the california entrepreneur’s guide to surviving your ...€¦ · the california entrepreneur’s...

THE CALIFORNIA ENTREPRENEUR’S GUIDE TO

SURVIVING YOUR FIRST YEAR

Kristen Hayes Kuse and ann Penners Bergen

Avoiding the Top Eight

Legal Mistakes That Can

Capsize Your Business

Disclaimer

the information contained in this e-book is not intended to be legal advice. no attorney-client

relationship has been formed by your reading of this book. nor are you our client or we your law-

yers just because you use some or all of our suggestions to move your business forward. We don’t

know the exact facts of your case or your situation and therefore cannot give you specific advice

about that. you should always confirm with your lawyer whether the information contained in

this e-book applies to your situation. accordingly, this e-book is to be read as a means to raise

potential pitfalls and how to avoid them. no legal advice is provided here.

if you need the services of an attorney, please contact us at www.integratedgeneralcounsel.com

(925) 399-1529 (Kristen) or www.pennersbergen.com (626) 463-7361 (ann) and we can discuss

how we might be able to help you or refer you to someone who can help you.

©2011 Kristen Hayes Kuse and ann Penners Bergen. all rights reserved.

3The California Entrepreneur’s Guide To SurvivinG Your FirST YEar

TABLE OF CONTENTS

introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Chapter 1 – Have a Working Knowledge of some of the

Basic Laws regarding your Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Chapter 2 – getting the advice that you need to start upand

run your Business the First year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Chapter 3 – Choose the right entity through Which to Operate your Business . . . . . . . . . . . . . . . 16

Chapter 4 – Write Down your agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Chapter 5 – take Care of and Protect your intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Chapter 6 – avoid starting a new Business While employed by a Potential Competitor . . . . . . . 28

Chapter 7 – Make the right Decisions in Leasing your space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Chapter 8 – Protect yourself and your Business against the unknown . . . . . . . . . . . . . . . . . . . . . . . 37

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

about the authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Kristen Hayes Kuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

ann Penners Bergen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Contents

taBLe OF COntents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Chapter 1 – Have a Working Knowledge of some of the

Basic Laws regarding your Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Chapter 2 – getting the advice that you need to start upand

run your Business the First year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Chapter 3 – Choose the right entity through Which to Operate your Business . . . . . . . . . . . . . . . 16

Chapter 4 – Write Down your agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Chapter 5 – take Care of and Protect your intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Chapter 6 – avoid starting a new Business While employed by a Potential Competitor . . . . . . . 28

Chapter 7 – Make the right Decisions in Leasing your space . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Chapter 8 – Protect yourself and your Business against the unknown . . . . . . . . . . . . . . . . . . . . . . . 37

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

about the authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Kristen Hayes Kuse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

ann Penners Bergen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42


Introduction“Oh . . . we wish we had

talked to you before we signed this . . . “

unfortunately, given our combined 32 years experience as lawyers (as of 2011) representing

California businesses both in and out of litigation, we have heard those words from our clients

too many times to count. We can’t turn back the clocks. However, if there’s any way that we can

use our experience in the “litigation battlefields” to help prevent small business owners from

making those same mistakes and regretting not getting help at the outset, that is our goal. and,

who is more vulnerable to those costly and sometimes fatal legal errors than those entrepre-

neurs just starting their businesses and running 100 miles a minute meeting one challenge after

another?

as solo lawyers, we know what entrepreneurs go through. We know what it is like to eat, sleep

and breathe your start-up company because we have the same passion for our practices. We

know about marketing and systems and keeping all the balls in the air. We know it because we

live it too. But, most importantly, we know about business law and what can and will go wrong

and how to prevent the more predictable disasters. the good news is that it does not require



expensive and exhaustive legal work. rather, taking just a few very simple steps at the beginning

of your business can help avoid capsizing your business later.

yes, we know what entrepreneurs deal with, but did we say that we also LOVe our entrepreneur

clients? We love the excitement and, most of all, the willingness to assume risks that others only

dream about taking. However, that love of adventure is exactly what can make the entrepreneur

vulnerable to simple missteps that can ruin his or her business or even his or her life. We want to

do what we can to protect our entrepreneur clients and their businesses

at the fledgling stage so that they can go forward and grow into the com-

panies of their dreams.

there are various statistics about the percentage of start-ups failing the

first year, which range from 35% to 50%. given the nature of start-up busi-

nesses and the reasons that people start businesses, however, we’re not

sure that any of those figures are accurate. and, frankly, this is not about

scaring you with statistics. We assume that you knew those risks and are

tired of hearing from all the naysayers in your life. What we do know, how-

ever, is the first year of your business is the toughest and . . . just about the most exciting thing

you’ll ever do. so, let’s keep the adrenaline rush and try to take some of the fear and uncertainty

out of it.

so, without trying to dampen your enthusiasm for your business, we have put together this sur-

vival guide to help entrepreneurs avoid some of the larger and most expensive legal mistakes

that can capsize their businesses. Look at this survival guide as a type of checklist for you on your

way to putting together your business. We know you know checklists, right?

in this e-book, we want you to be exposed to each of the following:

• Basic legal considerations

• Most essential trusted advisors

• Which entity you might choose

• Contracting do’s and don’ts

We assume that you knew those

risks and are tired of hearing from

all the naysayers in your life.



• intellectual property and how to protect it

• Competing with a business that employs you (or did)

• Leasing space

• insurance – what types and why you need it

that’s it.

so, we hope that this survival guide can help you avoid some of the very obvious and expensive

legal mistakes that we have seen during the years. if you have any further questions or if you

would like referrals to attorneys, bankers, accountants or insurance agents, please let us know.

good luck!

Kristen & Ann


1Have A Working Knowledge of Some of the Basic Laws Regarding Your Business

as soon as you decided to open your business, you left the world of being able to rely on “i didn’t

know that – you can’t blame me” and entered into the world of “the buck stops here.” although

no one expects you to know aLL of the laws aLL of the time, the simple truth is that you can’t

hide behind ignorance when you are running your own business.

you are making a great start by reading this e-book. However, you need to have a working knowl-

edge of (1) contract law; (2) intellectual property; (3) employment laws; (4) real estate law; and (5)

any regulations that can affect your industry. it’s impossible to cover all of these areas in a short

e-book, however, the basics include:



Contract Law

Do you have the correct contracts in place? Have you got written contracts in place with your

vendors, clients, employees, landlord and anyone else with whom you do business? as a general

rule, the contract should be written and should include the key terms of each agreement. those

key terms will vary depending on the type of contract. Key terms include such items as price,

quantity, parties and length of time. you also have to watch out for the “boilerplate” – those are

the non-key terms. some of the more obnoxious “boiler plate” terms include such paragraphs as

a forum selection clause requiring you to litigate any dispute in a different state (your business

is in California) or an attorneys’ fees clause. your business attorney is a huge help in this area and

can usually work with you to get these contracts in place and do it right the first time.

intellectual Property

this includes copyrights, trademarks, patents and trade secrets.

