For years, I have been contacted by professional organizers looking to purchase solid Done-For-You Business Foundations Templates. Well, here they are! And at special Introductory Rates that I am offering at the NAPO 2013 Conference in New Orleans and online on my website until May 31st.

These business templates are what every organizer in business needs. They provide the foundation of a well-protected business legally and financially. They make it easier to operate your business, and to sell it someday as the business is “blueprinted” through the use of these templates over time. Designed by a professional organizer, attorney, and business coach/consultant/strategist, they are field tested and will save you from having to reinvent the wheel, copy something from the internet that is not applicable and will, therefore, not hold up in court, or spend tons of money on an expensive attorney that doesn’t understand the organizing industry.

business_contractThe full package includes a Client Agreement Template, Independent Contractor Agreement Template, and Operations Manual Template, along with detailed instructions, bonus articles on key issues, two audio programs for you to go deeper into learning and customizing, and a Business Expenses Excel Spreadsheet! All templates are delivered to you digitally in PDF to preserve the formatting, and Word so you can make them your own and customize.

In addition, I am offering a special upgrade at the time of purchase only: Add on a Strategy Session with me to customize any of the templates or ask questions for only an extra $150 (that’s $50 off the regular rate of $200!).

For those going to Conference:

  • Please stop by my Marketplace Table in the Expo Hall to say hello and purchase the Business Foundations Template Package. It will be delivered to you digitally by email, so you don’t need to worry about carrying anything home with you!
  • If you think this product is a valuable contribution to our industry, please consider reflecting that by voting for it in the Organizer’s Choice Awards (ballots are due by the end of the day Thursday, April 18th!).
  • special_offerThe Package is being offered at special Introductory Rates at Conference, but for those that can’t join me live in New Orleans, you can get the same deal on my website until May 31st while the Introductory Rates are in effect. Visit https://www.lisamontanaro.com/store/products/businessfoundations/ to order online any time.
  • I will be raffling off a free 75-minute Strategy Session at Conference so be sure to drop your business card (or name and email address) in our collection pouch at my Marketplace Table to win a Kick-Butt Business Coaching Session with me (a $200 value).
  • I will be launching the Bold Business Moves 6-Month Mastermind Program for experienced entrepreneurs ready to take their business to the next level, and the 12-week Powerhouse Success Entrepreneur Group Coaching Program for newer entrepreneurs who want training and coaching at an affordable rate. More details will be available at my Marketplace Table and in the weeks following Conference, so be sure to stop by and check your inbox in the weeks after Conference for all of the details and registration, so you don’t miss out!

Looking forward to seeing many of you in person in New Orleans!

Is the Threat of a Lawsuit a Real Fear?

As a small business owner, you may be one of the 48% concerned about frivolous or unfair lawsuits.  According to the U.S. Chamber Institute for Legal Reform, actual lawsuits and the fear of lawsuits cost U.S. small businesses $98 million in 2005.  That figure may seem large because it includes money spent on damage awards, settlements, legal costs, liability insurance premiums, and costs incurred by insurance companies on behalf of policyholders.  Is the fear of lawsuits a real fear?  Unfortunately, yes.  Anybody can sue anybody over anything at any time.  In reality, 46% of small business owners have been threatened with a lawsuit, 34% have been sued in the past 10 years, and 62% have made business decisions to avoid lawsuits.  Indeed, small businesses bear 69% of the total cost of the tort system to all U.S. businesses.

What is the Best Course of Action?

What’s a small business owner to do?  For starters, realize that the best defense is a great offense.  While most small business owners fear the law, it is much wiser to use the law as a protective shield.  There are many business and legal components that contribute to creating the strongest shield possible – business entities (the type of structure that governs your business), insurance, and intellectual property (copyright, trademark, patent, and trade secrets) to name a few.

As a former full-time practicing attorney and now a small business owner, I have been on both sides of the fence when it comes to the legal issues a business owner may face.  It is imperative that organizers understand the basics of the legal side of running an organizing business, and how to use the law as a shield to protect yourself and your business.

