bloggers” series here.

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Limited liability companies (LLCs) can be managed by either their members, or by a board of managers (board of managers is the term used in Indiana – some states differ slightly).  This is something that needs to be specified in the articles of organization for the LLC, and although the articles can obviously be amended at any time to change how the LLC is managed, it is an important decision nevertheless.

A member managed LLC is exactly what it sounds like – an LLC with its daily business managed by its members.  This is obviously not a big deal if you have one, or even two members.  Problems arise when an LLC has multiple members.  Typically, except as otherwise spelled out in a written operating agreement, all of the members will have the authority to act on behalf of the LLC (sign checks, execute agreements…etc).   This is not an ideal situation.

A manager-managed LLC, on the other hand, has its daily business matters managed by a board of managers.  This would be analogous to a board of directors or even officers in a corporation. Members elect the board of managers, and become much more passive in the operation of the LLC.  Members, of course, can also serve as managers.  The flip side of this, and another advantage to having a manager managed LLC is that you can elect managers that are not members.

Any LLC, regardless of whether it is member managed or manager managed should clearly define the authority of its members and managers in a written operating agreement executed by all the members and the LLC.   Check back sometime soon for a follow up post about how this should be handled and what things need to be considered.

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One recurring question I get from my business owner clients is regarding how to maintain ownership of their business entity in the event another owner disposes of his interest in the entity, whether it be a voluntary or involuntary disposition.  In the context of a corporation, this issue is typically dealt within a buy-sell agreement between the shareholders;  in the context of a limited liability company, buy-sell provisions are usually drafted into the operating agreement.  Any business that has multiple owners should always deal with this issue, in writing, before potential problems and arguments arise.  Most business people and lawyers will agree that dealing with these sorts of potential conflicts up front is the secret to long term harmonious relationships among business owners.

There are many many different ways a buy-sell agreement can manifest itself.   Below I have listed a number of questions that business owners should consider when planning for a buy-sell agreement.

• Should the mechanism to maintain ownership be redemption by the business entity or purchase by the other owners?
• Should the buyer of the interest be required to buy the transferring owner’s interest?  Or should the buyer merely have the option to do so?
• Should the non-transferring owners have a right of first refusal?
• What happens upon the death of an owner? What about the permanent disability of an owner?
• What happens if an owner divorces or declares bankruptcy?
• What happens if an owner wants to sell his interest to a third party?
• How is the price determined?
• How is the price paid?  Cash?  Note?
• Should the owners be required to maintain life insurance policies to fund the purchase?

These are just some of the issues business owners should explore when considering a buy-sell arrangement with other each other.  Of course, I recommend you retain knowledgeable and experienced legal counsel to help you through the process and to make sure your provisions are properly prepared.

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When people consider buying or selling a business, they will usually think of it is as a single, simple transaction – they “sell” the business and get lots of cash in return.  Not quite.  As with most things in the world of business (and through the eyes of lawyers), the process of buying or selling a business can be very complicated.  In fact, there are many, many methods in which to accomplish the “sale of a business.”  Below I have outlined the basic, most common methods used for selling a business.  I will be posting follow-ups to this post dealing with each individual method in the near future.

• Stock Sales.  In a stock sale, the buyer purchases the outstanding stock issue by the selling corporation – or in the case of an LLC, the outstanding membership interests. The buyer typically assumes all liabilities of the Seller, unless otherwise agreed by the parties.  The Buyer gets a carry-over basis in seller’s assets.  Seller’s shareholders will pay taxes on the appreciation in their shares. Sellers will usually prefer stock sales due to the advantageous tax position as well as the assumption of liabilities (creating a clean break for the seller’s shareholders).

• Asset Sales.  In an asset sale, the buyer purchases seller’s assets, and assumes only those liabilities that it agrees to assume.  Any liabilities not assumed remain the obligation of the Seller.  Typically the selling company with distribute the sale proceeds to its shareholders via a dividend.  With the exception of a pass through entity, the selling company will pay taxes on the asset sale, and the shareholders will pay taxes on the dividend. The buyer gets a stepped-up basis in seller’s assets.  Buyers usually prefer an asset sale to a stock sale.

