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Table of Contents
Page
CHAPTER 1 CHOOSING YOUR FORM OF BUSINESS
...
1
Advantages of a Sole Proprietorship
...
2
Advantages of a General Partnership
...
3
Limited Partnership
...
4
Disadvantages of a Limited Partnership
...
5
Advantages of a C Corporation
...
6
S Corporations
...
7
Disadvantages of an S Corporation
...
8
Advantages of a Limited Liability Company
...
9
Comparisons at a glance
...
9
The Need For Funding
...
10
Alter Ego Liability
...
11
CHAPTER 2 BUSINESS PLANS
...
12
Key Sections of a Business Plan
...
13
Company Description or Business Overview
...
14
Market Information
...
16
Competitive Analysis
...
17
Management & Ownership
...
18
Sales & Marketing
...
19
Marketing
...
21
Financial Plan
...
22

i

A Mini Plan
...
23
Confidentiality
...
25
Choosing A Name
...
27
Publication Requirement
...
28
Board of Directors
...
30
Bylaws
...
31
Stock Certificates
...
33
The Stock Ledger
...
34
Loans
...
36
Stock Sales
...
37
Angel Financing
...
39
Tips For Finding Angel Investors
...
40
Disadvantages of Leasing
...
41
Bank Financing
...
45
Income Statements
...
46
Record Keeping
...
49
Break Even Analysis
...
49
Budget tips
...
51
Accountants
...
52
Do’s & Dont’s About Hiring Bookkeepers & Accountants
...
54
Income Taxes
...
55

ii

Pass Through Taxes
...
56
Sales Taxes
...
57
Social Security & Medicare (FICA)
...
58
Employment Taxes
...
58
Unemployment Taxes
...
59
Tax Software
...
61
Tax Planning
...
62
Labor Laws
...
64
Employment Interviews
...
66
Your Responsibilities
...
67
Offer Letters
...
68
Employment Agreements
...
69
New Employee Paperwork
...
71
Employee Drug Testing
...
72
Motivating Employees
...
73
Five Common Reasons Why Employees Become
Disenchanted
...
74
Employee Incentive Arrangements
...
75
Bonuses
...
76
Retirement Plans
...
77
Hours
...
78
Firearms & Weapons
...
78
Communications & Computer Use
...
80
Maternity, Paternity, Adoption, Disability & Family Leave
...
81
Avoiding Employee Lawsuits
...
82
Parting Ways
...
83
Settlement Agreements
...
85
Understanding Contracts
...
86
License Agreements
...
88
Lease Gotchas
...
90
Boilerplate
...
92
CHAPTER 10 LEGAL ISSUES
...
93
Laws To Worry About
...
96
A Good Filing System
...
97
Your Start-Up Business Legal & Licensing To Do List
...
99
Arbitration
...
100
CHAPTER 11 PROTECTING YOUR INVENTIONS & IDEAS
...
101
Before Embarking On Your Patent Quest
...
103
Use of Copyrighted Materials
...
105
Infringement of the Copyrighted Works of Others
...
106
Filing Your Trademark Application
...
107
Confidentiality and Non-Disclosure Agreements
...
110
Market Research
...
111
Advertising
...
113
Do’s & Dont’s of Print Advertising
...
115
Television
...
116
Billboards, Signage & Posters
...
117
Web Ads & Paid Listings
...
117
Press Releases
...
119
Direct Mail
...
121
Web Sites
...
122
Web Hosting Services
...
123
What Makes A Good Web Site?
...
126
Liability Insurance
...
127
Property Insurance
...
128
Business Interruption Insurance
...
129
Making A Claim
...
131
Other Types of Insurance
...
133
CHAPTER 14 OFFICE LEASES
...
134
Types of Leases
...
138
Getting Out Of A Lease
...
139
APPENDIX A FORMS & AGREEMENTS
...
152
A2
CHECKLIST FOR FORMATION OF A CALIFORNIA
CORPORATION
...
159
A4
STOCK SUBSCRIPTION AGREEMENT
...
172
A6
CHECKLIST FOR OFFICE LEASES
...
180
SAMPLE FINANCIAL STATEMENTS
...
185
CHECKLIST FOR ISSUING STOCK
...
Based on potential liabilities, tax status, ease of starting up and
attracting investors, you can elect to do business as a sole proprietorship, form a
general partnership, form a limited partnership, incorporate or form a limited liability
company
...

Here, we outline the possible ways in which you can elect to structure your business,
including some of the advantages and disadvantages of each form
...
Tax and liability issues, for example, will be
determined in part by your own personal assets
...
Many small
businesses operating in the United States are sole proprietorships
...
The owner is also personally responsible for all debts and liabilities
incurred by the business
...
As owner, a sole proprietor can even pass a
business down to his or her heirs
...
The
owner pays taxes on income from the business as part of his or her personal income tax
payments
...
The paperwork
and formalities, however, are substantially less than that of corporations, allowing sole
proprietors to open a business quickly and with relative ease (from a bureaucratic
standpoint)
...

Advantages of a Sole Proprietorship:
•
•
•
•
•

A sole proprietor has complete control and decision-making power over
the business
...

No corporate tax payments
Minimal legal costs to forming a sole proprietorship
Few formal business requirements

Disadvantages of a Sole Proprietorship:
•

•
•

The sole proprietor of the business can be held personally liable for the
debts and obligations of the business
...

All responsibilities and business decisions fall on the shoulders of the sole
proprietor
...


Note: If the business is conducted under a fictitious name it is up to the sole proprietor
to file all applicable forms under the fictitious name or under “doing business as” (DBA)
...
The sole proprietor remains liable even if he or she is doing business under
a fictitious name
...
Some will elect to incorporate once the business has started to grow while
other business owners maintain their sole proprietorship for many years
...
They share assets, profits, liabilities and management responsibilities for
running the business
...
They are taxed in the same
manner as a sole proprietorship, meaning each partner includes business income on his

3
or her personal income tax return
...

While general partnerships provide a means of raising capital more quickly and allow
several people to combine resources and expertise several problems commonly occur
including:
•
•
•

Partners having different visions or goals for the business
An unequal commitment in terms of time and finances
Personal disputes

For these, and other reasons, general partnership agreements should be drawn up
carefully with legal counsel and signed by all partners
...

General partnerships can be less expensive and require less paperwork and formalities
than forming a corporation, but the partnership agreement is a key element and should
be drawn up with due diligence on the part of all parties
...
If each partner takes on a defined role and there is general agreement on the
business plan, goals and visions from the onset, a partnership can be advantageous
...
The success of such an
endeavor depends largely on the personalities of the parties involved
...
The limited partners typically provide capital and help arrange financing
while not taking an active role in running the business
...
The general partner in a limited partnership runs the operations of the
business
...
You are required to file with your
secretary of state and must also file various reports
...
For this reason individuals
are reluctant to be general partners
...
This, however, does not mean that a limited partner cannot be part of, or
have a vote in, major decisions that affect the partnership
...
Taking on the financial risk of his or her investment but not the liability risk, is
also more attractive to a limited partner
...
Limited partnerships are
often formed to acquire, operate and hold real estate
...


Disadvantages of a Limited Partnership
•
•

Filings, formalities and state requirements
General partners assume personal liability

5
An interesting aspect of the limited partnership is that partners are able to allocate
profits, losses and gains as they see fit, regardless of the equity interest of a specific
partner, subject to compliance with tax laws
...


C Corporation
The most commonly found type of corporation is the C Corporation, which is a for-profit,
state incorporated business
...

The corporation is established as a unique business entity, which takes on a distinctly
separate business and tax identity from that of the owners (the shareholders)
...
In return, the business owners are typically removed from personal liability
for debt incurred by the corporation
...
This is the most significant reason
why many business owners choose to incorporate
...

To establish a corporation, there are several requirements and formalities that need to
be addressed
...
In
addition, state requirements usually include minutes be taken at shareholder and Board
of Director meetings, appointment of officers and maintaining specific records as
outlined by the state in which the incorporation documents are filed
...
Corporations must adhere to
corporate tax laws and file corporate taxes regularly
...

Advantages of a C Corporation
•

•

•
•
•
•

The corporation is a separate legal entity, and if it is adequately
capitalized and proper corporate formalities are followed, the shareholders
should generally have liability protection from the debts and obligations of
the corporation
...

100% deductible health insurance for all employees as well as group term
life insurance up to a specified amount per employee
If a stockholder dies or wishes to sell out, the corporation continues
Easier to raise capital as a corporation than as a sole proprietorship or
partnership
Can offer employee incentive stock plans

6

Disadvantages of a C Corporation
•

•

•
•

“Double taxation”
...

Formalities and regulations must be followed very closely in conjunction
with the laws regarding incorporating in a specific state
...

Costlier to start than a sole proprietorship or partnership
More time and effort to maintain

While the idea of “double taxation” is very troublesome to many new business owners, it
is not usually significant for small businesses, where it is unlikely that there will be large
dividend payouts
...
As
the owner, you can pay yourself a reasonable salary and handle any number of duties
in the corporation
...
This
way you can reduce your own personal income tax payments
...


S Corporations
An S Corporation is initially formed in the same manner as a C Corporation, by filing
incorporation documents with the state of incorporation
...
To do so, they need to file an IRS form 2553
...

The S Corporation has shareholders and is taxed like a sole proprietorship or a
partnership rather than a C Corporation, which is taxed as a separate business entity
...
The corporation still files a federal return (form
1120S) and possibly a state return as well, if required by individual state law
...
Some
states, however, do tax S Corporations in the same manner as C Corporations
...


7
Advantages of an S Corporation
•

•
•
•

Corporate losses can be passed through to the shareholders and as the
owner (and shareholder) you may be able to take the loss against income
that appears on your personal return
...

You can minimize self-employment tax and FICA tax
...

It is easier to raise capital as a corporation than as a sole proprietorship or
partnership
...

Like a C Corporation, it can be costly to set up and follow formalities
...


Other regulations imposed on S Corporations include:
•
•
•

All shareholders must be U
...
citizens
...

Benefits such as health or accident insurance for employee shareholders
(with at least 2% ownership) may not be deducted by the corporation
...
Also, a business owner who may want to take
business losses on his or her own personal tax return, possibly to offset income earned
by his or her spouse, may opt for this type of corporation
...

Like other corporations, the S Corporation can limit the personal liability of the owners
...
It is important, however, that the owner keeps his or her personal
financial records and those of the S Corporation completely separate to avoid legal
entanglements
...
A
relatively new form of business, LLCs have become popular over the past ten years
...
Therefore,
there are no federal corporate taxes imposed on the LLC as a separate entity
...

Information that is required will include the latest date at which the LLC is to dissolve
and a statement explaining whether the LLC will be managed by one manager, several
managers, or the members
...
This allows for greater flexibility without formalities, such as
Board of Director meetings, which are imposed on a corporation
...

Advantages of a Limited Liability Company
•
•
•
•

Personal liability protection for members
No need to meet the requirements and formalities of a corporation to
maintain the business status
Members can draw up their own contract, allowing for flexibility in
management and responsibilities
Greater flexible in allocating income to members than in a corporation
...