Creating a Shield Through Business Structure

The first item an organizing business owner should consider is the structure of the business.  There are 4 basic types of business entities: sole proprietorship, partnership, corporation, and limited liability company.  A common misconception of small business owners is that the business entity itself always creates a legal shield.  In some instances (a corporation, or limited liability company, for example), this is generally true.  However, if you are a sole proprietor (and, if so, you are not alone, as 78% of all small businesses in the U.S. are sole proprietorships), then you essentially have no shield.  As a sole proprietor, you are personally liable for all business debts and other obligations.  Fortunately, the law is not the only means to create a shield to protect your business.  If the business entity itself does not provide a shield, then you can create one by acquiring appropriate and adequate insurance coverage.  Thus, a sole proprietorship that is adequately protected by insurance may have an effective shield.

In the case of partnerships, another misconception is that the partnership is a distinct legal entity that provides a shield.  A partnership is essentially a sole proprietorship run by two or more individuals.  Thus, the structure itself provides no shield.  Again, insurance can be used to fill in the gap, and/or a different business entity can be chosen.  For example, did you know that you can create a corporation and the same two people that would have created a partnership will now be shareholders?  What about a limited liability company with more than one member?  There are many ways for two or more individuals to own a business together.  Carefully consider which makes the most sense, not only from an operations and decision-making standpoint, but to garner the most legal protection for the owners involved.

Even with corporations and limited liability companies, there are limits to the force of the shield.  Simply creating a business entity is not enough.  The business must be operated as a distinct legal entity, including refraining from co-mingling of personal and business funds, keeping personal guarantees on behalf of the company to a minimum, maintaining corporate/business records, and paying business-related taxes.  If the business entity is a sham or the owner does not follow the rules in terms of keeping the business shield up, the legal doctrine of “piercing the corporate veil” may be applied by a court if the business is sued.  Piercing the corporate veil allows a litigant to pierce the business structure and reach the owner personally.  Granted, piercing the corporate veil is only applied in very limited situations, but it should be used as a reminder to keep that shield up at all times when it comes to operating your organizing business as a distinct legal entity.

Creating a Shield Through a Written Client Agreement

As an organizer, when you agree to perform services for a client, and the client agrees to pay you for such services, you and your client have entered into a legal contract.  The terms of the contract, however, are difficult to recall and prove unless in writing.  A written contract is pivotal as it puts clients on notice of business policies and terms, sets a professional tone, promotes consistency of policies, and is legally enforceable in court (the decision whether to sue a client to enforce a contract is, of course, a business decision, as well as a legal one, and should be carefully considered).  The contract, thus, helps to prevent misunderstandings and clearly defines the expectations of the parties.

Some organizers choose not to use contracts for fear that a written agreement may be too formal or legal in nature and, thus, may scare a client away.  Again, this is a business decision that should be given consideration, and you should determine if this is a real or imagined fear by communicating with your clients to test the waters.  You can also use a “letter agreement,” which may be less intimidating for residential clients.  In the corporate organizing arena, a written contract is generally expected.  Another disadvantage of using a written contract is the cost of creating and advising if you use an attorney.  While there are standardized contract forms available online and in books, be careful not to accept such standardized forms carte blanche.  I often see small business owners fail to adapt contracts appropriately, which causes embarrassing typos, inappropriate clauses, and general confusion.  Not only does this look unprofessional, but in extreme cases it can also result in unenforceability of the contract in court.  Therefore, it is a good idea to have a business lawyer review the agreement to make sure it adequately protects you, contains the relevant terms, and fulfills the goals you want to accomplish.  It is an expense worth paying for to secure adequate protection in the long term.

A word of caution: stay away from “legalese.”  Use plain English so that the agreement is easy to understand and helps, rather than hinders, the understanding between you and your clients.  If you do use a client agreement, here is a list of sample clauses you should consider including:

  • Definition of the parties (define your status as an independent contractor if the contract is for corporate organizing);
  • Services to be performed;
  • Code of ethics;
  • Confidentiality;
  • Pricing and payment policies (pricing structure, retainer guidelines, travel time or expense, shopping charges, cancellation policy, when payment is due, fee for bounced check, credit card acceptance, payment of expenses, etc.);
  • Provision of materials, equipment, and office space;
  • Assurance of insurance coverage;
  • State law governance;
  • Permission to take and use photos;
  • Term of agreement/termination of relationship.

Now, go forth with shields raised!