Copyrights protect the expression of an idea. trademarks protect your

company name or logo, or even certain products. they are a little more

complicated and you can run into some issues if you don’t know how to

perfect your trademark effectively. Patent law is more technical than ei-

ther copyright or trademark law and you should contact a patent special-

ist about this. a trade secret is a formula or compilation. it derives value

because it is not well known in the industry. if you don’t, however, take

steps to protect it, you can lose the trade secret protection.

Learn the basics about intellectual property so that you get the protec-

tion you deserve and you don’t run the danger of infringing on someone

else’s intellectual property or being unable to defend against someone

infringing your intellectual property. these are covered in more detail in

Chapter 5.

…get the protection you deserve and

you don’t run the danger of infringing

on someone else’s intellectual property

or being unable to defend against

someone infringing your intellectual

property



employment Laws

employment laws vary from state to state and California has been said to have some of the strict-

est laws by which employers must abide. employment laws are too complex to address in this

venue, but suffice it to say that as you grow your employee force you should seek advice on

the proper procedures, manuals and ways in which you should handle your various employees.

However, watch out for such common missteps as misclassifying employees and independent

contractors, harassment of employees by you (or people working for you or even your vendors)

and failing to pay overtime. Most lawsuits by employees against employers involve the employ-

ers being responsible for the employees’ attorneys’ fees. this creates incentives for employee

lawsuits and also puts you in the position of paying for two sets of lawyers – yours and the em-

ployees – as soon as a lawsuit is filed. so, it is very important to know the rules here.

real estate Law

you need to know the common terms of leases and how lease payments are computed. you also

need to know and understand your lease. We cover some of that in this e-book at Chapter 7 but

if you need further help to understand these laws, get it.

industry regulations

some industries or businesses are highly regulated. you probably know if that applies to you.

if it does, you should become well-versed in any laws and regulations that are specific to your

industry so as to be careful not to cross those lines.

again, you can’t hide behind ignorance of the law so please educate yourself in any areas of the

law touched by your business. if you need help, make sure you contact a lawyer who works with

entrepreneurs.


2Getting the Advice

That You Need to Start UpAnd Run Your

Business the First Year

as an entrepreneur, if you’re starting your own business, we know you absolutely eat, breathe

and sleep your business. you have no problem cleaning the floors if that’s what’s needed or put-

ting on a suit and tie to meet with angel investors or venture capitalists to explain your dream

to them. if working 20 hours per day is what your business requires, you’re there! you feel exhila-

rated – not exhausted—by the demands of your business and you really don’t mind doing it all.

so, you believe you don’t need advice and you’d rather skip on to the next section. But, before

you do, read on with an open mind. We think once you do, you’ll understand why you should

take steps to get the right trusted advisors in place to help your business.



Why you should seek Outside advice

there are some really good, solid reasons to seek outside advice for your business.

First, practically speaking, while you may feel super-human surviving on nothing but coffee and

minimal sleep, you aren’t. news flash...you don’t know everything. Most importantly, however,

the mindset that you DO know everything can get you in trouble and prevent you from seeing

warning signs and even missing valuable opportunities. also, ignorance is not bliss. What you

don’t know can kill you and your business. so, there’s nothing wrong with a little humility and

asking for help at the beginning

second, your business is valuable to you and you are serious about your success. that’s why you

spend so much time on it sometimes to the expense of your family or day job (if you still have

one). if your business is really valuable to you, isn’t it worth seeking outside advice to protect

your business, protect your family and protect yourself? you and your business deserve every

opportunity to survive and to succeed. Put another way, at the end of your business’ first year –

and particularly if your business does not survive – you don’t want to look in the mirror and tell

yourself, “if only i had gotten help,” or, as our clients have said “i wish i’d spoken with you sooner.”

third, you seek advice on the stuff that’s not so easy for you and that’s not so fun and that doesn’t

get your juices flowing. in fact, you seek advice from people who could tell you “no” or “don’t do

that,” or “here’s the risk.” By seeking advice from others, you get to focus on what gets you excited

and keeps you positive. Most importantly, you get to focus on marketing

and developing your business instead of learning about the dry and mun-

dane – although necessary – details. and, remember, it takes time for many

businesses to succeed and it takes time for everyone to learn about your

brilliant and amazing products. Don’t waste the stamina you need to stick

with your business model until it succeeds by dissipating your energy and

your positive attitude by trying to figure out details for which you could get

a quick answer.

By seeking advice from others, you get to focus on what gets you

excited and keeps you positive.



What Kind of trusted advisors Do you need to survive your First year?

there are many types of business advisors who can really enhance the value of your business and

your life once you are up and running and successful. However, during your company’s crucial

first year of life, we believe there are really only four types of business advisors that you must

have: (1) a banker, (2) a lawyer, (3) a CPa and (4) an insurance agent.

you need a banker because you need money. Willie sutton, infamous bank robber, has been at-

tributed with the statement that he robbed banks “because that’s where the money is.” While Wil-

lie sutton didn’t actually say that, (see http://www.snopes.com/quotes/sutton.asp), it’s still true

that banks are where the money is. it is important to develop a relationship with a bank as soon

as possible and even when your business is small because . . . your business will grow and growth

demands money. your banker can help you by recommending the best bank accounts for your

business, the best lines of credit and steps to take to insure and improve your credit rating.

an entrepreneur’s lawyer helps the entrepreneur choose the correct form of business, sets up that

form of business, can help provide the entrepreneur with written agreements with their vendors,

employees and customers, and can be there when legal questions arise. an entrepreneur’s law-

yer can help protect your intellectual property. an entrepreneur’s lawyer has worked with other

entrepreneurs, knows the problems faced and works to help the entrepreneur avoid the more

obvious legal errors that can detract the entrepreneur from building his or her business.

your business needs a CPa both to deal with the taxes for your business and to help you set

up the accounts payable, accounts receivable and financial reporting systems for your business.