• Mergers. In a merger, the target company (i.e. the seller) typically merges with and into the buyer company – which survives the merger.  This is typically accomplished by the buyer converting the stock owned by seller’s shareholders into the consideration given for the merger

• Tax-Free Reorganizations. Although there are many forms of a tax-free reorganization, the basic concept of a tax-free reorganization is that buyer pays the purchase price by using buyer’s own stock as the consideration, which results in a tax free transaction, except to the extent of any “boot” received by the seller’s shareholders.

Entrepreneurs are some amazing people, and create some amazing things – but they are not perfect.  Lots of entrepreneurs make mistakes - some fatal to their start-up business, some not.  The people over at YoungEntreprenuer.com have compiled a list of the Top 10 Mistakes People Make When Starting A Business.  I have seen a lot of these lists, but this one really hits the nail on the head based on what I typically see from start-ups.  The comments to that particular post have some very valuable information on this topic as well.  Here is a summary of the list:

1) Undercapitalization

The most common reason why new businesses shut down is that the owner runs out of money. Cash flow is critical to a start-up business. You could be profitable and still have to close your doors because your customers are taking too long to pay you. Cash is king in a startup venture and you need to prepare for it.

2) Not thinking survival.

Starting a business is all about survival. How do you stay around one more day so that you can learn more about your market and close new customers?

3) Maintaining Momentum

Many new entrepreneurs have ambitions to start a business so they create a website, try to make a few sales, go all out for a few months and then stop completely. Building a business is all about momentum. If you had 24 hours to spend on a business they would be put to far better use by spending one hour a day than for 24 hours straight.

4) Trying to do it all alone.

Nobody is perfect or has the skills to do everything themselves. You need to understand what it is that you bring to the table and what you need to surround yourself with. If, for example, you are very strong at inventing but don’t want to sell then you need to find a salesperson to help you.

5) Not hiring the right people, right away.

You should begin looking at who can be brought on board to help you from the first day of starting your company. There will be tasks in any business that you, as the owner, should not be focusing on if you hope to build any sort of sizable organization. Why are you doing admin work when you should be out closing customers, talking to the media, and landing new partnerships?

6. Doing it just for the money.

If you don’t truly love your business then you won’t be successful. If you read the stories of famous entrepreneurs and how they built their organizations you will find that it all comes down to the root of loving what you are doing.

7. Getting to year 1, past year 2, and into year 3.

Many entrepreneurs have a hard time getting to the end of year one. Typically it’s because they started the business on a whim and got excited about an opportunity but didn’t do the proper research. These entrepreneurs usually run out of money and close down after a few months.

8. Building the business around your preferences, not those of your customers.

The best way to make a lot of money quickly is to find a customer who has a problem and is willing to pay you to solve it – and then you go out and build the solution. Most entrepreneurs take the opposite mentality of “if I build it, then will come” only to realize that they’ve built it and nobody is coming. Instead of talking to customers as to why they’re not coming they decided to continue building and building. Soon they find out that they’ve invested years of work and nobody is interested in buying from them.

9. Not seeking mentors.

A great way to get a business going is to find out what other people have done to achieve success and implement those strategies into your own company. Find mentors who have knowledge of your industry and will give you time out of their day to help you.You could set up a formal board of advisers and compensate people for their time but if you’re a startup you can play on the fact that most entrepreneurs are willing to help out a fellow business owner as a way to give back. If you show genuine appreciation and approach the right people, the advice you get will help make or break your company.

10. Working under a rock and not getting involved in the community.

Countless opportunities are generated by connecting with other young entrepreneurs and finding out what they are up to and how you can help. You will get new business opportunities, partners, investment, media attention, ideas for productive tools to use, advice for your company, and many other resources that otherwise would take you years of trial and error to figure out (if you ever do at all).

For more information, be sure to check out YoungEntrepreneur.com.