The information provided in this article is not intended to be legal advice, but merely conveys general information related to legal issues commonly encountered.  For a comprehensive overview of legal issues involved in running an organizing business, refer to the CD “Navigating the Legal Landmines of an Organizing Business”  from the 2008 NAPO Conference in Reno, NV. 

Contact Lisa Montanaro by visiting www.LMOrganizingSolutions.com, by email at , or by phone at
(845) 988-0183.

This article originally appeared in NAPO News, Volume 23, Number 4, September 2008
Copyright © 2008 Lisa Montanaro of LM Organizing Solutions, LLC.

Want to Use This Article in Your E-zine or Website?

You can, as long as you use this complete statement:

Copyright 2008. Lisa Montanaro is a Productivity Consultant, Success Coach, Business Strategist, Speaker and Author who helps people live successful and passionate lives, and operate productive and profitable businesses. Lisa publishes the monthly “DECIDE® to be Organized” e-zine for success-minded individuals, and “Next Level Business Success” e-zine for entrepreneurs. Subscribe today at www.LMOrganizingSolutions.com. Lisa is the author of The Ultimate Life Organizer: An Interactive Guide to a Simpler, Less Stressful & More Organized Life, published by Peter Pauper Press. Lisa also publishes the DECIDE® to be Organized blog at www.DecideToBeOrganized.com. Through her work, Lisa helps people deal with the issues that block personal and professional change and growth. To explore how Lisa can help take your business to the next level, contact Lisa at (845) 988-0183 or by e-mail at .

If you are an entrepreneur that provides a service, chances are you use a client agreement (if you do not, please reconsider!). And if the service you provide is of a confidential nature, such as professional organizing, your agreement most likely contains a confidentiality clause (if it doesn’t, consider adding one!).

But what confidential information are you actually protecting? And how far does that protection extend? If you are unsure, then the confidentiality clause is essentially meaningless. If you don’t fully understand its weight and coverage, how will your client? Will a court or government body be able to ascertain the full meaning and scope of the confidentiality clause when asked to issue an interpretation of the confidentiality clause’s coverage? How will it play out if the party that drafted the clause can’t provide relevant information as to its scope and intention?

As a former practicing attorney that has seen her share of confidentiality clauses, I can assure you that the importance of crafting a meaningful, powerful, but accurate and realistic confidentiality clause is vitally important to your business.

Why include a confidentiality clause in your client agreement?
Let’s first look at why you would want to include a confidentiality clause in the first place. A confidentiality clause provides a safe environment for your client and promotes trust. Your client wants to know that he or she (or “it” if you are working with an organization) can fully trust you with confidential, personal, financial or proprietary information. A confidentiality clause demonstrates to the client that you are a true professional, willing to keep certain information to yourself and not disclose such information to others except under certain circumstances (more on the exceptions later). This allows the client to be fully present and disclose information freely which may result in a better, more open relationship, which in turn may lead to an increased ability to service the client.

What can you keep confidential?
There are some typical types of information that most confidentiality clauses cover. Many include confidentiality of financial information and trade secrets, promises not to release information to third parties without permission from client, no written or electronic information retained past the termination of relationship without the permission of client, no use of client information in marketing materials without permission of client, etc. In other words, it depends. You could guarantee that all information that you obtain during the scope of your work with the client be kept confidential. You could guarantee that any information that the client deems confidential will be kept from disclosure. But if you were to make that type of blanket guarantee, you would essentially be lying to your client. Why? Because it is up to the courts to determine the scope of the confidentiality clause if challenged.

Why would a confidentiality clause ever be challenged?
Let’s look at some scenarios. Let’s say you promise to keep all financial information confidential. Then you get served with a subpoena by a court or the Internal Revenue Service advising that you must appear in court or cooperate in an investigation. Let’s take it a step further and assume that if you fail to cooperate, you can be held in contempt of court, fined, or worse, jailed. Now do you plan to stand by your blanket statement that ALL information of a confidential nature will be kept confidential? Doubtful.

There are other scenarios that may result in you being called upon to disclose information. Child protective services investigations, elderly protective services investigations, drug enforcement investigations, spousal abuse investigations, tax and financial investigations, firearms investigations, etc. The list goes on. Are these scenarios common? Not typically. But that doesn’t mean they may not arise. If they do, you need to be prepared for the fact that the confidentiality clause will most likely not be a match for the court or government agency’s stronger need for the information you possess.

