IamA Business Attorney in Los Angeles and I Can Answer all of Your Startup and Business Questions. AMA!

I am an aspiring super-villain and I would really like to take my global domination from a pipe-dream to reality. While I believe in my ambition, my savvy, and, most important of all, my super-strength and invulnerability, I'm just not sure where to begin. What should I know before I just become Incorporated, open a storefront, hire henchmen, purchase WMD supplies and begin manufacturing?

^This. Also, is there any cost effective way to find spiders for enhancing my powers? I spend to much time just sticking my hand under logs waiting to get bitten. I'm worried my time/expenses could be better utilized elsewhere.

Have you considered sticking your hands in other places?

It seems like you have everything figured out for now :). Is there any way you can offer me your super-villain services?

Lawyers often joke that "entrepreneur" and "founder" means a business owner who can't afford to pay you. Have you found that to be true?

Not necessarily. However, the word "entrepreneur" gets used more these days than ever. It somehow sounds "cool" to say you're an entrepreneur or a founder. When it comes to entrepreneurs or founders to mean business owners who can't afford to pay you -- I don't find that true in my personal experience. Usually the entrepreneurs I meet are super bright individuals who have a passion to be creative and start something on their own. I haven't really struggled with entrepreneurs or founders who can't afford to pay.

However, the word "entrepreneur" gets used more these days than ever

That's because it's literally the word for it?

http://www.merriam-webster.com/dictionary/entrepreneur

Taken out of context much?

OK 1st question:

I am developing a social application that requires almost no hosting so my company is currently "bootstrapping" the cost.. I don't plan on needing any outside investment. Should my company be an LLC, Corporation, or what?

GREAT question. C-Corporation is the most popular choice among startups. C-Corprations are standard corporations with unlimited number of shareholders and limited liability for the owners. Some features of a C-Corporation are: C-Corp pays taxes for itself, unlimited Shareholders, C-Corp can issue unlimited # of classes, and C-Corps have freedom in issuing employee stock options. For more information on which to choose, visit this page to learn more:

http://www.mollaeilaw.com/blog/whats-the-difference-between-a-corporation-and-an-s-corporation

How long have you been practicing? What separates you and your firm from other young solo or small practitioners?

I have been practicing for two years now. I also worked during all three years of law school but was not certified then. What separates me and my firm from other young solo practitioners is that I have an extensive knowledge on how business works in the tech and online world. I have extensive experience in marketing, SEO, and standing out to offer to my clients. I run my own firm as well as run a startup on the side.

My current employer mentions in the handbook that they allow us to work other jobs as long as it doesn't take up company time. If I were to start coding at home and then leave to start a startup, how at risk am I at owing my current employer money? Do you know of cases where a startup founder did this and lost / what mistakes did they make? Thank you!

allow us to work other jobs as long as it doesn't take up company time

Check out rescuetime.com very fine-grained time tracking. Excellent for providing proof in the future.

YES! I use RescueTime all the time. Really great for time tracking.

If you code at home, outside of your workplace, and if it has nothing to do with your work -- then you should be fine. Make sure to check for non-compete clauses in your employer's handbook.

Hello Sam. Not sure if this is your bailiwick but figured it doesn't hurt to ask. What kind of pitfalls have you seen when someone tries to transition a hobby/selling stuff online occasionally into an an actual business? Like someone decides "hey I can make a living doing this" expectations vs "this is more complicated than I thought" reality. It is a choice I may see myself making in a few years and while I would be able to bring a lot of the capital equipment I would need to the business to reduce startup cost starting a business seems kinda scary.

Hi there, GREAT question. What you explained is actually a dillema that hundreds of thousands of people struggle with on a daily basis. The answer is YES, you can definitely transition to a hobby/selling stuff online occasionally into an actual business. The best advice I can share with you is to start NOW -- start small and start testing out the market now. But before you start, make sure you do your research of the market to make sure your business plan is viable. And also if you start now, on the side as part time, you'll pick up a lot of intangible skills that you can carry when you end up turning it into an actual business. You can do it; I believe in you. :)

Thanks for answering. If you don't mind a follow on question; assuming that I were to sell reasonably well in the "before business" period, would that and the fact that I already have a lot of the equipment I need make it easier to get a small business loan?

I don't mind the follow on question at all. Happy to answer -- the answer is in short- yes. But you would need to prove that you were selling reasonably well in the "before business" period. <-- hope that was as clear as I could be. So basically if you can prove it, you should easily be able to get a small business loan. You should definitely seriously considering one if you feel you're at that stage of your business.