Let’s face it, you are in business to make money. your financial status is the temperature of your

company. it tells you whether you are on track to meet your goals, whether you are struggling

or, sadly, whether it’s time to call it a day. if you are intending to build up your business to sell it

someday to a third party, you absolutely must have these systems in place from day one.

insurance is a way of preparing for and guarding against the risks of any business. the risks can

range from a customer falling in your store to an employee hitting a pedestrian while dropping

off your product. if you’re a professional, you could face liability on that level as well. an entre-

preneur’s insurance agent knows what these risks are, what type of insurance can protect against

these risks and the most cost-effective way to protect you from these risks with insurance.

http://www.snopes.com/quotes/sutton.asp



How to Find the Four essential Business advisors

the four ways to find these essential advisors are (1) to ask friends if they know of any banker,

lawyer, CPa or insurance agent; (2) to ask other entrepreneurs; (3) to research bankers, lawyer,

CPas or insurance agents online, or, (4) once you have one of these trusted business advisors, ask

him or her for referrals to other trusted business advisors.

We recommend that you compile a list of at least three in each category before you take the next

step – hiring a trusted advisor.

How to Hire the Four essential Business advisors

Once you have your list of at least three trusted advisors in each category, it’s now time to re-

search them and interview them to determine the best fit for you and your business. to research

them, go online. Do they have blogs that provide information for you to read in advance and tell

you that they know the field? How about their website? if they do, that’s a good sign. But don’t

write them off if they don’t. unlike you, many skilled practitioners may not understand the im-

portance of a web presence.

as for interviewing the advisors, if possible, it is a good idea to make an appointment and go to

their office to get a sense of how they operate. is their staff courteous? Or, is the staff resentful

and overworked? Do you have to wait longer than ten minutes for your appointment without a

good explanation? ask yourself these questions as you evaluate the advisor.

Meanwhile, when you meet with your advisors, here are the general questions to ask all of these

advisors:

1. Have you worked with entrepreneurs before?

2. What is your availability? Do you have time to help me and my situation? When can

i call you with follow up questions? Do i reach you or your assistant? if i contact your

assistant, will he or she get you involved if my question is beyond their expertise?

3. How do i contact you? (Via email or phone or text or in-person meeting?)



4. What is your pricing structure? are there any costs that i need to pay in addition to

your fees (for example, incorporation fees or filing fees)?

5. How long will it take for you to provide me with the services needed?

6. What information do you need from me?

at some point in interviewing these advisors, you will get a definite sense that you like someone

and are prepared to move forward with him or her. you believe that you can trust them. you

sense that they are just as excited by your business as you are. you feel exhilarated, or at least

relieved, when talking with them. While we all know that true trust develops over time and is

basically a series of promises that are kept, if you have done your research and asked the right

questions, you will intuitively know when you’ve found your match.

How to afford the Four essential Business advisors

now that you’ve found the advisor you want to use, how do you afford them? the good news is

that for insurance agents, they are normally compensated by the insurance companies so that

there are no out-of-pocket costs for them. as for bankers, their services are paid for by their bank.

so, then, the question is how do you afford a CPa and your attorney? CPas usually charge on an

hourly basis. some do not charge until they prepare your financial statements or taxes. When you

interview them, they will tell you this. you can then budget for this as a cost of doing business.

as for attorneys, although many still charge on an hourly basis, in many cases when you are form-

ing your business, lawyers will provide you with a flat fee for certain services such as trademark

registration or incorporation. if you are lucky, many can incorporate these initial charges into a

monthly membership plan that also permits you to call them during the year on an “as needed” ba-

sis as questions arise. in this case, a monthly fee is charged to your credit card and you receive your

initial documents and have access to the lawyer throughout the year. We have used this model for

quite some time and it has been great for our clients because by having our clients contact us as

issues arise, we often are able to solve problems before they spiral out of control. it is also good for

our clients because they have a predictable cost for attorney services and they don’t have to cringe

every time they call a lawyer because they fear that the “meter” is running.



What if you Want to Change advisors

it is possible that after all of your research, your relationship with your trusted advisor just is not

working. if this happens, you may want to ask one of your other advisors for recommendations.

Most advisors know others who can help you and chances are that if you like one advisor that

his or her colleagues are similar to them and the fit will be good. the most important thing,

however, is to make sure that you part amicably and, yes, that means, paying the advisor what

is owed them.

although it may take a considerable amount of time and effort to build your trusted advisor

team, this is well worth it to protect and grow your business.


3Choose the Right Entity

Through Which To Operate Your Business

Choosing a business structure is one of the most important decisions to make. each business

structure, such as a sole proprietorship, a partnership, a corporation or a limited liability com-

pany has a different legal implication. the entity that is best for you will depend on your plans

for the future. For example, if you plan to raise venture capital, a corporation may be the best

structure.

sole Proprietorship

as a sole proprietor, you are the company, the company is you and you are liable for all of the risks

of the company. this means that a creditor of your business can come after your assets (including



your house, your investments and even your spouse’s ira). avoiding this type of exposure is one

of the main reasons that entrepreneurs choose to do business as either a corporation or limited

liability company. if there is any advantage to this type of business, it is the flexibility and the fact

that you can start doing business – and open a bank account – as a sole proprietor right away.

Partnership

if you decide to form a general partnership with someone, the company is you and your partner,

you and your partner are the company and you are both liable for all of the risks of the company

you operate together. that means that if your partner decides to make a large purchase for the

company that the company can’t afford, you could be liable for it. For that reason, this is one of

the riskiest forms of doing business. not only are you liable for the business (and any mistakes

you make) but you may also be liable for mistakes made by your partner. remember, just be-

cause you and your partner both share a great idea for a business does not mean that he or she

has the same level of responsibility, assets or caution that you do. also, unless you have an agree-

ment otherwise, each of you shares equally in the profits and in the losses. and remember, it’s

best to have your general partnership agreement in writing and signed by all partners.

a limited partnership is a bit more complicated than a general partnership because it is owned

by two distinct tiers of partners who each have different roles. the general partners manage the

company and are personally liable for its debts, just as in a general partnership; the limited part-

ners make capital contributions and share in the profits but normally do not participate in the

day-to-day operations. generally, the limited partners do not incur any liability for the partner-

ship debts above and beyond their capital contributions and they also enjoy liability protection

most similar to the shareholders of a corporation. the limited partnership is typically used for

restaurant businesses, with the founding partners serving as general partners and the investors

as the limited partners.

a limited liability partnership, sometimes referred to as an “LLP,” is designed to, as the name im-

plies, limit liability for limited partners. in California, only accountants, architects and lawyers can

form limited liability partnerships. an LLP is a type of partnership in which each partner receives

limited liability protection. However, an LLP is similar to a general partnership in that all the

partners can take an active role in managing the day-to-day affairs of the business. the partners

decide the structure of the business and a formal, written agreement for the LLP is advised.