Do entrepreneurs have immunity against disclosure of confidential information?
Some entrepreneurs say they will try to keep confidentiality by arguing that they have a certain type of immunity under the law. If you are a lawyer, doctor, priest, therapist, or other professional that is covered by such an immunity, then by all means, go ahead and assert it. But the average entrepreneur, and professional organizers specifically, do not have a recognized immunity under the law. Therefore, a court would most definitely overrule any immunity you try to assert and order you to disclose any and all information in order to fully cooperate.

How do you assure confidentiality in a way that is meaningful but allows for the fact that you may be called upon to answer to a higher authority?
Be careful not to draft an overly broad confidentiality statement or you will give your client a false sense of security. You can only guarantee confidentiality up to the point when disclosure is required by law or subpoena. So why not just say that? Put clear language in your actual confidentiality clause that explains when disclosure is warranted. That way, the client is aware that you have every intention of protecting confidentiality, but that if you are issued a lawful subpoena and required to disclose, you will obey the law and cooperate. (By the way, when I refer to a “higher authority” in this context, I don’t mean God, although you may feel a moral obligation to disclose is just as strong, if not stronger, than a legal one. If so, then you can envision yet another means for disclosure and breach of the confidentiality clause if you will disclose for moral reasons and not just legal ones.)

Where does that leave you and your client if you disclose based on a proper investigation and lawful subpoena?
Disclosure would probably not endear you to the client. However, that would be the lesser of two evils given that the alternative may be financial ruin or jail time. Can your client sue you for breach of contract for violation of the confidentiality clause? Sure. Anybody can sue anybody over anything at any time. But you would have a pretty airtight defense to get the case dismissed given that your disclosure was court ordered. Plus, you may just sleep better at night if your disclosure helps remedy an unlawful situation, prevent a crime, or save a person.

The information provided in this article is not intended to be legal advice, but merely conveys general information related to legal issues commonly encountered.

 

Copyright © 2010 Lisa Montanaro of LM Organizing Solutions, LLC.

Want to Use This Article in Your E-zine or Website?

You can, as long as you use this complete statement:

Copyright 2009. Lisa Montanaro is a Productivity Consultant, Success Coach, Business Strategist, Speaker and Author who helps people live successful and passionate lives, and operate productive and profitable businesses. Lisa publishes the monthly “DECIDE® to be Organized” e-zine for success-minded individuals, and “Next Level Business Success” e-zine for entrepreneurs. Subscribe today at www.LMOrganizingSolutions.com. Lisa is the author of The Ultimate Life Organizer: An Interactive Guide to a Simpler, Less Stressful & More Organized Life, published by Peter Pauper Press. Lisa also publishes the DECIDE® to be Organized blog at www.DecideToBeOrganized.com. Through her work, Lisa helps people deal with the issues that block personal and professional change and growth. To explore how Lisa can help take your business to the next level, contact Lisa at (845) 988-0183 or by e-mail at .

Lisa will be serving as Moderator of the Golden Circle Ask the Organizer Panel at the 2012 NAPO Conference in Baltimore, MD on March 22-24, 2012. She will also be presenting “Don’t Be Afraid of the Big Bad Law: Using the Law as a Protective Shield for Your Organizing Business.”

Here’s a sneak peek:

I’m excited to share that I’ve been selected to present “Don’t Be Afraid of the Big Bad Law: Using the Law to Protect You & Your Organizing Business” at the 2012 NAPO Conference in Baltimore, MD on March 23rd & 24th. I’ve been presenting at the NAPO Conference since 2008 and it’s an honor to be able to share my expertise from my past career as an attorney to assist my colleagues.

If you’re an organizer, join me!  In my presentation, I’ll be discussing the different business entities, client agreements and what you should include in them, all about copyright and trademarks and the differences between independent contractors and employees. This will be an empowering session for you in building your business.

Here’s a video to fill you in more. http://tinyurl.com/3s55m35

If you are an entrepreneur that provides a service, chances are you use a client agreement (if you do not, please reconsider!). And if the service you provide is of a confidential nature, such as professional organizing, your agreement most likely contains a confidentiality clause (if it doesn’t, consider adding one!).