About YoungEntrepreneur.com

I have been an avid reader and subscriber to Youngentrepreneur.com for awhile – far before I started writing this blog.  It is a fantastic resource with lots of entrepreneurial advice, business growth strategies, startup experiences and marketing tips.

The website was founded by brothers Matthew and Adam Torren, and there is a blog managed by Evan Carmichael. Of particular value is the blog author’s personal insight, derived from his own experiences as an entrepreneur.  I especially like the entrepreneurial advice which he shares based on his own experiences. The site also has an awesome and very active forum for entrepreneurs to share advice, discuss business, and network.

Their blog contains tons of great information for entrepreneurs. One of my favorite categories is Entrepreneurship University in which experts share advice and provide lessons – extremely valuable information. Another great feature is the entrepreneur profiles. This blog is a must-read for any young or young at heart entrepreneur.

Youngentrepreneur.com is a must read for entrepreneurs, start-ups and small business. I will continue to monitor is as a great resource – you should consider doing the same.

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One question I get from quite a few start-up clients of my business start-up law practice, is whether they should hire employees or independent contractors. After a brief discusion, those clients usually will opt to classify new workers as independent contractors instead of employees. This is mainly a cost saving decision. The costs attributable to hiring employees can be substantial, including workers’ compensation, unemployment insurance tax, social security tax and withholding and local payroll taxes.

A good start to identifying workers as independnt contractors vs employees is to have a properly drafted agreement signed in writing by the company and the worker, although simply identifying a worker as an independent contractor, even in a signed agreement, does not mean that the law will recognize the worker as such. The law will look to factors such as the degree of control and direction the company has over the worker. Misclassification of a worker can lead to obligations to pay back taxes, penalties, and interest payments.

If you are a start-up and have questions about how to classify your workers as independent contractors, make sure you seek the legal advice of a good business start-up attorney.

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It is no secret that a great deal of modern business is conducted via email.  What most people don’t realize is that an email exchange can be construed as creating a valid and enforceable contract, sometimes inadvertently.

If an e-mail or chain of e-mails clearly states an offer to enter into a transaction with all of the material terms, and the recipient / offeree responds by email accepting the terms, then it is entirely possible that an enforceable contract has been formed — without any printing or actual exchange of signatures.

With the adoption of the Uniform Electronic Transactions Act (“UETA”) in most states and the passage of Electronic Signatures in Global and National Commerce Act (“ESIGN”) by the federal government, the stage was set to allow contracting via email.  Each of these acts is based on the principle that electronic signatures carry the same legal effect as handwrittten signatures.

Both laws accomplish this by establishing a procedural approach to meeting “writing” and “signature” requirements:

1. A document or signature cannot be denied legal effect or enforceability solely because it is in electronic form;
2. A contract cannot be denied legal effect or enforceability solely because an electronic record was used in its formation;
3. If a law requires that a record be in writing, then an electronic record satisfies the law; and
4. If a law requires a signature, then an electronic signature satisfies the law.

Under ESIGN and UETA, parties must agree to use electronic signatures and records. Between businesses, consent to do business electronically can be established either explicitly or by implication based on the parties’ interactions

Federal and state law specify certain types of documents that cannot be signed electronically, including wills, trusts and estates; marriage, divorce, adoption, and other family agreements; court documents and filings; utility service terminations; eviction, foreclosure, and repossession notices; health and life insurance termination notices; documents referring to the handling or transportation of hazardous materials, real estate purchase agreements and deeds.  While this list will vary from state to state, generally these types of agreements require a writing, signed (in ink)by the parties.

What does all this mean?  Be careful in your email exchanges that contain the material terms of an agreement. If all you intend is to negotiate the terms and issues leading to a formal written and signed contract accepted by both parties, make sure that you explicitly say that in your e-mails. On the flip side, if you are trying to enter into a contract via email, there are safeguards to take to make sure you have a complete and enforceable agreement – which you should consult with your attorney about.  You could also check out an electronic document services such as DocuSign.

My technology law practice can help you deal with issues like this, along with other technology law issues including licensing agreements, e-commerce, and click-wrap agreement for websites.