Corporation

a corporation generally will shield you from liability if properly formed and if you keep the assets

and debts of the company separate from your personal debts and assets. this means that if you

are sued, your personal assets should be protected. in order to maintain the “corporate veil” or

protective wall between your company and your personal assets, however, not only do you need

to keep the assets of the company separate from you, it also requires that you have adequately

funded the company, and that you (and the other shareholders, if any) follow what are called

“corporate formalities.” Corporate formalities include such things as holding regular meetings,

drafting minutes and/or resolutions to document what the company has done, and otherwise

following your by-laws.

a professional corporation is the same as a corporation except that it is formed by a professional.

Many of these professional corporations have ownership restrictions that bar non-professionals

from owning them and require you also to be registered with the licensing organization. you

should consult an experienced attorney if you are a professional seeking to form a professional

corporation.

Where Corporations and LLC’s Don’t Protect you

the two most common situations in which a corporation will not protect you, however, are (1)

when you personally guaranty a debt ; and (2) if you are a solo professional. a personal guaranty

is where you agree that if the company cannot or will not pay its debts, you will pay them. Many

creditors (such as landlords or banks) may require such guarantees in order to loan money to

your corporation. although you will not be protected from individual liability for creditors who

require a personal guaranty, if you follow the corporate formalities described above, you may

have protection against other creditors.

the second common situation in which a corporation may not protect your personal assets is if

you are a solo professional, such as a doctor, lawyer or accountant and someone sues your com-

pany for malpractice. if they sue your company, they likely will sue you individually as well, so the

“shield” of a formal entity may not have as much of an effect. (On the other hand, this is the exact

reason that you should not start a professional practice without malpractice insurance.)



Limited Liability Company

another popular business structure is something called a “limited liability company.” the limited

liability company or LLC requires filing with the secretary of state, operating under an operating

agreement rather than by-laws, and, instead of shareholders owning the company, members do.

LLCs offer many of the protections of a corporation with far less formalities required. in California,

if you are a professional licensed by the state, you are not eligible for a membership in an LLC. in

that case, you should start a professional corporation.

if you are going into business with someone else, you should have a written agreement with that

person. By having a written agreement in place, you ask and answer the hard questions, such as

what each of you will do, how much each of you will invest, how much each of you can take out

of the company and, perhaps, hardest of all, what happens when one of you wants to leave. as

detailed in Chapter 4, agreements are promises. shouldn’t you outline what you are promising

to your business partner and what they are promising to you?

to determine the best entity for your business, think about your needs:

• risks and liabilities of your business?

• are you willing to take the time and money to maintain the entity you choose (i.e.

corporation)?

• expected profits and losses?

• Plans for investors?

• Plans for going public – having shares of your company publicly traded?

• if going into business with another, what are your risks?

• What is best in the short term and in the long term?

if your plan is to build your business, you really should think about some form of a formal entity

in order to limit your liability in case your company fails. yes, failure doesn’t seem possible right

now but you can’t ignore that risk and, besides, if your business does as well as you think it will,

do you really want to take the time to incorporate? also, if you plan on seeking capital to grow

your business, you probably need to incorporate.

When you are planning your business, you should consult an attorney who is versed in helping

entrepreneurs build their businesses. Don’t try to do these agreements yourself. if you are willing



to invest your money, time and your energy into your business, you should be willing to invest to

get the proper business entity in place.

if you don’t want to hire an attorney to do this because you think it costs too much, consider the

costs if you get it wrong and your personal assets can be seized. also, do your homework. talk to

at least three lawyers before you decide you can’t afford one. you may be pleasantly surprised.


4Write Down

Your Agreements

Many of our clients have bragged at how informal their business arrangements are. they claim

that all they need is a handshake and that they’ve been doing business that way for years. Well,

handshakes and oral agreements are great – that is, until they don’t work anymore. Handshakes

used to be the way business was done until we became such a litigious society. now it’s best to

document, document, document. and while every lawyer will assure you that most oral agree-

ments are valid – which is true – the problem becomes how do you prove that you even had a

contract or what the terms of those contracts were?

to understand why it is so important that a contract be in writing, you need to understand what

it is. a contract is a promise supported by something you give in exchange for that promise. so,

isn’t it better for everyone to have that promise be in writing so that there is no mistake about

what the promise is? also, doesn’t the act of putting those promises in writing make you think

about what those promises are before you sign the contract?



a Written agreement signed By Both Parties Will Be More enforceable than an Oral agreement.

Why? Because, if drafted correctly, the agreement should define all agreed-upon terms. Make

sure the contract says that any changes must be in writing, and if you ever change or make an

addition to the agreement, you should make that change in writing.

if you are making an agreement for services, you should strive, at a minimum, to set out what the

services are, what needs to be done, by when it should be done and the fees. also, you will want

to decide what reasons additional fees will be incurred and the amount of those additional fees.

How about when you sell something? When you sell something, you should have a bill of sale to

make sure that you are collecting and remitting the appropriate taxes. some of a host of agree-

ments you may want to consider are: an agreement when you are commissioned to do work; an

agreement when you provide your work to a gallery or business; an invoice; a sales contract; or

an agreement when you do a consignment.

But, whatever you do, you should not sign a contract unless you know what the language means

and also what the implications are. signing an agreement without understanding it can lead to

potential problems. For instance, a client sent a contract to us for review and simultaneously

signed the agreement and sent it to her vendor. When we reviewed the contract, there were

several terms that could be construed against the client. But now the contract is signed and the

client may be out of luck if any of these terms come into play. she is now proceeding, with fin-

gers crossed, hoping it will all work out. Don’t get yourself into this situation. again, remember,

that you are making promises. Does it make sense to promise to do something if you don’t know

what you are promising?

a common question we hear is, “Why shouldn’t we do a search for a contract on the internet and

then cut and paste what we need?” that is usually a really, really bad idea for at least three rea-

sons. First, the contracts you find on the internet are not specific to your business or your needs.

second, if you are the one who drafted the agreement, even if you are just grabbing random

clauses from the internet, if the agreement has any vagueness, it will be interpreted against you.

it doesn’t matter that you didn’t know what the clauses you were grabbing meant or their signifi-

cance. that’s just the way the law works.



third, a big danger exists that by cutting and pasting from the internet, you will either add a very

unhelpful clause or fail to include a necessary clause. When you are dealing with business con-

tracts, it pays to get some feedback from someone who knows what they are doing in this arena.

another contract to consider is when you are going to be doing business with someone else. you

should take the time to figure out what everyone’s share will be in that business and who will do

what, among other things. Do you want your agreement or venture to last until a date certain?

are either or both of you putting money, time or other resources in? What happens when it ends?

sometimes the answers to these questions are easy and sometimes they aren’t – all the more rea-

son to face those potential problems nOW. you can structure your new business in many ways,

but you will want to begin to consider your structure now. if you find it uncomfortable to ask or

answer these questions now, because you think it makes you seem distrustful or even “negative,”

this is one of the best reasons to hire an entrepreneur’s lawyer. Let the lawyer be the “bad guy”

and ask the hard questions for both of you.