But what confidential information are you actually protecting? And how far does that protection extend? If you are unsure, then the confidentiality clause is essentially meaningless. If you don’t fully understand its weight and coverage, how will your client? Will a court or government body be able to ascertain the full meaning and scope of the confidentiality clause when asked to issue an interpretation of the confidentiality clause’s coverage? How will it play out if the party that drafted the clause can’t provide relevant information as to its scope and intention?

As a former practicing attorney that has seen her share of confidentiality clauses, I can assure you that the importance of crafting a meaningful, powerful, but accurate and realistic confidentiality clause is vitally important to your business.

Why include a confidentiality clause in your client agreement?
Let’s first look at why you would want to include a confidentiality clause in the first place. A confidentiality clause provides a safe environment for your client and promotes trust. Your client wants to know that he or she (or “it” if you are working with an organization) can fully trust you with confidential, personal, financial or proprietary information. A confidentiality clause demonstrates to the client that you are a true professional, willing to keep certain information to yourself and not disclose such information to others except under certain circumstances (more on the exceptions later). This allows the client to be fully present and disclose information freely which may result in a better, more open relationship, which in turn may lead to an increased ability to service the client.

What can you keep confidential?
There are some typical types of information that most confidentiality clauses cover. Many include confidentiality of financial information and trade secrets, promises not to release information to third parties without permission from client, no written or electronic information retained past the termination of relationship without the permission of client, no use of client information in marketing materials without permission of client, etc. In other words, it depends. You could guarantee that all information that you obtain during the scope of your work with the client be kept confidential. You could guarantee that any information that the client deems confidential will be kept from disclosure. But if you were to make that type of blanket guarantee, you would essentially be lying to your client. Why? Because it is up to the courts to determine the scope of the confidentiality clause if challenged.

Why would a confidentiality clause ever be challenged?
Let’s look at some scenarios. Let’s say you promise to keep all financial information confidential. Then you get served with a subpoena by a court or the Internal Revenue Service advising that you must appear in court or cooperate in an investigation. Let’s take it a step further and assume that if you fail to cooperate, you can be held in contempt of court, fined, or worse, jailed. Now do you plan to stand by your blanket statement that ALL information of a confidential nature will be kept confidential? Doubtful.

There are other scenarios that may result in you being called upon to disclose information. Child protective services investigations, elderly protective services investigations, drug enforcement investigations, spousal abuse investigations, tax and financial investigations, firearms investigations, etc. The list goes on. Are these scenarios common? Not typically. But that doesn’t mean they may not arise. If they do, you need to be prepared for the fact that the confidentiality clause will most likely not be a match for the court or government agency’s stronger need for the information you possess.

Do entrepreneurs have immunity against disclosure of confidential information?
Some entrepreneurs say they will try to keep confidentiality by arguing that they have a certain type of immunity under the law. If you are a lawyer, doctor, priest, therapist, or other professional that is covered by such an immunity, then by all means, go ahead and assert it. But the average entrepreneur, and professional organizers specifically, do not have a recognized immunity under the law. Therefore, a court would most definitely overrule any immunity you try to assert and order you to disclose any and all information in order to fully cooperate.

How do you assure confidentiality in a way that is meaningful but allows for the fact that you may be called upon to answer to a higher authority?
Be careful not to draft an overly broad confidentiality statement or you will give your client a false sense of security. You can only guarantee confidentiality up to the point when disclosure is required by law or subpoena. So why not just say that? Put clear language in your actual confidentiality clause that explains when disclosure is warranted. That way, the client is aware that you have every intention of protecting confidentiality, but that if you are issued a lawful subpoena and required to disclose, you will obey the law and cooperate. (By the way, when I refer to a “higher authority” in this context, I don’t mean God, although you may feel a moral obligation to disclose is just as strong, if not stronger, than a legal one. If so, then you can envision yet another means for disclosure and breach of the confidentiality clause if you will disclose for moral reasons and not just legal ones.)

Where does that leave you and your client if you disclose based on a proper investigation and lawful subpoena?
Disclosure would probably not endear you to the client. However, that would be the lesser of two evils given that the alternative may be financial ruin or jail time. Can your client sue you for breach of contract for violation of the confidentiality clause? Sure. Anybody can sue anybody over anything at any time. But you would have a pretty airtight defense to get the case dismissed given that your disclosure was court ordered. Plus, you may just sleep better at night if your disclosure helps remedy an unlawful situation, prevent a crime, or save a person.