9

Making The Right Choice
Comparisons at a glance:
Form of Business

Tax Structure

Liability

Sole Proprietorship
General Partnership
Limited Partnership
Limited Liability
Company
S Corporation
C Corporation

Pass through
Pass through
Pass through
Pass through

Personally liable
Personally liable
Liability protection for limited partners
Personal liability protection

Pass through
Corporate taxes

Personal liability protection
Personal liability protection

Form of Business

Ease of Start Up
(Based on paperwork
& restrictions)

Sole Proprietorship
General Partnership
Limited Partnership
Limited Liability
Company
S Corporation
C Corporation

Easy
Easy
Medium
Difficult

Difficult
Difficult
Medium
Medium

Ongoing
Government
Regulations &
Formalities
Few
Few
Some
Some

Medium
Medium

Easier
Easiest

Many
Many

Ease of
Attracting
Investors

Checklist
When deciding on which form of business will best serve your purposes you should take
into account:
•
•
•
•
•
•

Your own personal assets and liabilities
Your existing capital and need for outside investors
Your ability to attract outside investors
State licensing, statutes and tax requirements
The time commitment necessary to handle regulations and formalities
The size, scope and type of business you are opening

Start up costs including licensing and other fees
The Need For Funding
The need for funding is one of the first concerns for any new business and unless you
have the personal assets or can tap into friends, family or your bank, you will be seeking
investors
...
If, however, you do not need investors or are not seeking
shareholders when starting up a business, you may do what many business owners
have done and start small as a sole proprietor and incorporate later as the business
grows
...

The potential for liability from customer relationships or interaction impacts heavily on
your liability risk
...
However, some small business owners opt for
coverage from insurance policies rather than going through the time and expense of
incorporating
...
It will
also be assumed that a professional business such as a law firm or accounting practice
will have greater assets, making them greater “targets” in a litigious society
...
Likewise, someone who has already had previous business success
and has significant assets from a previous business venture would also want to protect
those assets closely
...
If you expect it to take several years before you see a profit, you
might select an S corporation so that shareholders can offset some of their personal
income with losses from the business
...
Others become sole proprietors
simply because they do not believe they can incorporate
...
Therefore, it is wise to sit down with both an attorney
and an accountant and discuss the details of the business that you are planning to start
where you see it going in five or ten years
...
Then
make the decision that is best for your new business from all aspects
...
This is called “alter ego liability”
and emphasizes the need for any business that has incorporated, no
matter how small, to abide by the guidelines in the state in which it is
incorporated
...
The risk of
personal liability for the debts and obligations of business are too great
...

S corporations make a lot of sense if you can qualify
...


C corporations make sense if you plan to have sophisticated angel or venture capital
investors
...
It helps you put all the pieces in place and
clearly envision the possibilities for the future of your endeavor
...

Typically, the process of studying the market and putting your business plan together
will allow you to clearly see where your business will fit in the marketplace, where your
profits should come from and how long it should take to see such profits
...

Within the plan, you will include a financial section with a breakdown of your start up
costs, a break-even analysis and a projection of your profits and losses
...
It is useful to see, on paper; how all of the details
come together to formulate the overall plan and ultimately should help you determine

13
how to proceed
...

And finally, unlike a blueprint, which usually remains somewhere buried in the archives,
the business plan should be a viable tool once the business is “up and running”
...


Key Sections of a Business Plan
Some business plans will run four or five pages, while others will be forty pages
...
Regardless of the
length of the plan, the same key elements need to be included
...

Appendices can be included to provide additional data and supporting information
...
The executive summary provides a short (usually one or
two page) overview of the rest of the business plan
...

The executive summary will touch on all of the areas of the plan that follows, including:
•
•
•
•
•
•
•

The overall objective of the business
What makes the business unique or distinctive
The experience of the management team
The target audience
Future aspirations
How the business will operate
The current competition in the market

14
•

Costs and financial projections

This last section is written primarily for funding purposes, although it also provides you,
as the owner, with a capsule summary of all that needs to be addressed
...

A strong executive summary should be concise and engaging
...

Company Description or Business Overview
Unlike the executive summary, which needs to be concise, this is where you can
elaborate on the details of the business
...
The
who, what, where, when, and why of the business should fall into place and readers
should have a clear understanding of how the company will function
...

Details that prospective investors will likely want to see in this section include:
•
•
•
•
•
•
•
•

The legal structure of the business (Sole proprietorship, corporation, etc)
Formation of the business (New venture, buying an existing business,
franchise, etc
...
)
Resources (What you will need to get started and operate, from
machinery to computers to manpower)

By the end of this section, the reader should understand why you believe this business
will work
...

Products & Services
This section describes the products manufactured or sold, or the services offered
...
Indicate why you have selected to market such products or services and the
need you fulfill for your prospective customers
...
Service providers need to include the full range of services that

15
will be provided, their benefits to the target market and then include any products that
they sell in conjunction with their services
...
You want to provide sound reasoning
for manufacturing or selling a product or service
...
This sets a framework so that investors will see what piece of this market
you will be able to capture and from where you will build your customer base
...

Market information must be:
•
•
•

Timely
Accurate
Easy to read and understand

Furthermore, you should present:
•
•
•
•
•
•
•

An overview of the market
Trends and changes in the market
Niche markets or segments within the larger market
Your target audience
The needs of your target audience
How you will impact on those needs
How you anticipate the market will change over the next two, three or five
years

Your market information should correlate with the products and, or services you have
presented above
...
Then you will follow it up with specific geographic and
demographic data
...
Charts and graphs can be
advantageous in illustrating trends and growth patterns in the market
...
This will provide investors with a clear
understanding of what market share you can realistically gain
...
Using
available data and even visiting competitors in person, you will learn how they conduct
business, price their merchandise or services and manage their businesses
...
Without being disparaging
toward any other business, you will then want to describe exactly how your business will
differ and present alternatives to that which your competition is currently offering
...
Naturally, the more crowded the marketplace the more
creativity will be required on your part
...
For example, several
privately owned bookstores have succeeded against competition from larger
“superstores” by appealing to niche markets, such as targeting a store, along with
special services and activities, to science fiction and occult readers
...

Operational Plan or Operational Strategies
This section describes how the business will operate
...
A service company will describe how the
service is offered and performed
...

The operations plan should include:
•
•
•
•
•
•
•

Who will handle specific tasks
How the business will be physically set up
Inventory details
Manufacturing details
Pricing details
Safety precautions
The need for subcontractors or freelancers

The key to the operations section of your business plan, however, is not only to explain
how you will do business, but to explain your strategies and how they best facilitate the
type of business you plan to do
...

You can highlight how your method of doing business will:
•
•
•
•

Benefit your customers
Expedite transactions
Ensure quality customer service
Give you a competitive advantage

Almost every business has a need to interact with other companies
...
If, for example, you are taking sales orders online and using a
fulfillment house, you will include a mention of the fulfillment house that you are working
with and how they benefit your operation
...

Additionally, a contingency plan of action may also be necessary if your business is
highly sensitive to weather conditions or factors that are out of your control
...


18
Over the life of the business, the manner in which you do business will change
significantly, as you will need to keep up with competitors and address changes in
technology, the economy and in marketing trends
...
A business plan written ten to fifteen years ago,
for example, typically did not include sales done via the Internet or the need for
computer savvy employees to handle such sales
...

Management & Ownership
This section features short (one to three paragraph) biographies of the key personnel
involved in forming and running the business
...
What each member of the team brings to this
business, including pertinent past experience and significant attributes, should be
included
...

The organizational structure of the business should be included so that readers will
have a clear understanding of how day-to-day operations will be managed
...
There is, however, a need to be careful when writing this section to avoid
some common mistakes
...

Do not use superlatives
...

Be concise
...
(i
...
don’t
simply list 11 Vice Presidents)
...

Funding Tip
Many venture capitalists view the makeup and experience of the management team
to be the most important element of a business in determining what companies to
invest in
...


19
Sales & Marketing
This section will address sales tactics, pricing, advertising and an overall marketing
plan
...
External influences, including changes in the marketplace,
competition and the overall economic climate will play a role in how you plan to market
your business
...
This should include
all means of selling such as:
•
•
•

In store sales
Internet sales
Catalog sales

Specific sales strategies including anticipated promotions, should also be included
...
Be conservative in your sales estimates and back up your projections with
reasoning that supports your sales plan
...
If, as is
now the case with many businesses, hard goods and services are both sales options,
indicate how both will be sold and how they will be tied together
...
Various factors will influence your pricing strategies including:
•
•
•
•
•
•
•
•

Your costs of purchasing or manufacturing goods
Time involved in performing a service or making a sale
Economic factors
Location
Competition
Market conditions
Consumer needs
Seasonal activities

20
•
•

Availability or exclusivity of an item or service
Manpower or labor involved

Your pricing strategy should be explained to reflect the applicable factors listed above
along with your overall market strategy
...
Conversely, you may have an offering that is
unique to your demographic region and can therefore set higher prices
...

Marketing
Marketing will play is a significant part in the success of any new business
...
By learning the preferences and buying
habits of your projected target audience you can create a marketing plan that will peak
their interest and meet their needs
...


You will also need to outline your positioning strategy, which is how you plan to portray
your product or service in the marketplace
...
Typically, the types of media you plan to use for advertising
such as print, television, radio, online banner ads, Internet paid listings or search
engines, etc
...
Explain how your choice of marketing vehicles will
allow you to best reach the demographic audience that you are targeting
...
For example, are you trying to establish your business as a highend company or a cost saving alternative to established brands? The corporate image
of the company will be part of your plan
...
Typically, this will allow the new business to
establish itself
...
It is also more cost effective for start-up companies to go
after a smaller target audiences to establish themselves
...
It should be outlined in the business plan in a manner that shows diversity and
fits within the scope and means of your overall budget
...
It’s advisable to sit down with your
accountant, financial advisor or CFO to outline the financial structure of the business
before including it in the business plan
...
The financing necessary to cover
operations, marketing and promotion (discussed earlier)
Financial documents will include:
•

Break-Even Analysis

22
•
•
•

Balance Sheet
Projected Profit and Loss Statement
Projected Cash Flow Statement

You should include month-by-month details for your cash flow projections and income
statement for the first year of business
...

The financial plan will also include the start-up budget and operations budget, indicating
what you need to launch the business and how much you will need to keep the
business going on an ongoing basis
...

Review Your Business Plan
Once you have completed your business plan, go back and review your work
...
It should illustrate the goals, objectives, strategies and
means of operations for the new business
...
Neatness and attention to detail indicate that you are serious
about this business endeavor
...
Such a plan
can be used to introduce the company to prospective investors in a concise manner,
which can then be followed by sending the detailed plan to those parties who are most
interested
...
This would include:

23
•
•
•
•
•
•

A short description of the business
An overview of the market or industry analysis
A review of the products or services the company offers
An overview of the marketing plan
A chart outlining financial projections over one, two and three years
A short biography of each of the key members of the management team

If this shortened version of the business plan is intended to raise funding, you should
add how much money will be needed to start the company and where existing capital
has come from to date
...