Finally, if you are doing business with friends or family, or if they are involved in your business, the

need for a written agreement is even more acute. this is because with people this close to us, we

tend to take verbal shortcuts and assume that we know each other and what everyone means.

unfortunately, however, we don’t always. the only thing worse than a business dispute between

partners is a business dispute between partners who also happen to be family. Do you really

want to be in a lawsuit with your brother? this is really sad when the original partners wanted to

build up their business and pass it on to the next generation and, instead, their relationship has

deteriorated to the point that they can’t have thanksgiving together anymore and their mother

is crying in the corner. (no, that’s not overly maudlin – we’ve seen it happen and it’s awful.)

One of the biggest objections we’ve heard to using a lawyer to help you with these basic con-

tracts is cost. Putting aside the obvious – that a lawsuit arising out of a bad contract will cost you

much more – let us ask you one question: “How do you know?” if you haven’t interviewed at least

three different lawyers and asked them the costs, can you really say you know that this proactive

step is “too expensive?”

remember, when you decided to open your business, you gave up the luxury of laziness and

contempt without investigation. yes, calling a lawyer and getting this information can be scary

and, sometimes time-consuming, but it beats the alternative.


5Take Care of and

Protect Your Intellectual Property

the proper time to begin thinking about the intellectual property issues facing your business

is at the beginning. What is intellectual property? glad you asked. intellectual property really

falls into four categories and the kind you have will depend on the assets of your business as

well as other factors. a detailed explanation as to the steps required to protect your intellectual

property is beyond the scope of this book. However, once you recognize the type of intellectual

property that may affect your business, consult an attorney to learn about the best way to pro-

tect it. this is not something you want to attempt on your own because if it’s not done right, you

may lose your protection.



traDeMarKs

a trademark or a servicemark is a word, phrase, symbol or design, or a combination of words,

phrases, symbols or designs, that identifies and distinguishes the source of goods (trademark)

or services (servicemark). a trademark could be the name of your company or the name of your

product. a servicemark could be the name of the services you provide. the owner of a trademark

or servicemark can prevent someone else from marketing a product or service that is confusingly

similar to his trademark or servicemark. and, let’s be blunt, in the beginning all you may have is

a name and, let’s be even more blunt still, in the beginning, that name may not be all that valu-

able in the marketplace – yet. and that’s the big rub. Because the more energy and more money

you put into developing your brand and your company’s name, and the more successful you

become, the more valuable your name should be. and, yet, if you do not take steps to protect it

in the beginning you could be out of luck.

trademark problems can come up in many ways. you could be accused of

trademark violation. For example, you receive a letter from a lawyer asking

you to cease and desist from using a name because it’s confusingly similar

to another name. On the other hand, you could be the victim of trademark

violation when you learn that someone is selling a very similar product with

a very similar name and there is a risk of confusion. unfortunately, if you

never registered your trademark, your chances of winning in any lawsuit

about the name may be compromised. although you may still win (because

trademark is about “use” not just registration), it will be a more fact intensive

process to prove that you first used the trademark. and “fact intensive” is-

sues in litigation equate to more expense.

so, in the very, very beginning, before you design the logo you will learn to

love, before you order the really cool stationery, create an awesome web-

site and get your business cards printed – get thee to a lawyer who can do

a trademark search for you. Bring him or her several different names and

when you find a name that (a) you like; and (b) that no one else is using, register it and purchase

the domain name.

…the more energy and more

money you put into developing your brand and your company’s name, and the

more successful you become, the

more valuable your name should be.



COPyrigHt

Ok, so what is a copyright then? a copyright protects original works of authorship. the owner

of a copyright has the exclusive rights to reproduce the copyrighted work, prepare derivative

works, distribute copies or phono records of the work, and perform or display the work publicly.

Whoever creates the original work automatically owns the copyright in that work. However, to

protect that copyright, you should register your copyright. this can be done for a fee at www.

copyright.gov. also, be careful of situations in which designers – such as website designers –

work for you to make sure that they are not infringing someone else’s copyrights (sometimes we

see these claims when someone is using someone else’s pictures). Otherwise, you could be liable

for copyright infringement as well.

Patents

generally, a patent owner can exclude others from making, using, selling, offering for sale or

importing the claimed invention for a period of 20 years. you may file a patent application for

yourself or a registered patent agent or attorney can file a patent application and otherwise rep-

resent you before the usPtO. the usPtO provides a searchable list of registered patent agents

and attorneys at https://oedci.uspto.gov/OeDCi. although you may obtain a patent on your own,

you should seriously consider contacting an attorney who is well versed in patents. Will it be

expensive? that depends on the type of patent you are seeking. However, you owe it to yourself

and to the business that will rely on your invention to find out and take all steps to protect that

invention.

traDe seCrets

a trade secret is either information, a process or a formula. it is valuable because it is not gener-

ally known in the industry. you need to take reasonable steps to keep it secret. if an owner pro-

tects a trade secret, the owner can maintain a competitive advantage over other companies in

its industry. at a minimum, you should define what your trade secret is – whether it’s a formula

to the special marinade you have for your chicken or, how you find customers and their likes and

dislikes. you don’t need to make any type of filing for it but you need to instruct your employees

http://www.copyright.gov

http://www.copyright.gov

https://oedci.uspto.gov/OEDCI



about what is and what is not a trade secret and limit access to it. Call it a secret or call it “propri-

etary information” and treat it that way.

intellectual property issues can affect the long term viability of the business. you want to protect

your intellectual property but, just as importantly, you want to ensure that you do not infringe

on someone else’s intellectual property. this is why if you think that you have any of the above

types of intellectual property, you should consult with an entrepreneur’s or intellectual property

lawyer and take steps to appropriately protect your business assets.


6Avoid Starting a New

Business While Employed by a Potential Competitor

as much as it makes sense on so many levels, you probably have never considered that you can

get yourself into hot water fairly quickly if you begin your new venture while you are employed

by a company that makes a product or provides a service that would compete with your new

company’s product or service. Here’s what you could be charged with:

• using the trade secrets of your current employer to your own benefit.