Idk if this is a question directed at you or not, but what do you think is a problem most people don't think about when they set out to start their own business?

what do you think is a problem most people don't think about when they set out to start their own business?

Expenses are exponential.

There is a "much larger cost" to doing business every day from a brick and mortar or popular online site, than being a 'tent and table' at weekend farmer's markets.

Mostly the formal expenses, attaining a business license, incorporating or going LLC, paying taxes, having to 'actually do taxes', etc. Those tend to eat up "casual profit".

Well said.

Another really good question. These 4 words: "writing down the plan." Most people usually (or always) have a bright idea. And it usually IS a bright idea. But most people just make a mistake when they don't do their research before they get into it. Not only research -- but it has to be research and findings thoroughly written down before you invest any more time and money into it. It's one of the main reasons why most businesses fail. It's super important.

Do you or does your firm hire paralegals? If so, how much education do you expect them to obtain?

My firm does not have paralegels. But I'm always on the lookout for really good writers. Writers can contribute in so many ways. And for a paralegel, you expect a paralegal to have actual experience before I would want to hire them. Start working -- working/experience is the best way to prove to someone that you're fit for the job.

Considering law school in the coming years but don't like where the market is at right now. If you were considering application in the current climate, knowing what you know now, would you do it again?

GREAT question. Best advice I can give you in this market: if you get full scholarship to an ABA accredited school, then go. If you don't get full scholarship: don't.

If you can be a successful lawyer, then you can be successful in anything else. Law degree doesn't mean anything anymore until you prove it in the real world.

Fellow attorney here (practicing over 5 years now). I have to concur. If I were to give a prospective law student advice I would say no do it. The economy is shit and fewer people are seeking legal representation unless they absolutely need it. There's so much legal self-help out there these days such as Legal Zoom, Will kits at Staples, "para-lawyers" on Craigslist teetering on the line of practicing law without a license with prices you cannot compete with. Of course a lot of these self-helpers screw up but that's another topic altogether.

Think about the prospects on a practical level. Doctors, Dentists, restaurants owners, etc.....they have repeat customers and their services are truly needed. Attorneys aren't so lucky. Folks may only need an attorney once or twice in their life...and you've got a zillion other attorneys in your county competing for the same nickel.

If you really really want to practice law then by all means pursue it but keep in mind the risks.

I would have to agree with you that things aren't the way they used to be but I don't think it's AS bad as explained it. I mean it's still up to the individual lawyer to market himself and pick up a following to the best of his or her capability.

While there are more venues to seek cheaper help (ie, Legal Zoom), lawyers typically do not replace the value of service that those websites offer.

Being a lawyer definitely does not guarantee you anything. You have to make it for yourself -- the same way you have to make it out for yourself in any other field.

The fucking timing on this one.

Hi Sam! My friend in Australia and I have just agreed to start a liquor import/export business partnership. I will own the US side and he will take the AUS side. Obviously my biggest hurdle to starting are all of the regulations I need to go through and figuring out which state is the best for me to warehouse the liquor both logistically and which state has the most favorable laws. Currently living in PA, but no way in hell I'm going to operate out of here because of the PLCB. Super fun legal digging for me ahead (mostly with the TTB and states liquor boards) to narrow it down and then hire a lawyer to help me finalize it.

Questions are as follows:

1. If you don't plan on operating the business in a state, which is the best to register your corporation? I've heard anecdotally that Delaware is fantastic.
2. Which corporate structure would be best? I read the article that you linked about the differences. From my research, it doesn't seem like most liquor import/export companies need a lot of shareholders. If I got to the point where I was considering growing to the point where I needed to start thinking about issuing more shares, what are the downsides of starting a new C-corp with the express intent to buy said S-corp vs. just starting off as a C-corp.
3. Insurance. What insurance would you recommend that I look for? Any specific providers that would be good?
4. Any obvious glaring holes that you see that I should research?

Thank you for doing this!

1. Yes, Delaware is usually the typical choice. I actually wrote a blog on this last week I actually posted today. Read about it here: http://www.mollaeilaw.com/blog/incorporating-in-your-home-state-vs-another-state

2. Limited Liability Company (LLC) is the answer typically. But keep in mind I would go with a Corporation if you would be changing to a Corporation later. You can be a C-Corp and change to a S-Corp later.

3. I can't offer my advice on insurance. Tricky subject that you should ask an insurance agent.

4. There will be a lot of glaring holes if you're going to go down this line. Research for lawyers who deal with international liquor sales -- I'm sure you'll find a good one easily with good research. That's the best advice I can give you for this one.