Just as with a longer, detailed business plan, you will need to review the mini business
plan carefully to make sure that what you have stated is accurate and that you are not
over-estimating your financial projections
...

Often, condensing the market or industry analysis and the marketing plan into a few
short paragraphs are the most difficult tasks
...
Conclude the section with a third paragraph
highlighting how you foresee the business fitting into the market and capturing a share
of the existing market
...
Mention packaging, promotional materials and, or, advertising that will be key
to your overall marketing plan
...

Web Resources
For a wealth of practical help and guidance in writing a business plan you may
want to look at www
...
com, which features a business, plan outline, expert
advice and sample business plans
...
Businessplans
...


24

Confidentiality
On the front page of the business plan, indicate the confidential and proprietary nature
of the plan
...
Copyright © 2012 by ABC, Inc
...
If you intend to send the plan to venture capitalists or other investors, most of
them will not agree to sign a Non-Disclosure Agreement or Confidentiality Agreement
...
Incorporation papers can be easily obtained from
your state government, from business software packages, online or in corporate kits
...
Having an attorney work with you on the process of
incorporation is strongly advised
...
A name for the corporation needs to be selected and researched to make
sure it is available in your state of choice
...

Your corporation will need to establish bylaws, appoint a Board of Directors (or a single
director) issue stock certificates and hold Board of Directors meetings at which minutes
will be recorded (or provide for written consents in lieu of meetings)
...
Each of the above-mentioned steps takes some
effort, but is worthwhile for personal liability protection and other benefits of
incorporating, as discussed in Chapter 1 of this book
...


26
•
•
•

•

The name needs to comply with the rules of incorporation in your state
...

The name needs to serve the company by being distinctive or highlighting
the benefits of the company in order to draw attention from prospective
customers or clients
...


States will vary in their regulations regarding corporate names, but typically you will
need to use either "Corporation", "Incorporated" or an abbreviation of one of these
corporate designations in your corporate name
...

It is important to conduct a name search prior to registering Articles of Incorporation
...
To do a name search you can begin by simply going on the Internet and
looking for similar business names
...

In addition, you will also want to do a trademark search and an overall name search of
businesses in the region in which you will be doing business
...

Trademark law provides that if your business name is too similar to that of a competitor,
you can be accused of trademark infringement
...
Therefore, researching
business directories and databases is advantageous
...
It is also possible to
search for a federally issued trademark through the Patent & Trademark Office
(www
...
gov)
...
If,
however, you are then going to use other “fictitious” names under which to sell products
or services, those names need to be registered in accordance with state law and
regulation regarding fictitious names or “doing business as”
...

It is possible for two businesses operating independently of one and other to have the
same names
...


27
It is also important that if you plan to do business over the Internet, or have a web
presence for promotional purposes, that you also do a domain name search to make
sure the name that you would like to use is available for Internet use
...

Besides the need to do a name search and the need to comply with state requirements,
selecting the right name can be significant for business purposes
...
For example a
law firm or accounting firm may simply use the last names of the owners, while retailers
may need shorter, more creative names to capture customers’ attention
...
It also lends itself to a short catchy phrase, FedEx
...
Doing market
research within selected demographic groups can also be very helpful when
determining what a name means to your target audience and how they will react
...
You can select any of the 50 states or the District of
Columbia in which to incorporate
...
Typically, small corporations
that will be doing business on a local or regional basis incorporate in the state where
they are physically located and conducting business
...
Qualification is not
difficult and includes a company name search and the filing of a certificate of authority in
that state
...
A drawback about doing
business as a foreign corporation in another state is the possibility of having to deal with
legal claims or lawsuits in that state
...
Inquire in your state as to
whether there is such a publication requirement
...
Each state has its own fee
structure in place for corporations
...
Some states will also require every business to obtain a
business license, which can typically be obtained for a nominal fee
...
Arizona, Georgia,
Nebraska and Pennsylvania also require a new corporation to pay a publication fee,
which ranges from $150 to $300
...
A law firm
specializing in start-up business will generally charge in the $500 to $5,000 range for
assisting you, as a small business owner, with the incorporation process
...
Legal costs will increase if you
have multiple shareholders or complicated shareholder arrangements
...
The tax
rates vary from state to state but will usually land somewhere between $800 to $1,000
...
com will also charge various fees
...
The Board of Directors is charged with
the overall responsibilities for the corporation
...
In many states this may be only
one person if you only have one shareholder
...

The shareholders appoint the Board of Directors, which can, and often will, include
some of the shareholders
...

Sometimes, however, as a corporation grows, it becomes advantageous to bring in an
additional director, or directors, to present other opinions and expertise on business
matters
...
This will likely include
establishing policies which the business will follow, and making major business
decisions such as:
•
•
•
•
•

Establishing and amending Bylaws
Issuing dividends
Approving major contracts or mergers
Making key decisions regarding budgets for the company
Electing or appointing officers

Most often the Board does not handle the day-to-day activities of the business, but
leaves that responsibility to the officers of the corporation
...
Generally, this will include:
•
•

Board of Director meetings held quarterly or monthly
Recorded minutes from each meeting

It is important that minutes be accurate and reflect the work done by the Board, which is
expected to act responsibly and make decisions that are in the best interest of the
corporation
...

The first Board of Directors meeting should typically include:
•
•
•
•
•

Approving the corporate Bylaws
Establishing procedures including record keeping
Deciding on the corporation’s fiscal year
Selecting or appointing the corporate officers
Electing S Corporation status if appropriate

30
•

Authorizing the sale of stock

Additionally, a stock certificate should be drawn up in advance to be accepted as the
official corporate certificate at this first meeting
...

Board members are required to act in a prudent manner on behalf of the corporation’s
best interests
...
All Board actions should be documented to show that
corporate business was conducted responsibly
...


Officers
Corporate officers are typically responsible for the day-to-day operations of the
company
...
In a small corporation this can usually be one person for all of
the roles
...

Even though most states allow one person to wear many corporate hats, the individual
or individuals holding positions as officers may be held accountable for not properly
fulfilling their responsibilities
...
The Treasurer (or CFO) is responsible for corporate funds, maintaining
all financial records and issuing all financial reports
...

Vice Presidents are then generally appointed to handle specific areas of business as
deemed necessary or as the business grows
...


Bylaws
Bylaws are, by definition, the laws or rules governing the internal affairs of an
organization
...
There may be revisions made, but the initial Bylaws are necessary as a
provision of incorporation
...
It is
worthwhile to get a hold of a template before drafting Bylaws
...
The
powers granted to Board members and officers as well as the procedures used in
selecting, electing or removing board members or officers from appointed positions
would also be included
...
It is advisable to work with an attorney when drafting Bylaws
...


Issuing Stock
A corporation is responsible for filing a notice of stock issuance, preparing stock
documentation and certificates, and then issuing the stock certificates to shareholders
...
All issued shares will represent ownership of the company
...

Typically, incorporation rules and regulations do not stipulate how many shareholders a
corporation must have
...
However, as a business expands, so
may the number of stockholders, each owning a share of the corporation
...
Ultimately, for larger corporations, this leads to trading
shares on a stock exchange, such as the NASDAQ, New York Stock Exchange or the
American Stock Exchange
...
A Stock Subscription Agreement will
spell out the details of the transaction including the price per share and number of

32
shares purchased
...

Typically, a new business will not issue all of the authorized shares at the onset
...
The most important factor for new business owners
to remember is that when issuing stocks, the percentage of shares a person owns gives
that individual a larger share of ownership in the company
...

Stock Certificates
The act of actually issuing stock certificates is relatively simple
...
In addition, the number of shares issued to the shareholder,
number of authorized shares and the value at which the shares are being
issued are also included
...
The certificates are then signed by the
corporate President and Secretary
...


A corporation needs to not only be established in conjunction with the rules of
incorporation under the laws of the individual state, but must be maintained as such by
following ongoing requirements and formalities
...

The issuance of stock must be in compliance with federal and state securities laws
...

A small corporation, issuing stock only to family members and those individuals who
have been active in forming and running the company, is typically exempt from having
to register such securities offerings with state or federal agencies
...
) If the stock is issued to a limited number of people and not made available
to the general public, you may not need to register the stock
...

For a Checklist on Issuing Stock, see Appendix A: Forms & Agreements
...
These kits,
available online and from legal supply companies provide a do-it-yourself
approach to incorporating – although it is still advisable to consult a lawyer
...


The Stock Ledger
The purpose of a stock ledger (also called a stock transfer ledger) is to keep accurate
records of all stock transactions made by your company
...
The stock ledger should include each shareholder’s name and
address along with the number of shares he or she owns plus the certificate number,
class of stock, date of purchase or issuance and consideration paid
...
If stock
options have been granted and are exercisable, they also need to be recorded
...
In time, they may be
faced with the slow process of trying to research and record such information
...

Corporate stock ledgers can typically be found in corporate kits at business stationary
stores or in software packages
...
Funding does not come quickly and it is generally harder to obtain
than most business owners believe it will be
...

Your success at securing the financing that you need will depend largely on:
•
•
•
•
•
•

The strength and marketability of your business idea
How you present your business idea
Your business plan
Your credit history
Your level of preparation
Your level of experience and training to operate and manage the business

There are a multitude of business ideas
...


Loans
Gone are the days where business owners were dependent almost entirely on banks or
loans from friends/relatives
...

Loans typically come in three primary forms
...
These loans are generally for one year or less
...
Such loans are usually for anywhere
from one to three years
...

Such loans are generally from three to seven years and repayment is
typically made in installments
...
It is equally
important that you have a realistic plan for repaying the loan
...

•
•
•
•
•

The purpose of the loan
Specifically how much money will be needed
A management profile
An overview of the market including your projected customer base and
competition
Personal and business financial statements and if possible, collateral that
can secure the loan

Typically, if a small business owner is requesting a loan, the lender will want to see that
he or she is investing a proportionate amount of his or her own money into the venture
...

You will also need for a significant amount of supporting documentation when applying
for a loan
...

While one lender may say no, the next may say yes after reviewing the same loan
request, business plan and documentation
...
If several lenders turn down a loan request for the
same reason, you will know which area or areas you need to work on, whether it is
improving your credit rating or rethinking your plans to purchase real estate for the
business
...
The due date and manner of payment will need
to be determined
...
Make sure such a
payment schedule will work for your business in conjunction with your projected cash
flow
...
You should get an idea of the
going rate for similar loans and be ready to negotiate
...
Below that, there is
flexibility
...
Read the loan agreement carefully and have a lawyer
review it as well
...

There are several organizations (see Appendix B) that work closely to help secure loans
for minority business owners
...