• soliciting your employer’s other employees.

• attempting to interfere with business relationships formed between your current



employer and its customers or clients if you try to contact them directly about your

competing product or service.

• Creating products for your new venture on your current company’s time may lead

to a claim that your current company owns your work that was completed while on

the clock of your current employer.

• Breaching an employment contract.

• Depending on your position at the company you are working at while launching

you new business venture, you may also be accused of breaching a fiduciary duty.

How do we know this? Well, to be honest, we have either drafted complaints for business clients

that have made these claims or have had to defend start-ups against them. any of these claims –

and the need to hire a lawyer and incur thousands of dollars of attorneys fees to defend against

these claims – could be crippling for your new venture. Bottom line: it’s best not to tread here.

What do you do to circumvent these potential issues? Well, first, if at all possible, do not start

any work on your new venture until you sever your ties with your current

employer. if that is not feasible, you may want to evaluate the reaction if

you came clean with your employer and told them your plans. evaluate this

carefully because in many cases, this could result in you being handed a

box, asked to empty your office and being escorted out the door. On the

same note, don’t start hoarding office supplies or telling clients you service

that you are leaving. this also is not the time to start coming into the office

early and leaving late so that you can copy or download information from

your former company’s database. Just saying. . .

On a related note, if you have taken appropriate action on your own behalf

and you are going into business with or hiring others, make sure they are

not taking trade secrets or working in competition with their company be-

fore you launch your business. you may also want to check with them to be

sure they will not be in violation of any employment agreement they may

have in place when going into business with you. you want your partners

and employees to bring more to the table than a lawsuit against your new venture!

any of these claims – and the

need to hire a lawyer and incur

thousands of dollars of attorneys

fees to defend against these

claims – could be crippling for your

new venture.



so, assuming you’ve kept your nose clean and not raided your former employer’s customers,

employees or office supplies, what can you do aFter you leave? in California, non-compete

clauses are not valid unless it is part of a deal between partners or someone has purchased a

business. so, yes, you generally can compete with your former employer. However, you can’t do

so by using trade secrets, such as confidential information. Confidential information is a pretty

broad term and may include such things as the customers’ preferences, a trade formula, or even

knowing when those contracts the customers had with your former company expire. For many

people, the safest course of conduct in the beginning may be simply to send announcements to

inform them of your new firm. resist the temptation to insert an “offer to help” in this announce-

ment as this may be construed as “soliciting.”

also, it may be safe to assume that your former employer is going to be angry that you left and

will be looking to fight with you. Don’t make the mistake of bad-mouthing your former employer

or their product and risk being sued for defamation. if you left because you couldn’t stand the

former employer any more, you don’t need to share that. it may be best to say nothing, but if you

must, you may simply say, and it is the truth, “i believed it was time for me to start my own com-

pany.” Frankly, your clients and contacts don’t really care about your problems and don’t want to

get caught up in the drama.

if you really need to vent, talk to your spouse, your clergy or your therapist – not potential clients

or vendors.

this is because, when you bad mouth your former employer, you’re still functioning within the

problem. your new company is the solution – so it might work better to focus on that. Before

long, believe it or not, a time will come when you will be grateful that your former employer was

as awful as you now believe them to be. Had they been a better employer, would you have actu-

ally struck out on your own?


7Make The Right Decisions

In Leasing Your Space

although in some rare cases it may make sense to purchase a working space, in most start-ups,

funds are at a premium and it does not make sense to commit a large sum of money to purchas-

ing space. in still other cases, you may be able to operate your business from home. For most

businesses, however, you will eventually need an actual office or commercial space.

the key considerations in determining the commercial space to rent are location and cost for

your business. to determine if you have the proper location for your business, it is best to use

the services of a professional real estate agent who represents tenants. use the same criteria for

other trusted advisors to find this agent but you can also ask one of your other trusted advisors

to locate this person.

unlike residential leases which are usually fairly simple, there are several different types of com-

mercial leases and each of these turn on whether the tenant pays a portion or all of such things

as insurance, property taxes or maintenance fees.



types of Commercial Leases

there are five basic types of commercial leases: (1) percentage lease; (2) net lease; (3) double net

lease; (4) triple net lease; and (5) fully serviced or gross lease.

in a percentage lease, the tenant is charged a base rent and pays to the landlord a percentage

of monthly sales. this is often used in retail businesses or malls. When negotiating such a lease,

the tenant should negotiate that the percentage of monthly sales be paid only when sales have

exceeded a certain amount. For example, if a retail store pays a monthly base rent of $1,500 and

3% of sales, that 3% should not be payable until, say, for example, sales exceed $1,500 per month.

a net lease requires the tenant to pay, in addition, to rent, some or all of the taxes, insurance

or maintenance paid by the landlord. these costs (taxes, insurance or maintenance) are usually

referred to as “usual Costs.” this can be used in any commercial lease and usually favors the land-

lord’s interests.

in a double net lease, the tenant pay rents plus part or all of the usual Costs of taxes and insur-

ance. this type of lease also favors the landlord’s interests because a portion of the usual Costs

are passed onto the tenant.

a tenant who rents under a triple net lease will pay rent and all or part of the taxes, insurance

and maintenance. this type of lease is also known as an “nnn lease,” or even a “net net net lease.”

as you might imagine, this really favors the landlord because the majority of the landlord’s costs

are shifted to the tenant. at a bare minimum, it should be negotiated to limit the amount that

the nnn fees can increase per year.

in a fully serviced lease or a gross lease, the landlord directly pays all or most costs. those costs

may be passed on to a tenant in rent as something called a “load factor.” a load factor is a way

of computing total monthly rental costs to a tenant. it combines usable square feet and a per-

centage of square feet of common areas. usable square feet is actually the square feet that are

exclusively within the tenant’s control and can include such things as storage closets or private

restrooms within the tenant’s business. the common areas can include such “shared space” as

hallways, elevators, lobby and restrooms.



Considerations about Commercial Leases

Costs:

as you probably figured out from the discussion of the different types of commercial leases, the

lease payment consists of two items: (1) the monthly cost for the space that you are renting and

(2) your share of the common area maintenance costs (“CaMs”).

normally the monthly cost is computed by multiplying the square footage times the cost per

square foot. if the cost per square foot is an annual cost, you divide that figure by twelve. so, for

example, if the square footage is 1,000 and the annual cost per square foot is $12.00, your annual

cost is $12,000 and your monthly cost is $1,000. in the same example, if the monthly per square

foot is $2.00, your monthly cost would be $2,000.

your share of the CaMs is computed by your share of the common areas such as stairways and

hallways.