The information provided in this article is not intended to be legal advice, but merely conveys general information related to legal issues commonly encountered.

When you agree to perform services for a client, and the client agrees to pay you for such services, you and your client have entered into a legal contract, often referred to as an agreement. The terms of the agreement, however, are difficult to recall and prove unless in writing. A written agreement is pivotal as it puts clients on notice of business policies and terms, sets a professional tone, promotes consistency of policies, and is legally enforceable in court (the decision whether to sue a client to enforce a contract is, of course, a business decision, as well as a legal one, and should be carefully considered). The agreement, thus, helps to prevent misunderstandings and clearly defines the expectations of the parties. But, only if you understand the terms of your own agreement!

Some entrepreneurs choose not to use contracts for fear that a written agreement may be too formal or legal in nature and, thus, may scare a client away. Again, this is a business decision that should be given consideration, and you should determine if this is a real or imagined fear by communicating with your clients to test the waters. You can use a “letter agreement,” which may be less intimidating for clients. A letter agreement is typically a one-page agreement on your company letterhead written in a letter format. Another disadvantage of using a written contract is the cost of creating and advising it if you use an attorney. But do you always need an attorney in order to draft an understandable and concise business contract? Not always. You can use one of the many online, software, or print resources available to draft a simple business contract for your company. But make sure that you understand every term in your own business agreement. Yes, every term. Here’s why.

For a contract to be valid, there must be a “meeting of the minds” between the two parties. If you do not even understand the terms of your own contract, how can there be a meeting of the minds with your client? So, a word of caution: stay away from “legalese.” Use plain English so that the agreement is easy to understand and helps, rather than hinders, the understanding between you and your client.

While there are standardized contract forms available, be careful not to accept such standardized forms as is. I often see small business owners fail to adapt contracts appropriately, which causes embarrassing typos, inappropriate clauses, and general confusion. Not only does this look unprofessional, but in extreme cases it can also result in unenforceability of the contract in court. I can’t tell you how many times I have seen the embarrassing situation where a business owner took a standardized contract and failed to revise it appropriately for his or her own business. This often occurs when people copy agreements off of the Internet and fail to modify the terms. If litigation eventually occurs, the result of this behavior could be very costly indeed.

As a former practicing attorney and now a small business owner, I have been on both sides of the fence when it comes to contracts. So test yourself and make sure you understand your own business agreement. Even if you draft your own business agreement, it may be a good idea to have a business attorney review the agreement to make sure it contains the relevant terms (and to explain the terms to you), and fulfills the goals you want to accomplish. It is an expense worth paying for to secure adequate protection in the long term. Otherwise, your agreement is just a useless piece of paper that you (and most likely your clients) do not understand.

Is the Threat of a Lawsuit a Real Fear?

As a small business owner, you may be one of the 48% concerned about frivolous or unfair lawsuits.  According to the U.S. Chamber Institute for Legal Reform, actual lawsuits and the fear of lawsuits cost U.S. small businesses $98 million in 2005.  That figure may seem large because it includes money spent on damage awards, settlements, legal costs, liability insurance premiums, and costs incurred by insurance companies on behalf of policyholders.  Is the fear of lawsuits a real fear?  Unfortunately, yes.  Anybody can sue anybody over anything at any time.  In reality, 46% of small business owners have been threatened with a lawsuit, 34% have been sued in the past 10 years, and 62% have made business decisions to avoid lawsuits.  Indeed, small businesses bear 69% of the total cost of the tort system to all U.S. businesses.

What is the Best Course of Action?

What’s a small business owner to do?  For starters, realize that the best defense is a great offense.  While most small business owners fear the law, it is much wiser to use the law as a protective shield.  There are many business and legal components that contribute to creating the strongest shield possible – business entities (the type of structure that governs your business), insurance, and intellectual property (copyright, trademark, patent, and trade secrets) to name a few.

As a former full-time practicing attorney and now a small business owner, I have been on both sides of the fence when it comes to the legal issues a business owner may face.  It is imperative that entrepreneurs understand the basics of the legal side of running a business, and how to use the law as a shield to protect yourself and your business. 