SBA loans
The Small Business Administration (SBA) is a service of the U
...
government designed
to help small businesses in numerous ways through a variety of programs
...
The SBA does not make direct loans but works in
conjunction with lenders
...
This means that if the borrower cannot repay the loan, the government
will reimburse the lender for a percentage of the loan
...
Loans can be provided for almost any aspect of business including
the purchase of equipment and machinery, inventory, real estate or construction needs
...
There are numerous SBA
programs offered and widely utilized
The SBA has their main headquarters at 409 Third Street Southwest in Washington,
D
...
You can, however, call 1-800-U-ASK-SBA or go to their website at www
...
gov
to find the closest regional office
...
While selling stock to the public
is generally not an option for a small business, selling stock in a private placement is a
way of procuring cash from investors and maintaining control over who become
shareholders in your company
...
In addition you will need to set a
stock price and have the stock sales agreements in final shape
...
Your business plan, financial
projections and marketing plan will serve as key factors in convincing someone to
purchase stock in your company
...

To issue private stock, you can make a private placement offering that does not
necessarily need to be registered with the Securities & Exchange Commission (SEC)
...
However, the offering still needs to comply with state and federal laws
...

While selling shares of stock can provide you with much needed capital, it also means
that you will be relinquishing some degree of control
...
They can also review corporate books and records
and vote on key corporate decisions
...
It is imperative that you understand exactly what the stock offering will
include and that it adheres to securities laws
...

When selling private stock to start a small company, it is likely that you will know most of
your shareholders
...

They will be more willing to assist you and buy more shares if and when offered if you
keep them informed as to the operations and prospects of the business
...
A Private Placement Memorandum
(PPM) is used to disclose such information about the company
...


Angel Financing
Angel investors are individuals who personally invest directly in a business
...
The term “angels” comes from investors who used to
provide money to salvage a theatrical production that otherwise might not have had the
backing to open
...
As more wealth has been accumulated by a younger

38
segment of the population over the past decade, angels are now also young investors
looking for the next innovative idea to get behind
...

The typical angel investor:
•
•
•
•
•

Is well educated
Invests in an area of personal interest or industry with which they have
been associated
Does not get involved in the daily routine and operations of the business
Makes an average investment of anywhere from $10,000 to $250,000
Look for companies that have large growth potential

Angel investors, once thought to invest more often on a whim or based on their personal
impression of a business or the individual behind it, are now exercising greater due
diligence
...
Additionally, they want to be convinced that the management will be
able to implement the plan
...

Generally, they do not want to be the only source of funding and want to know where
future investment capital is likely to come from
...
You should be ready with
written material (business plan, projections, etc) and prepared to answer the tough
questions
...
Due diligence on your part is necessary concerning the
angel
...
You should know something about the person from whom you are
requesting money
...

Although you want an angel to invest money, you also need to establish what the
business arrangement will include
...
Today, however, you will find angels who
want to be involved in all key decisions and those who will provide guidance and
expertise from afar
...


39
Finding Angels
For years it was typically through friends and business associates that one would need
to network in order to find the name of angel investors
...
Today, however, angels have, in some cases joined together to
form groups and are also listed with business and investment organizations
...
Unlike venture capitalists, who invest money
from a variety of other sources, the angels in an investor group invest their own money
...

The Internet has been particularly helpful in linking new business owners up with such
groups
...
com feature links to a variety of angels located
throughout the country
...
In many cases they focus on specific
areas, such as the angels at angelmoney
...

Tips For Finding Angel Investors

ü Use your personal and business network and follow all prospective leads to
ü
ü
ü
ü

investors
...

Surf the Internet for matching services or angel groups or bands
...
com
Affiliate with other entrepreneurs in local associations and alliances
...

Focus on establishing one good angel-entrepreneur relationship because
from one such relationship others often emerge as angel investors contact
friends who may also be looking for a sound investment
...
Each leasing agreement needs to be read through carefully to understand
the terms and conditions within
...
Most equipment necessary
in commercial businesses today, including technical equipment, can be leased
...

By leasing equipment, if structured properly, you can maintain your credit availability, as
the lease debt does not have to be considered a direct liability on your financial
statements
...

Advantages of lease financing:
•
•

•
•
•
•
•
•

It offers fixed rate financing
...

Leasing is inflation friendly
...
(In addition, the lease is not connected to the
success of the business
...
)
There is less upfront cash outlay
...

Leasing better utilizes equipment
...

You typically have an option to buy equipment at end of lease term
...
As new equipment becomes available you can
upgrade to the latest models each time your lease ends
...

It offers potential tax benefits depending on how the lease is structured
...
By the end of a calendar year, much of your technology will be
deemed “dinosaurs”
...
For this reason
leasing is very advantageous
...

There are a variety of ways in which a lease can be structured
...
For example, you may have balloon payments,
step up or step down payments, deferred payments or even seasonal payments
...
However it is not for
everyone
...
Tax implications also need to be compared between leasing and
purchasing equipment
...
Typically, leases
may not be terminated before the original term is completed
...
This can pose a major
financial problem for the owners of a business experiences a downturn
...

Although you are not the owner, you are still responsible for maintaining
the equipment as specified by the terms of the lease
...


Venture Capital
Venture capitalists raise money from various institutional and pension fund investors to
back start-up and growing companies that show strong potential to develop and become
big
...
Similar to a
mutual fund, a venture capitalist firm pools investment dollars and then looks for solid
investments
...
They are devoted to raising money
for new and emerging business ventures so they want to maintain a strong track record
in raising fund for successful companies
...

Venture capitalists generally invest in several businesses at a time to limit their risk
...
This is, in part, because unlike angels who are investing their
own money, the venture capitalist firm is investing the money of other people or
institutions
...
A
venture capital firm may want to know that there are other sources of funding
...
However, the business
must account for how all funding has been used and follow the goals and plans set forth
in accordance with the previous round(s) of financing
...
Some will focus on providing seed
money for a new business venture, while others will come in only later on in the
development of the business
...
They may only serve a specific geographic region or
only provide funds for expansion purposes of an existing business
...


42
It is also imperative that you be well prepared before meeting with such a venture
capitalist
...
This includes:
•
•
•
•
•
•
•
•

Having a clear vision of the business and being able to articulate that
vision
...
A venture capital firm might be
interested in providing seed money to a new business but may hesitate if, for example,
they become aware of potentially steep competition in the marketplace
...
Venture
capitalists may go farther and dig deeper since they are usually dealing in larger
amounts of money and are responsible to many investors
...

If all goes well and a venture capitalist is interested in working with you, a term sheet
will be issued
...
A lawyer should be present who is familiar with
reviewing such term sheets and negotiating this type of deal
...
Unlike many
venture capitalists or angel investors, they are far more likely to approve a loan for an
established business over a start-up or emerging company
...

However, thanks to government agencies such as the SBA (mentioned above), which
work with many banks, small business owners can get business loans from banks with
a strong business plan and well prepared business loan request
...

First and foremost, prior to approaching a bank, you should have all of your key
documents in order, starting with a solid business plan
...

Collateral may include:
•
•
•
•
•

Hard goods such as equipment
Real estate
Stocks or bonds
Other personal assets
Personal guarantees

Banks also want to know that you are making your own investment in the business
...

In order to maximize your chances of receiving approval on a business loan from a bank
it is wise to look at the situation from the standpoint of the lender
...

Most small businesses, in the forms of sole proprietorships or partnerships, are closely
tied to the experience, know-how and overall character of the owner(s)
...
A solid personal credit rating is also
very important since the small business is typically an extension of the individual
starting it
...

By having accurate and current financial information available, you can make important
decisions concerning the business, monitor your ongoing financial status and comply
with legal and government requirements
...
Later in
this chapter we will discuss hiring such professionals
...
This will allow you to always keep a watchful eye on your
financial situation and make sound business decisions
...

Also called a profit and loss statement, this document provides you with a periodic
summation of the profits and losses of the business during a specific time period, which
may be one month, three months, six months or a year
...
It will prove advantageous for:
Ø
Ø
Ø
Ø

Paying taxes
Evaluating your current financial position
Making financial projections
Attracting potential investors

The manner in which an income statement works is relatively simple
...
It is a

45
simple formula in which you add up your revenues, add up your expenses and subtract
the expenses from the revenues
...
It allows you to see if you are spending too much money and if so, in
which areas you could cut back
...
This way you can compare your
profits or losses and determine where you need to make adjustments
...

Typically, an Income Statement lists all revenue and expenses
...
For example, one business may have a general category for computer costs
but a company in the technology industry, which relies heavily on the purchasing and
maintenance of their computer system, might list specific items including; hardware
costs, software costs, maintenance and repairs, and so on
...
This sales figure shows the amount of revenue
generated by the business from sales
...
This is the total sales, less returns or refunds
...
This includes all costs associated with manufacturing
or acquiring the products you sell
...

Gross profit
...

Operating expenses
...

Operating profit
...

Net income before taxes
...
Here you list the amount owed to the federal government
...

Net income (after taxes)
...
By looking at your net income on
periodic Income Statements, you can determine how the business is doing
...


The Balance Sheet
Along with the Income Statement, the Balance Sheet will provide you with the data
necessary to make sound financial decisions
...
The difference between your assets and liabilities will be
the net worth of the business at the end of a specific period (Assets – Liabilities = Net
Worth)
...

The assets of the business are that which have a cash value including:
•
•
•
•
•
•
•

Investments held by the company
Equipment
Machinery
Display cases
Inventory
Cash and cash equivalents
Accounts Receivable

Capital assets, or fixed assets, are the long-term assets, such as any building the
company owns or the machinery used to produce goods
...
They are also assets that can depreciate over
the years, such as the new computer you purchased last year
...
On the other hand, a building
that you own might appreciate in value
...

The liabilities are all of the debts that the business owes
...
This is essentially the net worth of the business
...
This total, together with the total
liabilities should balance with your total assets
...

In addition to a Balance Sheet and Income Statement, you will want to keep a
Statement of Cash Flows, which allows you to track the cash in and out of your
company throughout the year
...
By listing both the

47
previous and current cash amount on the Statement of Cash Flows you will be able to
determine the increase or decrease in each activity for a specified time period
...


Record Keeping
Good record keeping can indicate, on paper, how your business is doing and whether or
not you are making a profit
...
Typically, business owners look at their records to
analyze the current situation and determine what changes or improvements can be
made
...

In addition to monitoring the progress of your business, good records will help you when
preparing financial statements and preparing your tax returns
...
Record keeping should be done in a diligent, consistent and timely manner,
regardless of the type of system you choose to use
...
Gross receipts will help you indicate how much income your business is
generating
...
You need to maintain
records of all of your income sources and expenses
...

While many small businesses are using computer software to handle bookkeeping and
record keeping, it is not imperative
...
For
those business owners looking to set up their record keeping procedures on the
computer, you’ll need to keep things in mind:
•
•
•
•
•

You want to purchase the software package that fits your specific needs
and not be lured by one that simply has the most features
...
If it takes you more
time to set up the computer record keeping system then you need to
complete the tasks, then you’re better off using ledgers and paper
...
More on hiring a bookkeeper later in this
chapter
...
Keeping good inventory records will allow you
to better manage your inventory holdings
...
You’ll want to know
how much stock is on hand versus the amount that you purchased and can do so
by keeping records of the purchase date of the items in stock, purchase price,
sale price and dates of items sold
...


To track money coming and going, most small businesses typically use a revenue and
expense journal
...
The other method used, a double entry system, is more
time consuming, but records both a debit and a credit for each entry, marking the item
sold as a credit and the money taken in as a debit
...
By projecting how much revenue in sales you will need to take in
versus your ongoing expenses, you will be able to determine approximately when
you should break even and subsequently show a profit
...
If not,
you can make adjustments
...