Payments Included in the Lease

in some cases, the landlords pays these costs and, in some cases, the tenant will pay them: (1)

property taxes, (2) landscaping, (3) parking lot and driveway maintenance, (4) roofing mainte-

nance and repairs, (5) cleaning of common areas, (6) utilities, (7) refuse collection, (8) non-struc-

tural repairs, and (9) mechanical repairs (such as for electricity or air-conditioning). Know what is

included in your lease.

Term of the Lease

this is typically the length of the lease. Many landlords want long-term tenants and you may be

able to negotiate more favorable terms if you are willing to sign a longer lease.

Repairs and Improvements

unless the former tenant had the exact same business that you had, you likely will have to make

repairs or improvements to the space to be suitable for your business. in some cases, and, in par-

ticular, if you have a longer lease, a landlord may pay for these improvements by offering a rent

rebate. Most often, however, the tenant will be responsible.

Who Signs the Lease and Guarantees

if possible, have the lease be with your business instead of having your name on it. Of course,

many landlords insist on having personal guarantees signed by the owners of the tenant’s busi-



ness. a personal guaranty is where an individual guarantees the payment of another and is re-

sponsible if the other party does not pay.

Other Terms

a lease is one of the most important contracts that you will sign for your business. Make sure that

you understand all of the terms within that contract and take the time and spend the money to

have a lawyer review it. under no circumstances should you simply sign a lease agreement on

the spot even if the landlord leads you to believe that you will lose the space before you can re-

view it or if the landlord insists “all my other tenants signed it without a problem.”

Common terms in Commercial Leases and What they Mean

turning now to the actual terms of the written lease, here are some common terms and what

they actually mean.

Parties. these are the official names of the tenant and landlord. try to have your business be the

party to your lease, not you.

Premises. this describes the actual space that is being rented. Make sure that you understand

the actual space you are renting, how the square footage is being determined and what exactly

you are paying rent for.

Deposit. normally, as with a residential lease, a tenant will be required to provide a security de-

posit to protect the landlord in case of damage or abandoning the lease prior to the end. this

section will describe the circumstances under which the security deposit either will be forfeited

or returned to you.

Term. this provision describes when the lease begins and when it ends.

Rent. unlike a residential lease, your monthly rent for a commercial space may not be a predict-

able, set amount. rather, this paragraph will explain HOW the rent is calculated. Look for the

information on CaMs and other costs associated with the lease. such terms as “gross lease” or

“triple net lease” may be included. Be sure you know what these mean and, if you don’t, check



with your attorney.

Use/Restrictions. this paragraph will describe any restrictions on uses of the premises, which

includes such things as signs or hours of operations. it also can include any limits on occupancy

or sub-leasing. it is very important to understand the restrictions on use that the landlord sets.

there may be other restrictions that the city or county imposes – for example, bans on commer-

cial activities in certain residential areas. you should check with your attorney or leasing agent to

make sure that your particular business is not barred from doing business at the location.

Parking. this describes what, if any, parking is available for the space. you will want to verify that

the parking space conforms to the standards set by the americans with Disabilities act by pro-

viding adequate handicapped parking.

Taxes and Insurance. this paragraph will describe whether the tenant or the landlord pays prop-

erty taxes or insurance on the property. it is typical that the tenant provide the insurance and

often the landlord must be named as an additional insured. Often, a tenant is required to provide

an indemnity to the landlord in any liability suits against the tenant. an indemnity means that

if the landlord gets sued for something that happens in the tenant’s space, the tenant agrees to

pay for the landlord’s defense (legal costs) and any damages awarded against the defendant.

Options. this can include options to renew the lease at its expiration, to rent additional space in

the building or even, in some rare cases, an option to buy the building.

Defaults and remedies. a default can occur when someone breaks a promise in a lease. Just be-

cause a party does not follow the lease agreement exactly, this does not mean that a default has

occurred. this section will define what a default is and, just as importantly, what the other party

can do if any default occurs.

Assignment and subletting. this is the part of the lease agreement that determines whether you

can sub-let the space or assign it to someone else. this will also tell you whether there are some

circumstances when the landlord can veto your choice of sublessor or assignee.

Subordination, nondisturbance and attornment. under this section, you will find the answer

to the question about what happens if the landlord’s lender forecloses on the property and the

protections a tenant has if a new landlord takes over.



Attorney Fees. in California, if there is an attorneys’ fees provision, whoever wins on a lawsuit

arising out of the lease is entitled to reasonable attorneys’ fees. Whether a lawsuit “arises out of

the lease,” however, may be subject to interpretation. Make sure that your lawyer explains this

provision to you.

Dispute Resolution. in some leases, the parties are required to have a mediation before filing

a lawsuit. a mediation is a formal settlement conference with a neutral third party who runs it.

they may also be required to have any disputes determined in arbitration. recently, however,

there has been a trend of requiring a “judicial reference.” no, that doesn’t mean a letter of recom-

mendation from a judge! that means that the parties agree to refer any disputes to a privately-

retained judge (or “rent-a-judge”). this can be a very quick – i.e., economical – way of resolving

disputes.

Just because you understand some of the above terms, however, does not mean that you should

sign or execute a lease without reviewing it or having an attorney review it. rather, before exe-

cuting a lease, have your trusted attorney advisor review it. Most of all, never sign a lease without

negotiating it. if your landlord takes a “take it or leave it,” attitude, they may very well be attempt-

ing to railroad you into accepting something that you should not accept. trust your instinct and

trust our experience and get help!


8Protect Yourself And

Your Business Against The Unknown

usually, your first line of defense against the unknown will be insurance. the insurance discus-

sion is part of the risk assessment discussion that a good business attorney should have with

each client. some basic lines of insurance most businesses should carry are:

general Liability

this insurance should protect you should someone be injured on your business premises. this

can also protect you against such things as a lawsuit against you for defamation.



errors and Omissions

Professionals such as doctors, lawyers, architects and accountants should have errors and omis-

sions insurance, sometimes referred to as e&O or Professional Liability or Malpractice insurance.

this type of insurance should provide indemnity and a defense if you are sued in the case of a

professional error.

umbrella

Just like it sounds, this is a layer of insurance that sits on top of your general liability and other

insurance lines that will protect you above and beyond the limits of the liability policy you have

in place. there are so many ways to structure this kind of insurance. you should discuss with your

insurance agent having an umbrella for extra protection.