Thanks for the help!

my pleasure!

So what are your thoughts on the fact by doing this AMA in which you are providing legal advice you are potentially establishing what would be considered attorney-client relationships with strangers and setting yourself up for a possible malpractice lawsuit against you if anyone relies on what you say here to his or her detriment (I'll leave the possible ethical violations for a different question because that's a whole separate can of worms)? Just curious as an attorney who has defended malpractice lawsuits against other attorneys.

Definitely something to be aware of. My legal notice to the public is expressed on my post - This post and my comments are intended for information purposes only and is not intended as a substitute for legal advice. The legal information presented do not form an attorney-client relationship. Thank you for clarifying.

I'm looking into starting a 7 Eleven or Circle K convenience store (both franchises). Is there anything I should be aware of that some people don't think about? I have a good understanding and have discussed with them the startup fees, royalties, my responsibilities, and all the basic stuff in the contract.

Great question but unfortunately I do not have too much experience with franchises to give you advice. You should definitely talk to a lawyer who specializes in franchising before you proceed. A well-written contract may prevent many problems in the future.

I have a business idea that is based entirely around a set of Acronyms for the alphabet and the merchandise used to spread the phrasing. (Think, "WWJD?) but on a much bigger scale and all specifically tailored to one subject.

How the HELL do I go about protecting my idea legally? Trademark? Copyright? I'm lost about how I'm supposed to cover my backside in the event the idea is profitable / successful and others want to mimic it.

Thanks for doing this! *Fellow Southern Californian. :)

At a fundamental level, Copyright protects your art and writings, Trademark protects the names, symbols or slogans for products or services that you sell, and Patents protect your inventions and their designs. Also, ideas cannot be protected, only the product of ideas. For more information about what is Trademark or Copyright, visit my page on the topic:

http://www.mollaeilaw.com/copyright-trademark/

Hope that helps!

Fantastic. That's probably the least amount of words that can be used to summarize those three scenarios. Thank you for the breakdown and the link. If I'm ever rich from my idea and require counsel I'll remember who gave me advice at the cost of time.

My pleasure! Best of luck with everything.

I've heard it's bad to go into business with friends because of money.

Based on your past experiences how would you say it has worked out for friends who have gone into business together and what kinds of things should they do to protect themselves and the friendship/business?

GREAT question.

While that's generally the word of advice -- to not enter into a business with family or friends, I often find that it could work out well for you if you take the right precautions.

The best way to take the right precautions is to set up a clear and complete Partnership Agreement detailing everything before you start a business venture.

I'm actually working on a startup with a close friends for some time now and we both know we have nothing to worry about because we have a detailed Partnership Agreement protecting our interests.

I've heard it's bad to go into business with friends because of money.

After money, it's contribution.

My partner groused about paying a bit more for expenses... however, he quickly forgets at those moments, I've given him 50% of a business that existed solely in my head. Not a bit of it his idea. 10 pages of features. All from my brain.

So, be prepared for the "inequality fight."

That said, if you are good friends, with a solid relationship, you should be able to get through everything. Our last tiff where I told him I wasn't happy with his participation of the past weeks, was followed with a quick code update and a minor mea culpa. And all was good.

YMMV, my business partner is a former mentee, so, when push comes to shove, he still listens to me, affording a bit more parity to disagreements.

Well said.

Do you think the Fair Labor Standards Act will get updated to allow startups not to pay employees minimum wage while the company is starting? Do any of the startups you counsel know that they're breaking the law by not paying employees or themselves?

Good question. While you're supposed to may minimum wage to EMPLOYEES, there are ways to hire INDEPENDENT CONTRACTORS as a way to not pay minimum wage or follow other employee restrictions.

Independent Contractor Agreement is perfect for companies or businesses that are looking to hiring an indepedendent contractor on a temporary basis. Hiring an independent contractor is a great way for start-up businesses to acquire a specialized talent that is needed for a temporary assignment. Common independent contractor positions include graphic designers, business consultants, and freelance writers and editors.

For more information, read: http://www.mollaeilaw.com/independent-contractor-agreement/

I live in the south (Birmingham, Alabama, TBE). We have a growing startup culture, but just can't find as many resources as a place like San Francisco or LA, where everyone has a startup. Are there any resources (investors, mentors, etc.) readily available online that you can think of? A lot of the startups at Innovation Depot are tech-related, like boutique app designers and such, but then there are retail- and publishing-related startups like mine (which is a little bit of both)- how necessary is it to find a mentor/investor/partner who has had experience in the area you want to get involved in?