Budgets & Projections
Your budget will assist you when tracking the flow and progress of your business by
providing you with a picture of how much you are spending and in which areas you are
exceeding your projected spending limits
...


49
To formulate your budget, you will come up with a reasonable projection of your sales
...
For a new business you will
include the funding you have obtained through personal financing, loans, investments,
selling shares of stock and other sources
...
Most budgets
are works in progress with several revisions
...
Create your numbers based on specific research
...
Then determine an amount that will benefit
you in the advertising category
...
In a small market, however, this might serve as a workable
number
...

You will also need to evaluate exactly how many employees you need to operate your
business
...
Study the workforce statistics in your area or
region and see if you can offer a comparable package to attract quality employees
...

Remember to include rent, taxes, insurances and all other necessary expenses
...
Obviously, you won’t be
able to change the amount you pay in rent, but you can change the amount you put
toward marketing if there is not a sufficient amount left in your budget
...
It’s also advantageous to give yourself some room when
budgeting for purchases
...
From year to year a
business will typically need to make various adjustments, but the basic categories of
expenses typically remain the same
...
Keep in mind that such a similar business should be
serving a similar market
...
Many businesses have peak
seasons where revenue is higher and times of the year where they have additional
expenses
...


50
Budget tips:
•

•

•
•

•

Set maximum spending limits that you won’t exceed and monitor your
budget closely so that you’ll know when your spending is approaching
such category limits
...
Try not to take from one
pocket and move to another too often
...

Be realistic with your projections
...
While different businesses may
categorize items in their own various ways, what matters for your business
is that you can look at the budget and understand which items fall under
which categories
...

Over-budget for areas in which you are more likely to have unexpected
expenditures
...
Typically, to find an accountant whom you can place your trust in and
the future of your business, it’s advisable to ask other business owners for
recommendations
...
Some accountants specialize in
working with specific types of businesses and others are particularly familiar with the
needs of small businesses
...
Set up
interviews and get to know the strengths of each individual
...
Remember that you should be working with an
accountant and not relying on him or her to make key financial decisions for you
...

A good accountant is someone you can:
•
•
•
•

Trust implicitly
Expect to be up on the latest changes in tax laws and guidelines
Rely on for specific advice as it pertains to your business
Expect to maintain the confidentiality of your financial information

51
Bookkeepers
Most people who start out in business are fairly convinced that they will be able to keep
their own books
...
The belief is that you will:
•
•
•

Save money by not hiring a bookkeeper
Keep a closer eye on the financial aspect of the business
Maintain privacy

While a small start-up business may allow for such self-management, as a business
grows it is typically in the best interest of the owner(s) to hire bookkeeping help
...

The details involved in maintaining accurate books can be lost when combined with the
many other tasks and responsibilities of running a business
...
For this reason, there are individuals who
specialize in the field
...
Small start-up companies generally do not
need a fulltime bookkeeper
...
The local Chamber of Commerce, industry associations, Internet job sites,
or even your accountant can also prove to be worthwhile sources for finding a qualified
bookkeeper
...
Employee theft has been steadily on the rise in recent years
...

Do:

ü
ü
ü
ü

Establish clear and specific guidelines from the start
Review the books periodically, but not at any “regularly scheduled” time
Review all financial statements
Read your own mail

Don’t

ü Put too much financial responsibility in any one person’s hands
ü Let your accountant/bookkeeper use software that you are not familiar with
ü Give check-signing authority to anyone until they are proven to be reliable
and trustworthy

ü Hire someone who is unfamiliar with your type of business

53

Chapter 6
Small Business Tax Basics
Ø
Ø
Ø
Ø
Ø

Ø
Ø

Income Taxes
Pass Through Taxes
Sales Taxes
Payroll Taxes
Employment Taxes
Tax Software
Tax Planning

If you are starting a business, it is essential that you familiarize yourself with all of the
necessary tax forms that you will need to file with the IRS and the various taxes you will
be required to pay
...
The type of
business entity you have selected (as discussed in Chapter 1) will determine the
manner in which you will file and subsequently pay taxes
...
Payment will then be based on the sole proprietor’s
personal income tax rate
...
It is highly advisable that you seek professional
guidance from an accountant before filing your tax return
...

It is also important to remember that as soon as you form a business you will need to
obtain an employer identification number (EIN) from the IRS by filing Form SS-4
...


Income Taxes
A business is typically expected to pay estimated taxes quarterly throughout the fiscal
year
...
Form 1040-ES from the IRS will
help you determine how much in estimated taxes you should pay
...

With the potential of facing IRS penalties, it is important to pay such quarterly estimated
taxes on time or request an extension in advance of the due date
...

You will be expected to pay:
•
•
•

90% of the overall tax that you will owe
or 100% of last year’s tax figure (110% if the total income is over
$150,000)
or annualize based on the previous quarters, minus expenses, and then
pay at your personal income tax or corporate tax rate
...

“Ordinary & Necessary” Business Expense
Typically, all “ordinary and necessary” business expenses can be deducted from
your business income when filing your business tax return
...
These are items that are
necessary to properly conduct your business
...
irs
...

Keep a careful record of your expenses and have backup material on hand for
documentation whenever possible
...
Use discretion
when determining what portion of the total expense was business related
...


The steady rise in home-based businesses has created some gray area regarding
business deductions
...
If you conduct business from a
home-based office, for example, you can claim a deduction for the portion of your home
that is being used for business purposes
...
Save your bills and show the percentage you used as a business
expense
...


Pass Through Taxes
The business entity you select will determine whether or not there will be pass through
taxation
...
In each of these forms of business, taxes are passed through to the
owners who then report the income or loss on their own personal income tax returns
...

According to the IRS, in the case of a pass-through entity classified as a partnership,
tax returns must be filed by the 30th day of the 4th month following the end of a passthrough entity's taxable year
...

Tax Deferred Retirement Plans
If your business is structured in such a manner that you are paying tax on your
profits from the business as part of your personal income tax bill (such as a sole
proprietorship), you should consider having a tax deferred retirement plan
...
Your financial
advisor should be able to help you in making this decision
...
Most states, however, charge sales tax on retail products sold
...
The amount
is determined as a percentage of the gross receipts for the items sold, not the net profit
the seller makes on the items
...
Make sure you know which,
if any, retail items are exempt from sales tax in your state
...
If
you are doing business in any state that has a sales tax, as a business owner, you will
be responsible for charging, collecting and recording the tax
...
The sales tax is typically
imposed on the purchaser of the item, but in some states, the tax is imposed on the
seller who usually passes the tax liability along to the customer
...
Such permits or licenses should be displayed at each
of your business locations
...

If you do not have a physical presence in another state, but sell items via the Internet or
by catalog in that state, you can be subject to a state’s “use tax”, but typically not to their
state sales tax (although the law is evolving in this area)
...
If you have an
office, warehouse or have employees working for you in that state, the IRS may
consider you to have a presence in that state
...

Sales tax must then be reported and paid in a timely manner to the appropriate state
collection office
...
You need to check the
requirement carefully for your state
...


Payroll Taxes
Payroll taxes are due either semi-weekly or monthly depending on the size of your
payroll
...
If your total payroll won’t come to $2,500 for
the quarter, you can file quarterly
...
If
your company is growing and you have an increasing number of employees, you might
opt for an outside payroll service
...
Both specialize in handling your payroll needs
...

Social Security & Medicare (FICA)
The Social Security Program, created in 1935, by an act of Congress (the Federal
Insurance Contributions Act or FICA) has relied primarily on withheld payroll taxes from
employee paychecks to generate retirement savings
...
Today, more than 90% of retired Americans
receive Social Security
...


57
Medicare, meanwhile, is designed to help people over the age of 65 pay for medical
costs
...

In addition to the money that, by law, is withheld from each employee’s paycheck for
FICA, the employer is also required to match the amount
...
65%, which is comprised of 6
...
45% for
Medicare
...

The time frame in which you are required to pay FICA will depend on the size of the
payroll
...
For
example, a very small business with one employee might file quarterly, while a large
company with a $100,000 weekly payroll, will need to file within three days after payroll
is completed
...

Some Common IRS Tax Forms You Should Know About
SS-4
W-2
W-4
940
941
1040
1099
1120
8109

Application For Your Employer Identification Number (EIN)
Employer’s Wage and Tax Statement
Employee’s Withholding Allowance Certificate
Employer’s Federal Unemployment Tax Return
Employer’s Federal Quarterly Tax Return
Estimated Tax
Miscellaneous Income: Used to report compensation for non-employees
US Corporate Income Tax Return
Federal Tax Deposit Coupon: Used to deposit taxes
...

Federal Withholding Taxes
Withholding taxes are filed in accordance with the W-4 Employee’s Withholding
Allowance Certificate, which is filled out by each employee
...
Amounts will vary depending on:
•
•
•

The number of withholding allowances claimed by the employee
The marital status of the employee
Any exemptions from withholding taxes claimed by the employee

58
Employees can change the amount withheld by submitting a new W-4 Withholding
Certificate and changing the number of withholding allowances (dependents) and their
tax status
...

Note: All businesses that employ other people on the books must have an individual
EIN, or Employment Identification Number
...
By filing an SS-4, Application for
Employer Identification Number, you can obtain additional EIN’s from the IRS service
center in your state for each business
...

According to the Department of Labor, “The Federal-State Unemployment Insurance
Program provides unemployment benefits to eligible workers who are unemployed
through no fault of their own (as determined under state law), and meet other eligibility
requirements of state law
...
Unlike FICA and federal withholding taxes,
unemployment taxes are not withheld from the employee’s wages, but are paid entirely
by the business
...

If you pay the full amount to the state, the federal government only requires you to pay

...
However, the federal unemployment tax is 6
...

Who Qualifies As An Employee?
The proliferation of contractors, freelancers and consultants can blur the definition of
who qualifies as a company employee
...
Typically, an individual is
considered an employee if he or she meets several requirements including, but not
exclusive to:
•
•
•

Receiving his or her primary income through working for your business
Receiving direction from you on a regular basis
Having his or her pay rate controlled by your decisions

59
•
•
•

Being specifically trained to perform tasks or jobs for your company
Working on your schedule, in your facilities and not having a business
location of their own
Receiving benefits from your company

Together these criteria can indicate, by IRS definition, that someone is considered your
employee
...
The form will state the amount of money
earned from your business during the calendar year
...


Tax Software
There are a number of software products on the market designed to handle your tax
related needs including payroll taxes, sales taxes and tax planning
...
Be careful that you are not using a system that has become
outdated
...
Included are: tax saving tips, deduction finding capabilities, IRS approved
forms and a tax reference library
...
See www
...
com
Tax Pro: Designed to make tax filing easier, separate versions of Tax Pro are geared
for either small businesses or large corporations
...
Preprinted forms are
then easy to prepare, print and file on paper or electronically
...
See
www
...
com

60
After-the-Fact Payroll (AFP): This program, from Accountantsoffice
...
The program can also
produce vendor reports, earnings reports, unemployment reports and allows for easy
entry of payroll checks into the payroll register
...
com is the Tax Relief program
...
accountantsoffice
...