Creating a Shield Through Business Structure

The first item a small business owner should consider is the structure of the business.  There are 4 basic types of business entities: sole proprietorship, partnership, corporation, and limited liability company.  A common misconception of small business owners is that the business entity itself always creates a legal shield.  In some instances (a corporation, or limited liability company, for example), this is generally true.  However, if you are a sole proprietor (and, if so, you are not alone, as 78% of all small businesses in the U.S. are sole proprietorships), then you essentially have no shield.  As a sole proprietor, you are personally liable for all business debts and other obligations.  Fortunately, the law is not the only means to create a shield to protect your business.  If the business entity itself does not provide a shield, then you can create one by acquiring appropriate and adequate insurance coverage.  Thus, a sole proprietorship that is adequately protected by insurance may have an effective shield. 

In the case of partnerships, another misconception is that the partnership is a distinct legal entity that provides a shield.  A partnership is essentially a sole proprietorship run by two or more individuals.  Thus, the structure itself provides no shield.  Again, insurance can be used to fill in the gap, and/or a different business entity can be chosen.  For example, did you know that you can create a corporation and the same two people that would have created a partnership will now be shareholders?  What about a limited liability company with more than one member?  There are many ways for two or more individuals to own a business together.  Carefully consider which makes the most sense, not only from an operations and decision-making standpoint, but to garner the most legal protection for the owners involved.   

Even with corporations and limited liability companies, there are limits to the force of the shield.  Simply creating a business entity is not enough.  The business must be operated as a distinct legal entity, including refraining from co-mingling of personal and business funds, keeping personal guarantees on behalf of the company to a minimum, maintaining corporate/business records, and paying business-related taxes.  If the business entity is a sham or the owner does not follow the rules in terms of keeping the business shield up, the legal doctrine of “piercing the corporate veil” may be applied by a court if the business is sued.  Piercing the corporate veil allows a litigant to pierce the business structure and reach the owner personally.  Granted, piercing the corporate veil is only applied in very limited situations, but it should be used as a reminder to keep that shield up at all times when it comes to operating your organizing business as a distinct legal entity.

Creating a Shield Through a Written Client Agreement

When you agree to perform services for a client, and the client agrees to pay you for such services, you and your client have entered into a legal contract.  The terms of the contract, however, are difficult to recall and prove unless in writing.  A written contract is pivotal as it puts clients on notice of business policies and terms, sets a professional tone, promotes consistency of policies, and is legally enforceable in court (the decision whether to sue a client to enforce a contract is, of course, a business decision, as well as a legal one, and should be carefully considered).  The contract, thus, helps to prevent misunderstandings and clearly defines the expectations of the parties.   

Some entrepreneurs choose not to use contracts for fear that a written agreement may be too formal or legal in nature and, thus, may scare a client away.  Again, this is a business decision that should be given consideration, and you should determine if this is a real or imagined fear by communicating with your clients to test the waters.  You can also use a “letter agreement,” which may be less intimidating for clients.  In the corporate arena, a written contract is generally expected.  Another disadvantage of using a written contract is the cost of creating and advising if you use an attorney.  While there are standardized contract forms available online and in books, be careful not to accept such standardized forms carte blanche.  I often see small business owners fail to adapt contracts appropriately, which causes embarrassing typos, inappropriate clauses, and general confusion.  Not only does this look unprofessional, but in extreme cases it can also result in unenforceability of the contract in court.  Therefore, it is a good idea to have a business lawyer review the agreement to make sure it adequately protects you, contains the relevant terms, and fulfills the goals you want to accomplish.  It is an expense worth paying for to secure adequate protection in the long term.

A word of caution: stay away from “legalese.”  Use plain English so that the agreement is easy to understand and helps, rather than hinders, the understanding between you and your clients.  If you do use a client agreement, here is a list of sample clauses you should consider including:

  • Definition of the parties (define your status as an independent contractor if the contract is for corporate organizing);
  • Services to be performed;
  • Code of ethics for your professional association, if applicable;
  • Confidentiality;
  • Pricing and payment policies (pricing structure, retainer guidelines, travel time or expense, charges for supplies or products purchased on the client’s behalf, cancellation policy, when payment is due, fee for bounced check, credit card acceptance, payment of expenses, etc.);
  • Provision of materials, equipment, and office space;
  • Assurance of insurance coverage;
  • State law governance;
  • Permission to take and use photos for marketing purposes, if appropriate;
  • Term of agreement/termination of relationship.

Now, go forth with shields raised!