GETTING STARTED
Tips for Survival
© Jay E. Simpson 2001
Who am I?
Jay E.Simpson
Office: 952-937-8556
Fax:
952-937-8820
jaysimpson@mn.rr.com
Business Law Specialist & General Counsel
“Providing Solutions for the Life of Your
Business”
© Jay E. Simpson 2001
What Is My Story?
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2000-Present JAY SIMPSON, LLC
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1998-2000 Senior Counsel, Jostens, Inc., Bloomington, MN
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1997-1998 Contract General Counsel, American Chiropractic Network,
Inc., Minnetonka, MN
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1994-1997 General Counsel Zeos International, Ltd., Minneapolis, MN
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1993-1994 Of Counsel Contract Attorney with O’Connor & Hannon,
Minneapolis, MN
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1989-1993 Assistant General Counsel and Assistant Secretary,
DataServ, Inc., Eden Prairie, MN
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1985-1989 Corporate Counsel and Corporate Secretary, KeithStevens Incorporated, Eden Prairie, MN
© Jay E. Simpson 2001
Today’s “Presentation”
• Five Common Legal Structures
• Practical “TIPS”
• Contracts 101
• Questions
© Jay E. Simpson 2001
CHOOSE YOUR TEAM
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People in the Business: Experience, Marketplace
• Academics
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Lawyers
• Accountant/Tax
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Marketing/Sales
© Jay E. Simpson 2001
“A Guide to Starting a Business
in Minnesota”
Minnesota Department of Trade and
Economic Development
651-296-3871 or 1-800-657-3858
Updated each January
IT’S FREE!
© Jay E. Simpson 2001
Five Common Legal Structures
• Sole Proprietorship
• Partnership
• Regular Corporation (C-Corporation)
• S-Corporation
• Limited Liability Company (LLC)
© Jay E. Simpson 2001
Sole Proprietorship
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Simplest Form of Legal Structure
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You and the Business are the Same
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Business Licenses (if applicable)
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Register Business Name (if not owners first and last)
Federal and State Tax ID Numbers if Employees
Unemployment Comp Tax Number
Workers Comp Insurance
• Sales/Use Tax (if applicable)
• Unlimited Personal Liability
© Jay E. Simpson 2001
Partnerships
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General Partnership: 2 or More People
Share Equally the Right and Responsibility to
Manage
Each Partner is Responsible for all Debts and
Obligations
Any Partner Can Legally Bind the Partnership
Requires Federal and State Tax ID Numbers
Partnership Not Taxed, Must File Annual Federal
and State “Informational” Returns with IRS/MDR
Unlimited Personal Liability
Partnership Agreements: STRONGLY
RECOMMENDED
© Jay E. Simpson 2001
Regular Corporation (C-Corp)
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Separate Legal Entity Owned by One or More
Shareholders
Board of Directors Responsible for Management and
Control of the Corporation
Limited Personal Liability: Corporation is Responsible for
Debts and Obligations
Corporation Federal and State Tax ID Numbers and
Unemployment Comp ID Number
Corporate Formalities
Issue Stock
Corporate Minute Book
Shareholder Records
Books of Account
Initial Meeting of the Board of Directors or
Shareholders
Must File Corporate Tax Returns for Both Federal and State
DOUBLE TAXATION TRAP
© Jay E. Simpson 2001
S-Corporation
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S-Corp is a Separate Legal Entity from the
Individuals who Own or Operate it
Unanimous Shareholder Election to be an S-Corp
(IRS Form)
Limited Personal Liability
NO DOUBLE TAX: Taxed at Individual Shareholder
Rates
Statutory Animal
Not More than 75 Shareholders
No Non-Individual Shareholders
No Non-Resident Alien Shareholders
Only One Class of Stock
© Jay E. Simpson 2001
Limited Liability Company (LLC)
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Limited Personal Liability Like a Corporation
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Business Income and Loss are passed onto the
Owners of the Business
• Articles of Organization vs. Articles of Incorporation
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Formalities Similar to a Corporation
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Many S-Corp Restrictions do NOT apply
© Jay E. Simpson 2001
Insuring Your Business
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Required for Most Types of Business
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Get Property and Liability Coverage to Protect
Yourself from Common Claims
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“Errors and Omissions” Policy
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Keep Costs Down with High Deductible Policies
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Home Insurance Policies MAY NOT Cover Business
Property and Liabilities
© Jay E. Simpson 2001
Elevator Story:
What Do You Offer?
• Write Down Offerings
• One Minute - Practice
• References: Who are they? What did
they say?
© Jay E. Simpson 2001
How Can You Be Reached?
• Be Accessible
• Return Calls
© Jay E. Simpson 2001
Getting Clients/Customers
• Tell Everyone
• Join Trade Groups - - - - Get Connected
• On-Line
• Web Page
© Jay E. Simpson 2001
PRICING: Do Your Homework –
Know the Range
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Identify the Competition
Competitor Offerings and Pricing
Experience
Unique/Special Skills
Low, Mid-Range, Upper End Pricing
Strategies (know yourself)
• Be Reasonable
© Jay E. Simpson 2001
CONTRACTS 101
Put “It” in Writing
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Good idea to put your “deals” into writing
(“cocktail napkin”)
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Read the “contract”
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Develop your own Mutual Confidentiality/NonDisclosure Agreement
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Develop your own “standard” agreement
• Ask for it (Thanks, Mom!)
© Jay E. Simpson 2001
Warranties I
• What should you agree to:
That the deliverables will “substantially”
comply with the specifications
- That you have the right to perform the
services and deliver the goods free from
any third party claims
• Disclaim implied warranties
• Disclaim warranty of merchantibility
• Disclaim warranty of fitness for a particular
purpose
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© Jay E. Simpson 2001
Warranties II
• What shouldn’t you agree to:
- That services, software or deliverables will
be “error” or “bug” free
- That the services, software or deliverables
will meet the client’s “needs” or “
“objectives”
- That the services, software or
deliverables will be free from defects in
materials and workmanship
© Jay E. Simpson 2001
Limitation of Liability
• ABSOLUTELY ESSENTIAL!
- Disclaim “INCIDENTAL,
CONSEQUENTIAL, INDIRECT AND
SPECIAL DAMAGES”
- Limit damages to cost of performing
services and/or delivering goods
- Make sure that Limitation of Liability
is separate from warranty obligations
© Jay E. Simpson 2001
Audits
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IRS: Are Personal Expenditures being Claimed as
Business Expenses?
Separate Checking Account and Credit Card for
Business
NEVER USE BUSINESS ACCOUNTS FOR
PERSONAL EXPENSES
Maintain Vehicle Log of Business vs. Personal Use
Education Expense is deductible if Related to your
Current Business, Trade or Occupation
Meals 50% Deductible
Maintain Accounting Records for at Least 6 Years
No Receipts Required for Items Under $75.00 –
Reasonable, Ordinary and Necessary
© Jay E. Simpson 2001
SUMMARY
• Assemble Your Team
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Get Set Up
Tell the World
Written Contracts are Good
Do what you Enjoy, and never Work a
Day in your Life
© Jay E. Simpson 2001