Master Tax: Four versions of the Master Tax software programs are available to assist
you in filing payroll taxes
...
A wide
range of features are offered to produce reports and file federal, state and local payroll
taxes
...
mastertax
...

Websites, such as www
...
com and popular retail sites including Amazon
...
com provide listings of the various tax related software programs
...

Helpful Tax Websites

ü
ü
ü
ü

The Internal Revenue Service - www
...
gov
Small Business Tax & Management - www
...
com
Business Town - www
...
com/taxes
Social Security Administration www
...
gov

Tax Planning
Tax planning should be done in conjunction with the guidance and expertise of your
accountant
...
That decision, with help from
your accountant, will make a significant impact on your tax status and subsequent
planning
...
The size and nature of the business, number of employees,
along with the most recent federal, state and local tax laws, will all play a significant role
in such planning
...
In
addition, you want to make sure that any tax loopholes you decide to slip through, as
part of your tax strategy, are legal and won’t lead to a tax audit or to IRS penalties
...
Good employees
can follow instruction, present new ideas and motivate other employees to work hard
...

Conversely, the wrong employees can not only slow down or impede the progress of
your business, but can cause you to lose money through wasted training time,
improperly performed tasks and even stealing
...

Before hiring anyone, you should familiarize yourself with the laws and regulations
imposed regarding soliciting and interviewing employees
...
Laws protect against discrimination on the grounds of
race, religion, national origin, age, sex or disability
...
You not only need to be aware of such
employment laws, but you can protect your business by establishing appropriate
policies
...
dol
...
The laws fall under various
congressional acts and are enforced by various divisions of the DOL
...


Depending on the types of positions you are looking to fill and the immediacy of your
needs, you will determine the best manner in which to find employees
...
The wider
you extend your search, the more time you will need to go through resumes and narrow
down the field
...

When reviewing resumes, look for:
•
•
•
•
•

Length of employment at previous jobs
Previous job titles
Responsibilities at each position
Special skills
Education

Once you have decided which applicants you would like to interview, you need to
prepare in advance before they come in and sit down before you
...

Keep in mind that you need not stick to the script but can follow up on comments made
by the interviewee with additional questions
...


ü Set up specific time periods on your schedule for interviews
...

ü Select a comfortable, well-lit, quiet location to conduct interviews
...

Review each applicant’s resume just prior to the interview (and file along with your
notes following the interview)
...

Depending on the position being filled, some employers will look more closely at specific
technical skills, others will be concerned primarily with how this individual will fit in with
the team, and some will focus on an applicant’s enthusiasm and desire for the position
...

Although you can get the answers to many questions from looking at a resume, it is
important to hear each prospective employee respond so that he or she can provide
greater insight into his or her previous employment and education
...
Questions you might ask include:
•

What made you pursue this field?

64
•
•

What courses in college and/or graduate school do you feel were most
applicable to your work in the field?
What are your long-term goals or where do you see yourself in five or ten
years from now?

When talking about the job in question, you will want to get a feel for how the individual
will fit in and handle different situations
...
Are you familiar with that system?
What other skills do you feel you can bring to this position?
This position may require you to put in x number of hours per week or
some travel out of town, would that be a problem for you?

Look at other specifics aspects of the position you are looking to fill, such as phone
calls, client contact, sales or marketing skills and ask candidates how comfortable they
are in handling such specific tasks
...
Internships have become more common in recent years and you should
ask the applicant what she did and what she learned from any internships
...

Typically, you will ask what compensation the individual was receiving at the previous
job and what he is seeking at this job
...
In other situations, where you are limited to a certain salary or hourly wage,
you might state that this job pays x or you might provide a salary range
...

Along with the questions and answers, you will want to get a feeling for the comfort and
character of the person sitting across from you
...
It is more
important that you get a feeling for what this person brings to the position from his or her
past experience and his or her manner of presentation
...


65

Interview Red Flags!
You may find certain red flags during the interview process that will indicate that
this is not the ideal person for the job
...

It is also helpful, although not essential, to give each applicant a little background
information about the company
...
Make
sure you know the answers before responding or make it clear that you can find out the
answers and let them know
...
It is important that any statements you make about the
company or about the position are accurate
...
You need to be polite and professional throughout the interview process
...
In addition you should not touch an applicant, other than a handshake
...
It is at this time that you should get into describing the job more
thoroughly and discussing salary
...
In many cases, the supervisor will conduct the follow up
interview
...
You also want to ask the prospective
employee to sign a form allowing you to do a background check
...
Check out past employers to make sure the applicant worked where
they claim they did and, if possible, talk to a former supervisor
...


Employee Applications
Having prospective employees fill out Employment Applications will typically save you
time gathering background information
...

Applications should provide spaces for basic information such as name, address, phone
number and social security number
...
You may also want to ask where the applicant heard
about the position or who referred them to your business
...

Education should include high school, college, post graduate work plus special
schooling the applicant may have had that would be applicable to the position
...
Also, have the applicant answer
whether or not it is okay to contact his or her current or previous employer
...

As is the case with the interview, you cannot ask a variety of personal questions on the
Employment Application
...
This is the information on which
you based your hiring decision, should it ever be questioned in the future
...


67

Offer Letters
Yes, you can always call candidates on the phone and hire them, making it clear when
you would like them to start work or come in for training
...

A job offer letter simply puts in writing the terms of the job offer so that ambiguities do
not arise later
...
In addition, changes made to the terms of employment later on
can also be written into the agreement and signed by both parties
...


ü Give the prospective employee time to think about the offer and respond
...


ü Include the date of hire and title of the position
...

Don’t:

ü Promise raises, bonuses, vacations or perks that may not be forthcoming
ü Make any guarantees that the employee will be employed for any length of
time

ü In short, don’t promise anything that you cannot follow up by providing
...
However, for
executives and other high level employees, you might want to compose a more formal
agreement
...


Employment Agreements
Employment Agreements are generally designed to spell out and define the terms of
employment
...

If such materials fell into the hands of competitors it could potentially cost your business
its competitive edge
...

Such an agreement will also state that inventions that your employees create while
working for the company, or new ideas, also belong to the company rather than the
employee
...

A good Employee Confidentiality and Invention Assignment Agreement typically covers
the following:
•
•
•
•
•
•
•
•

Disclosure of inventions
Ownership of inventions, patents & copyrights
Definition of material deemed “confidential”
Situations in which material may be divulged or discovered
What is considered a breach of the confidentiality obligation
Obligations of employee both during and after employment
Timeframe of obligation after employment
Employment at will

Employee Paperwork
Prior to welcoming new employees into the business and before you show them around
the office, plant or sales floor, you should be prepared with all of the proper paperwork
...


ü Form W-4: It is mandatory that an employee completes the IRS W-4 Form
used to determine the appropriate level of tax withholding

ü Employee benefit elections: Employees should sign up for any such
benefit programs, providing all necessary information
...

ü Confidentiality and Invention Assignment Agreement: This agreement
stipulates that all proprietary information will remain confidential and that
the company owns all inventions created by the employee, relevant to the
company business, while under the employ of the company
...
It’s to your advantage

70
to take the time to carefully think through and list all matters pertaining to employees
prior to the hiring process
...
(More on employment
policies in Chapter 8)
...
This protects your business in the event someone gets
injured or sick from a job related accident or occurrence
...
The IRS recommends keeping tax records, including W-2
forms, amounts and dates of wages paid, dates of employment, benefits paid, plus
contact information about each employee for at least four years after they have
completed their employment with your business
...

You also need to make every effort to maintain the confidentiality of all employment
records
...
Personnel files in the wrong hands can spell legal trouble
...
As an employer you do
not want to be liable for the actions of someone in your employ who is under the
influence of illegal narcotics
...
Courts, seeking reasonable
cause for such testing, have become increasingly more lenient in allowing
employers to conduct the tests providing they respect the privacy of the individual
...
Keep a written record of any drug
testing that you administer
...
Many jobs become routine for
employees who eventually seek greener pastures elsewhere
...
It is, therefore, up to you as the business owner to not
only attract, but to retain such valuable employees
...
If successfully done, it is a means of
enhancing the success of your overall business
...
This can range from a pat on the back to an Employee
of The Month Award to a token gift
...
It increases the employee’s
sense of self-esteem and he or she feels better about his or her job
...

The accomplishments of a team or a group should also be rewarded, whether it is for
their ongoing work or for a special project
...


72
The Happy Employee
Typically, studies and surveys have shown that the more satisfied the employee is with
his or her job, the better he or she will perform
...

There are various ways of increasing job satisfaction, which include:
•

•
•
•
•
•
•
•
•

Providing flexible schedules
...
This might include part time schedules or even job sharing,
where two people share one full-time position
...
Some jobs can be performed by employees who
telecommute from their home computers a few days a week
Regularly scheduled performance reviews, which include positive
feedback and let employees know what is expected of them
Encouraging employees to do various tasks so that their jobs to not
become routine and boring
Allowing employees to enhance, improve and decorate their own
workspace
Providing a means of socialization through lunch time or after hour
activities
Stressing that employees can move up and advance within the
organization
An open-door policy, which encourages employees to ask questions or
make recommendations
Making donations to charities selected by the employees on behalf of the
company

Strong communication is also a key to having satisfied employees
...


73

Five Common Reasons Why Employees Become Disenchanted

ü They feel nobody in a management position will listen to them when they
have concerns, problems, suggestions or complaints
...

ü They are bored because the tasks are routine and they are not encouraged
to take on new projects or new responsibilities
...

ü The office environment is sterile and impersonal
...


While highly paid motivational speakers may be brought in for “pep talks”, you will more
likely receive better results from sitting down periodically with your employees and
asking for feedback
...
You might start with anonymous employee
satisfaction surveys, which may allow employees greater latitude in communicating how
they honestly feel about company policies, management and their jobs
...

Do’s & Dont’s Of Management / Employee Interactions
Do:

ü Compliment employees on a job well done
ü If there are problems/issues, discuss them in one-on-one or team
meetings

ü Maintain an open line of communication
ü Provide clear and direct instructions and field questions to make sure all
employees are on the same page regarding their responsibilities

ü Provide regular reviews and constructive feedback on employee’s work
Don’t:

ü
ü
ü
ü
ü
ü
ü

Gossip or discuss the work of an employee with other employees
Label employees or categorize them
Communicate strictly by emails or memos
Dangle incentives or promises that you cannot keep
Micromanage
Stereotype employees
Create an impersonal/sterile environment

74

Employee Incentive Arrangements
What better way to motivate employees than to provide an incentive package? There
are a variety of possible arrangements that can be made including: stock options,
bonuses and profit sharing plans
...