Great question. A lot of entrepreneurs deal with this issue where they're struggling to find mentors/investors/partners.

The best advice I can give you is to join co-working spaces, such as CrossCampus or Ignited Space (search for other ones). It's the best way to meet other entrepreneurs and mentors who you can get involved with.

I just found out about the Texas Business Personal Property Tax. If I incorporated the business in Delaware would I still have to pay this Texas BPP tax? (I live in Texas, and we operate out of Texas.

I'm sorry but I am not certified to give advice about Texas business law. You should contact a business attorney in Texas.

Thank you for this AMA! Very useful information.

My question is related to disbursements to members of a LLC. Can those be written off as expenses considering that the pass-through taxation is in effect for the members, as it is?

Thank you! Great question but you should ask this question from accountant or a tax attorney. It's a very specific situation so you want to be right before you take any steps.

Hi Sam! Just over two years ago I started a digital marketing company (in the LA area) that specializes in lead generation for a niche industry. Recently, though, I've begun working with two local marketers on a large, local project. The three of us are using this project as a beta of sorts to see if officially forming a partnership is wise (we each specialize in different forms of marketing and compliment one another well). My question: if all goes as planned, are we better off forming a legal partnership or remaining independent while placing one another under Mutual NDA's and Exclusivity Agreements?

GREAT question. You should definitely form a legal partnership -- you basically need a really well-written partnership agreement as soon as you can.

Placing one another under Mutual NDA's and Exclusivity Agreements only takes you so far -- and also it'll get you in a lot of problems later.

Love your idea btw. It's great that the three of you compliement one another well -- that's super key.

Another advice I can give you is possibly cutting the partnership to possibly to just 2 people to make it simpler. The more people you have involved, the more complicated the relationship will be.

Feel free to contact me if you want me to help you with the Partnership Agreement.

when a company has multiple side businesses (such as google which is in multiple industries), what sort of legal structure do they use to separate and insulate liabilities and budgets within these side businesses while maintaining common overhead?

That's a great question! Very complicated question to ask and answer but the best way I can answer is if a company is operating under one name, then your liabilities are under the parent entity. For example, if McDonald's is set to serve two industries: 1. the food industry, and 2. toy distribution, then all liabilities will fall under McDonald's parent corporation.

is there no easy way to compartmentalize liabilities without making complicated corporation-within-corporation structures?

That's a great question that I don't specifically know the answer to. From what I know -- no. If anyone else that can chime in, I would be more than happy to hear about it.

So what businesses are making money these days?

Online businesses, while super saturated, still have the best opportunity for growth and expansion. I tend to think of profitable businesses as businesses that are looking 3 or 5 years in the future. If your business plan is set to grow with technology's curve, then you're bound to grow if you keep at it. Tech and online sources of money -- that's where it's at.

I've been reading about California's LLC minimum tax of $800. Does the tax apply to the first whole year of business? What if the business does less than $800 of business that first year?

GREAT question. As you stated, LLC's and Corporations must pay a minimum tax of $800 to the California Franchise Tax Board each year. This tax is treated separately from any income, self-employment or payroll tax. It does not matter if the business does less than $800 of business that first year -- the business is still liable for the minimum tax of $800 to the California Franchise Tax Board.

I bet LA gets a lot of crazy and odd businesses, so what is the craziest one you have seen become successful? just out of curiosity

Too many to pick out one. All ideas are just ideas until they are played out in reality. Can't really blame someone for their radical idea.

I will hopefully be starting law school next year and am interested in business/corporate law. How did you get into this field? Would a JD/MBA be a good idea for someone with my goals?

That's great! I would definitely recommend doing a lot of research investing in a JD/MBA degree. I was deciding between the two as well but I decided I can do what I wanted with just an JDA. No degree guarantees you anything anymore. I would say stick with JD.

Do you think it's a bloody stupid idea for a company of any size to have one person, and ONLY one person responsible for major functions within the company? For example, maybe if you decide to fire them and then realize there's no one else you can give their job to.

Good point.

How do major corporations decide how much "damage" is done via copyright violations? The numbers seem arbitrarily high.

Good question. I don't think the point is to gauge how much "damage" is done by copyright violations. The point is to prevent future copyright violations and go after the ones that are actually damaging.

In the TV show Silicon Valley, an entrepreneur faces the loss of the intellectual property rights to his product because he used his employers computer one time to work on his product. Can this actually make you lose your IP?

Great question. For an in-depth analysis of your question, please read my article on this issue: http://www.mollaeilaw.com/blog/2015/2/16/who-owns-a-work-created-in-the-workplace