Workers’ Compensation insurance

this is required in many states, including California. this pays your employees if they are injured

on the job.

employment Practices insurance

in some cases, this will give you coverage in case you are sued by one of your employees. this is

generally very limited in scope and fairly expensive.

Business interruption insurance

this type of insurance kicks in if a fire or some other event (such as roof leakage) makes you un-

able to run your business. this insurance may replace some or all of your business income for at

least part of the time you are unable to work.



Major Medical or Health insurance

you need this for you and your family. it also is an important employee benefit. you can save

costs by going with a higher deductible but because even a small medical emergency (for ex-

ample, a broken arm at the roller rink), can cost you several thousands of dollars, don’t make the

mistake of going without this essential coverage.

the above only touches on some basic insurance policies you might want to consider. although

your business attorney most likely does not sell insurance, they should be able to talk to you

about your insurance needs in relation to your business risks or refer you to an insurance agent.


Conclusion

as you have read, there are many factors to consider on the legal side of launching your own

business. We hope that our experience “in the trenches of litigation” has been of some value

to you. yes, there’s a lot. However, as an entrepreneur, you are up to the task. it is better to be

informed than not because ignorance of the law is not bliss. instead, it can actually get you into

quite hot water.

Can you do it yourself? yes. is it recommended? usually not. you should start now to seek out

some advice from an attorney who is accustomed to assisting entrepreneurs to get their business-

es off the ground. attorneys who concentrate on helping entrepreneurs should work with you on

your business to build a solid structure, not just supply you with a “one and done” service. if you

need assistance in locating an attorney in your area who might be able to help you, please contact

us at www.integratedgeneralcounsel.com (925) 399-1529 (Kristen) or www.pennersbergen.com

(626) 463-7361 (ann) and we will see what we can do to help you get hooked up.


ABOUT THE AUTHORS

Kristen Hayes Kuse

i founded integrated general Counsel in 2010 on the premise that all business

owners should have access to legal advice which affords the opportunity for the

entrepreneur or business owner and the attorney to be proactive rather than reac-

tive. integrated general Counsel focuses on guiding you through your business,

providing a roadmap of sorts, in order to help you minimize your risks.

i decided to go to law school while working as a paralegal in a small law firm that

afforded the opportunity to form relationships with each client. While in law school

and after becoming a licensed attorney, i worked at a large law firm [we’ll call it “Big

Law”] acquiring great experience on various litigation matters. However, being at a large law firm,

i had an opportunity only to work on large litigation matters that did not afford the chance to cre-

ate personal relationships.

after leaving Big Law, i joined the in-house legal department of a Fortune 500 company. While act-

ing as corporate counsel, i realized that i loved working with businesses addressing the daily legal

needs a company faces. also, as corporate counsel, i recognized that i enjoyed not having to keep

detailed time notes in order to produce a client bill. However, i also realized that i wanted to work

with smaller businesses, those businesses that did not have the need or budget to employ a legal

department, or even a full-time attorney.

after working in-house, i re-entered the realm of litigation where i protected large companies in busi-

ness and securities disputes. it was while working in litigation the second time around when i realized

i really wanted to work with entrepreneurs in a context where i could form real trusted relationships

with them. But, i don’t want to be just another lawyer, but someone my clients can count on.

i launched my own practice based on a non-traditional legal business model. My law firm does

not typically work on the billable hour, but, instead, is hired on a flat fee or a perpetual plan. the

perpetual plan is valued by my clients because we work together to help them minimize their

litigation risks and keep them protected in their businesses. Being a small business owner myself,

i am actively in tune with my client’s needs, both legally and businesswise. the clients i represent

vary, but they all have the commonality of being entrepreneurs who love their business, not just

the financial aspect, but really love what they provide.


Ann Penners Bergen

raised by Dutch immigrant parents in tucson, arizona, i have loved business

and economics as long as i can remember. i left tucson to attend college at

Pomona College, in Claremont, California. after i graduated from Pomona with

a B.a. in economics and before i entered the legal profession, i worked with

several successful small businesses, including an insurance agency that helped

small businesses with their health insurance, a manufacturer’s sales represen-

tative which helped small businesses sell their wares to drug stores and a small

newspaper which helped drive customers into the door of its ad space clients.

Looking back, i think the common theme was the emphasis on marketing and

growth for those businesses. so, when i went to Loyola of Los angeles Law

school, i knew that i wanted to help business owners.

after i graduated from law school, i ended up helping business owners litigate their disputes and

provided general business legal advice. i both prosecuted and defended lawsuits involving large

and small companies. i went to trial and obtained 12-0 verdicts in favor of businesses against

the companies that sold them faulty equipment. i defended companies against claims of sexual

harassment and failure to pay commissions, and scores of other problems faced by businesses. i

helped draft contracts and did due diligence for companies purchasing other companies.

i couldn’t help feeling, however—in fact, i heard it from many of my clients—that i wish i could

have been on the scene earlier to help my clients with their contracts and their business dealings

BEFORE litigation started. However, unlike large companies that had their own legal depart-

ments – called general counsel – very few lawyers provided ongoing legal advice or counsel to

small companies. Because a major lawsuit can costs hundreds of thousands of dollars and even a

minor lawsuit can wipe out any kind of profit, the need for helping small companies was crucial.

However, just like a general counsel at a larger company, a lawyer representing small businesses,

also had to use “business sense” – knowing when to fight or when to fold – as well as “legal sense.”

so, after working at several very good law firms in the Los angeles area, in July 2009 i started

Penners Bergen, a Law Corporation. the best part of my practice is being part of my client’s busi-

ness team and helping them realize their entrepreneurial dreams! My clients include entrepre-



neurs starting their businesses, start-ups, professionals and small businesses.

One of the biggest reasons that small businesses don’t seek legal advice before they make deci-

sions is the fear of not knowing how much that legal advice will cost them and having to pay a

lawyer on an hourly basis – which causes them to see a “meter” running whenever they pick up a

phone to call their lawyer. that’s why i avoid the billable hour, if possible. to do this, i charge fixed

fees for almost all services, such as reviewing a contract, incorporating a business or drafting

corporate minutes. also, at the requests of clients, i also have implemented monthly subscrip-

tion services. For a reasonable monthly fee, subscribing clients can call me as they need me to

answer legal questions as they arise. Most importantly, on the membership plan, my clients and

i can be proactive, rather than simply reactive. and, yes, if need be, we can litigate. However, be-

fore making a decision to litigate, my clients sit down and make a plan with the goal of getting

into – and out of – litigation quickly.

Hopefully between flat fees and subscription plans and continual communications with me, my

clients can take control of the legal issues facing their business.

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