The type of incentives you offer will depend largely on:
•
•
•
•
•

The size of your business and number of employees
The structure of your business
The profitability of your business
The level of experience and base salaries of the employees
The economic climate

Stock Option Plans
Stock Option Plans are typically structured so that an employee must be employed by
the company for a certain amount of time before he is able to exercise the option (often
referred to as “vesting”)
...
This means that the employee can,
after one year, exercise options for 2,500 shares at the option price set forth on the
initial date of grant
...
If, however, the stock has remained the same or the per share price has
dropped, the employee can deicide not to exercise his option at that time
...
As the stock market took a downturn, the incentive of receiving options
became less of a motivating factor
...
When the economy is strong, Stock Option Plans can make
employees very wealthy as they share in the success of the company
...

Bonuses
A monetary bonus can certainly serve as an incentive
...
Once word spreads that an employee received a
monetary bonus, others will anticipate the same for their good work
...

Any plan to offer monetary bonuses should be made prior to the annual budget so it can
be included as a budget item
...

Besides cash bonuses, other types of incentive bonuses include:
•
•
•

Gifts
Extra vacation time
Extra personal days

The sluggish economy in recent years has caused many companies to become more
creative in their incentive plans
...

Profit Sharing Plan
If a company is doing well, sharing profits with employees serves as a very strong
incentive
...
Typically, the company
will set a starting point for determining when profits will be shared, such as once the
company earns profits of at least $250,000 for the fiscal year
...
For example, a company might decide that 15% of all profits
over $250,000 will be distributed to all senior employees who have been with the
company for at least three years
...
All of these parameters should
be decided upon with the help of your financial advisor and/or attorney
...
Employees may contribute up to a certain amount of their salaries into the
retirement plan on a regular basis
...
It is then
typically invested in stocks, bonds or mutual funds
...
The employer can also contribute money, or in
some cases stock, to the employee’s 401(k) plan
...
At this
point, however, he or she will pay income taxes
...
Some plans
also allow a participant to take out a loan against the plan
...

Before setting up such a plan you should review the particulars with your accountant
who will help you abide by the IRS rules and regulations concerning 401k plans
...


Personnel Policies
Policies can help you protect your business from liabilities, while also setting basic
ground rules for employees and protecting their rights
...

Below, you’ll find some of the more common policies
...
From
standardized time cards or time sheets to a more casual atmosphere in which
employees are simply expected to complete their workload in a defined amount of time,
there are numerous variations on the popular 9 to 5 workday
...
If you are employing members of a union you
will also have to abide by union rules and regulations
...
Your policies
concerning the security of your business and of your employees needs to be carefully
thought out so that you do not infringe upon anyone’s personal liberties, while at the
same time you do provide a safe work environment
...

The personal security of all employees should be of primary concern
...
D
...
Sign-in/out sheets for employees working on weekends or after regular business
hours and policies regarding visitors also need to be considered
...
You should also clearly state in your security policies which employees
are entitled access to confidential information
...
Your security personnel, or
that which handles security in the building in which your company resides, needs to
combine a knowledge of your security policies with good common sense and
awareness
...
This should be included in
your safety and security policy
...
State clearly what disciplinary actions
will be taken should someone be carrying a concealed weapon
...
Employees can claim that they have
the legal right to carry an item that might otherwise be considered a weapon
...
Your policies need to be strong
and very clear
...
According to the United State
Supreme Court, your right to require a drug test depends on the reasonableness of the
test
...

Short of drug testing, or in addition to a drug test, you may require all new employees to
sign a Drug-Free Workplace Policy
...
Unfortunately, many smaller businesses simply do not have
the resources or funds to take part in such programs
...
Coupled with personal emails, the amount of
non-business related communications taking place during standard “work hours” today
is staggering
...
This policy should include
the use of an individual’s cell phone during business hours
...
Vacation policies need to be set up in a
manner that allows your employees to get some much needed time off while not stifling
your company’s productivity
...
For seasonal businesses it may mean limiting the time of year in
which employees can use their vacation days
...

You can also define the manner in which vacation days are accrued
...
Many companies give higher-level employees more vacation days, which
serves as an incentive to newer employees to work their way up to executive positions
...
Many sales
oriented companies use a specific vacation package as an incentive for their top
salesperson or persons
...

Sick and personal days can also be handled in a variety of ways
...

Due to situations such as personal emergencies or religious holidays, companies have
typically become more flexible in granting extra paid personal and sick days to
employees who have proved their worth
...

Maternity, Paternity, Adoption, Disability & Family Leave
State and federal laws govern the amount of disability time you are required to provide
for your employees
...

According to the 1993 Family Leave act, any industry employing 50 or more employees
for each working day during 20 or more calendar work weeks in the current or preceding
calendar year must provide up to twelve weeks of unpaid leave during a twelve month
period to each eligible employee for any of the following reasons:
•

Birth and or child care of the newborn child of the employee

80
•
•
•

Placement through foster care or adoption of a child with the employee
To care for an immediate family member with a serious health condition
If the employee is unable to work because of a serious medical condition

Eligible employees are defined as those who have worked for the company for 12
months; have worked for a minimum of 1,250 hours during the 12-month period
immediately preceding the leave; and are employed by a business where 50 or more
employees are employed within 75 miles of the worksite
...

A policy regarding sexual harassment should state emphatically that your company will
not tolerate such activities, including:
•
•

•
•

Unwelcome sexual advances, sexual requests, suggestions or overtures
Specific behavior or statements implicating that someone is expected to
perform sex acts in exchange for a job, to keep a job, receive a raise,
promotion or any other form of compensation
Lewd or crude comments, jokes, e-mails, phone messages, cartoons or
photographs
Improper and unwelcome physical contact

If an employee claims to have been sexually harassed, within your company – and such
a harassment complaint can also come from (or be levied against) an outside
contractor, consultant, vendor or client - you need to investigate the situation very
carefully
...
It is very
important that you remain neutral while investigating any such claim and make sure to
gather facts before accusing anyone or dismissing such an allegation
...


Avoiding Employee Lawsuits
Over the past ten years many court cases have demonstrated greater sensitivity toward
employees and their rights
...
Lawsuits can be time consuming, costly and present a public
relations nightmare
...

The most frequent causes of these lawsuits are:
•

Wrongful termination

81
•
•

Discrimination
Harassment

By carefully drafting clearly worded policies and reviewing them with your attorney, you
will have more solid ground to stand on should a former employee initiate such legal
action
...
Signed policies will usually stand up in court if
the employee was terminated for clearly violating company policies
...
If, for example you have proof that the employee
showed up late or was absent from work on a regular basis, then you can use time
sheets or time cards as documentation should you need to substantiate your decision to
fire the employee on the grounds of tardiness or absenteeism
...
Again, you must make sure that you have proof of such activities before
doing so
...
In some
instances it might be appropriate to give the employee an opportunity to improve his or
her work
...
Then, if he or she has failed
to do so, you have documentation stating that the specific tasks or job requests were
not carried out
...
However, since such evaluations
can be subjective, you may wish to substantiate them further by attaching copies of a
time sheet showing lateness or work done incorrectly before terminating an employee
based on job evaluations
...
In some cases such layoffs are widespread and may include entire
departments while in other circumstances only a few employees may be dismissed
...
Make sure you can fairly justify why each employee is no longer necessary to
the company or why a department has been singled out to be eliminated
...

Discrimination laws protect against firing someone because of race, sex, religion,
disability, ethnic background or because an individual is over 40 years of age
...


82
Parting Ways
The manner in which you terminate an employee is very important
...
An employment
termination policy is sometimes desirable to put in place that outlines what the
employee is entitled to when his or her employment ends
...

Do’s & Dont’s of Firing Employees
Do:

ü Try to make the situation as amicable as possible
ü Have a reasonable, legitimate and documented reason for the termination
ü Collect all keys, I
...
’s and other company related materials in the
employee’s possession

ü Make sure you know his or her computer password
ü Terminate employees in person, or have the employee’s immediate
supervisor handle the task in person

ü If you are going to pay severance pay, get a release from the employee
Don’t:

ü Discuss an impending termination with other employees (except his or her
immediate supervisor)

ü Fire someone based on rumor, innuendo, unsubstantiated claims or for
personal or discriminatory reasons

ü Make any statements that could be deemed personal, disparaging or
defamatory
...
Such an agreement should state that both the company
and the employee agree to settle the dispute
...
Other terms can be negotiated such
as the payment of unused sick or vacation days
...

In addition, a Settlement Agreement should also stipulate that the former employee will
keep all proprietary information about the company confidential
...


84

Chapter 9
Key Contracts
Ø
Ø
Ø
Ø
Ø
Ø
Ø

Understanding Contracts
Sales Contracts
License Agreements
Stock Purchase Agreements
Office Leases
Right of First Refusal Agreements
Boilerplate

Understanding Contracts
Business contracts are legally binding written agreements between two or more parties
...

While smaller businesses will often conduct business based on informal handshake
agreements or unspoken understandings, the more that is at stake, the more essential it
is to have a signed contract
...
It presents each party with the opportunity to:
•
•
•
•
•
•
•

Describe all obligations they are expected to fulfill
Describe all obligations they expect the other party, or parties, to fulfill
Limit any liabilities
Set parameters, such as a time frame, in which the terms of the contract
will be met
Set terms of a sale, lease or rental
Establish payment terms
Clearly establish all of the risks and responsibilities of the parties

A contract is, in essence, a written meeting of the minds
...
Consideration, whether it is monetary or a promise to do work or
provide a service by a specified date, is at the root of a contract
...
The term
“standard contract” is more myth than reality and too often people simply sign on the
dotted line without reading or negotiating the terms of a contract
...

Within a contract it should stipulate how the contract shall be enforced and what actions
can be taken if one party fails to meet their obligations
...

Typically, this is done by informing the other party of their wish to terminate the contract
in writing
...
How such disputes will be handled (i
...
by a neutral third party arbitrator) can
also be included within the contract
...
The Sales
Contract lays out the price, terms, and conditions for the sale of goods, equipment, or
other products
...
From
your company’s perspective, you always want to start with your own form
...
(Note: No “standard” form
of Sales Contract actually exists
...
Here are some important terms to
potentially address in your Sales Contract:
•

•

Price: Make sure that the Sales Contract correctly states the price (often
by filling in a blank space provided on the form)
...

Price adjustments: Consider how you may increase the price from time
to time if you are entering into a long-term contract
...

Payment and credit terms: Make sure to state when payment is due
...

Warranties: Decide what warranties you want to give
...
Typical warranties state that for a designated
period, the goods sold will be free from defects of workmanship and will
conform to designated specifications
...

Disclaimers: State clearly in your Sales Contract (after you have set forth
what your warranties are) that no other warranties exist, express or
implied, including merchantability or fitness for a particular purpose
...

Liability limitations: Use the Sales Contract to attempt to limit your
liability under the contract
...
Make
sure, too, that you include a sentence that says you are not responsible
for consequential, punitive or speculative damages or lost profits (although
some laws may limit successful enforcement of this clause)
...
A License Agreement
spells out the precise terms of those rights and the corresponding obligations
...

A common example of a License Agreement concerns the use of software
...
The License Agreement that comes along with
the software sets forth these limits
...

If you are negotiating to obtain a license or if you find yourself in the situation of
providing a license to someone else, the License Agreement can address the following
key points:
•

Exclusivity / Nonexclusively: The license can be exclusive or
nonexclusive
...
If the
license grants exclusivity, over what areas is the license exclusive? If the
license is exclusive, under what circumstances does the license convert to
a nonexclusive one?

87
•
•

•

•

•

•

Term: The License Agreement needs to spell out the length of the
license, plus any renewal rights
...
A
particular use of the license may also require an increase in payments
...
) Non-monetary payments may also apply
...
(For example, a trade name licensor may grant
the right to use a name, but only in a certain city
...
Licensors will resist giving such statements
...

Assignment and sublicense: Depending on the agreement, the licensee
may be able to assign or sublicense the license
...
Most License Agreements prohibit assignment or sublicensing
without the licensor’s approval
...


Stock Purchase Agreements
If the company is selling stock, a Stock Purchase Agreement can be advisable
...
The agreement’s representations and warranties are important
...
A breach of the company’s
representations and warranties (a false or misleading statement) can lead
to a real problem for the company, giving the investors various remedies
...

− Has had an opportunity to review and documents he or she requested

88
Has had prior personal or business relationships with the company,
its officers, or directors; or has the business sense to protect his or
her own interest in the transaction
...

Covenants: Any promises by the company to do various things are often
set forth
...

Closing date: The date and place where the closing is to occur are set
forth, together with how the money or other consideration will be delivered
to the company
...
And as your business grows, you may need to
add additional space for more people or increased operations
...
Yet many people blindly
sign leases that bind their business for many years without any meaningful attempt to
negotiate the terms of the lease
...
The landlord is likely to call this the standard lease, as if the
perfect form of a lease agreement had been chiseled in stone eons ago
...
This form is undoubtedly totally one-sided in favor of the landlord
...
And regardless of whether the form looks standard or
preprinted, don’t be afraid to carefully review and negotiate the lease
...
Are other companies vying for the space? Has the space been vacant a long
time? Are you willing to pay a good rent? Let’s face it: if Microsoft and General Motors
are about to engage in a bidding war for the same prime space you’re interested in, all
your negotiating skills mean zilch (zero, in technical legal terms)
...
Gotchas is a highly
technical term for provisions that may cost
you a lot of money or headaches in ways that
you didn’t plan
...
Here are some classic
gotchas:
The landlord’s right to pass increased
operating costs in the building on to the
tenant without limitation
The tenant’s obligation to pay any
increased taxes as a result of the
landlord’s sale of the building

The landlord’s right to terminate
your lease early for his or her
convenience
A disclaimer about the building and
the services provided to tenants
Severe limitations or prohibitions on
subletting your space (you may
need to sublet space if your
business shrinks)
Personal guarantees of payment of
the rent required from the
company’s owners

More on leases can be found in Chapter 14
...
This agreement typically requires the shareholders to grant
the company a right to match any offers for their stock, and thus to preempt any other
buyers
...

The Right of First Refusal Agreement can also be expanded to provide the option or the
obligation for the company to buy back shares of a shareholder who has died or left the
employment of the company
...
This agreement provides that the shareholder can first come
to the company with a proposed price and terms for the shares to be sold
...
This
type of agreement may be somewhat more appealing to an investor than a Right of First
Refusal Agreement
...
Since there is no “standard” boilerplate, a
company can phrase this section as it sees fit
...
Even attorneys
sometimes neglect to review this section closely and their clients fall victim to important
legal issues that are written into this section
...

Provisions within the boilerplate will typically include:
•

•

•

•

•

•

•

Merger Clause: This clause indicates that the contract is the final and
complete agreement between all parties
...
Only the agreements in the executed and signed document
are binding in this contractual agreement
...

In drafting the contract, you should list your own area of jurisdiction as the
place where such disputes will be settled
...
A section on arbitration can help you avoid costly
litigation fees
...
For example, if you cannot meet your obligations because of an
act of God, such as a hurricane or tornado, the clause is intended to
relieve you from liability for failure to perform
...

Modification of Agreement: This clause will typically state that any
modifications to this agreement will not be valid unless made in writing
and signed by both parties
...
You
may make special allowances under which a contract can be assigned
...
The basic
language can be repeated from contract to contract, but be careful to change specific

91
clauses to fit each contract
...
Ambiguity can cause you headaches
...
E-PersonalFinance
...
Forms include letters of intent, employment
agreements, confidentiality agreements, purchase agreements, check
lists and more
...
sec
...
Thus, if you want to see an important agreement that
Microsoft, GM or Apple has entered into, you can find it for free
...
lexisnexis
...


92

Chapter 10
Legal Issues

Ø
Ø
Ø
Ø

Avoiding Personal Liability
Laws To Worry About
Business Licenses
Mediation & Arbitration

It is the responsibility of every business owner to do his or her best to follow the letter of
the law
...
You need to be particularly knowledgeable
about the laws that directly affect your business and be prepared to make any
necessary corrections should you be made aware that you are not complying with a
specific law
...
Essentially, you want any such liabilities to be
the responsibility of the company and not result in a personal liability
...
For example, if you are a sole proprietorship, you are liable for all debts and
claims against the business
...
However, if you
have taken the time and effort to incorporate or to form a Limited Liability Company,
then you will likely be protected to a significant degree from such personal liabilities
...
This is not true
...
To lessen the likelihood of such personal
or shareholder liability you should make sure to adhere to certain procedures
...
The name of the corporation should be used in full,
including “Inc
...
” on all contracts, invoices or documents used by the
corporation
...

Always use proper signatures
...
You should typically use
the following format when signed contracts on behalf of the corporation:
CORPORATION NAME
By: ___________________________________
Your name – authorized signing officer and corporate title
Follow all corporate formalities
...

Make sure to keep funds separate
...

Make sure to keep taxation separate
...

Keep all transactions separate
...

Essentially, by never blurring the line between individual shareholders, owners or the
Board of Directors and the corporation, which stands as a separate entity, you run less
risk of any personal liabilities
...
There are
thousands of business laws on the books, some of which are relevant to your business
and others that are antiquated and have not been enforced since the 1920’s
...

However, it is important that you know the laws most likely to affect your business
...

(Most of these laws are discussed in more detail in other sections of this book
...


These are just some of the significant legal categories under which you will find laws
that affect most businesses
...

If, for example, you are selling shares of stock you will need to adhere to securities laws
and if you are operating a business that sells liquor you will need to adhere to the state
alcohol laws
...

Just as you put together a business plan, you need to approach the legal aspect of a
business in a systematic manner
...
Do you need a business license? A permit? (Both of these are
discussed later in this chapter)
...

If you are in business for yourself, for example, you won’t need to familiarize yourself
with employee laws until you are ready to hire additional staffers
...
Review applicable laws in advance for each aspect of your business
as you see it unfolding
...
Ask questions and do not assume something is legal because it is common
practice among other business owners
...
Depending on the severity of the law, you may only receive a warning or a
small fine from the local authorities
...

Zoning laws can often frustrate a new business owner
...

It is important to take some time to familiarize yourself with all municipal, commercial
and/or industrial zoning laws that could pertain to your business and ask questions of

95
the local Chamber of Commerce and/or other business owners to make sure you are
adhering to the details
...
Review them carefully
...
Keep up with meetings of the local
municipal boards and/or Chamber of Commerce
...
Most home based businesses fail to do so
...
The more obvious it
is that you are running a home-based business (such as having numerous
deliveries of large items to your front door) the more diligent you need to be
about making sure you comply with local zoning ordinances
...
Such record
keeping will prove beneficial, should you:
•
•
•
•
•

Need to comply with any change in the current laws
Have a lawsuit filed against your business
Be audited
Be looking to make changes or additions to your business
Be looking to sell or merge your business with another company

Bank records, employee records, contracts, business forms, permits and licenses,
zoning ordinances, copyright filings, patents, leases, bookkeeping records and tax

96
documents are among the many records you will want in categorized files that you can
find easily should you need to
...
Although
they may take up space, it is usually advantageous to save copies of such records for
several years
...
The steps and paperwork necessary for obtaining a license will
vary from state to state
...

In addition to licenses for operating a business, many professions require licensing
...
If
your business centers around such professionals, it is not only imperative that the
individuals meets all licensing requirements, including ongoing education, but also that
they renew their licenses accordingly
...
For example, businesses making, selling or storing food products will
be required to have specific licenses or permits typically issued by the health
department
...
For example, if you are
providing financial advice, operating a daycare center or serving as a masseuse you are
typically required to have a license
...
For example, operations involving gambling or explosives will require a
license
...

Certain types of businesses fall under the jurisdiction of government agencies
...


98

Your Start-Up Business Legal & Licensing To Do List
While adhering to the many laws and ordinances may seem daunting at first, you will
have to start somewhere
...


ü Set up a filing system for all documents
...

Set a policy that all contracts and business agreements of any type will be in
writing and that there will be a written record of each and every transaction
...

Make sure that all personal licenses necessary for your business have been
obtained by the individuals and are displayed as required by state law
...

Obtain your Employee Identification Number, Federal Employer ID Number &
State Employer ID Number before hiring employees
...

Establish all personnel policies prior to hiring employees
...


Since obtaining some licenses and permits may take several weeks, it is to your
advantage to start well in advance of your projected grand opening, or launch date
...
Litigation to resolve such disputes is both costly and time consuming
...
More significantly,
you cannot afford the time either
...
The term alternative
dispute resolution has been used to define the new means of settling disputes through
arbitration and mediation
...
Many contracts
now state that such arbitration will be used to settle such disputes should they arise
while carrying out the terms of the contract
...
This person, or organization (such as the American Arbitration
Association) needs to be agreed upon in advance by both parties, who typically agree to
abide by his or her decisions
...
There is generally no appeal
process and the decision is then considered binding
...
The decision whether arbitration will be binding or not must be agreed upon in
advance – typically binding arbitration is part of a contractual agreement
...
Often used in labor disputes,
mediation helps open the lines of communication between the parties
...
He or she may take an active role in facilitating discussions and
encouraging the parties to stay focused on settling the dispute
...

Sometimes, however, parties will come to an agreement having communicated through
the mediation process and a contract may then be drawn up and ratified
...

The final decision to enter into arbitration or mediation is largely dependent on the
nature of the dispute and the parties involved
...


100

Chapter 11
Protecting Your Inventions & Ideas

Ø
Ø
Ø
Ø

Patents
Copyrights
Trademarks
Confidentiality and Invention Assignment Agreements

An original idea, creation or invention is often the cornerstone to a successful business
...
It is important that you closely guard the
rights to such intellectual property through copyrights, patents and trademarks to
prevent others from profiting off of your original ideas and creations
...

Such agreements will be discussed later on in this chapter
...
The subject matter being
patented is described in the patent’s claims and protected if a patent is issued
...

To obtain a U
...
Patent, you must file an application with the United States Patent &
Trademark Office (USPTO)
...
According
to the USPTO:
•

•

“Utility Patents may be granted to anyone who invents or discovers any
new and useful process, machine, article of manufacture, or composition
of matters, or any new useful improvement thereof
...
”

101
•

“Plant patents may be granted to anyone who invents or discovers and
asexually reproduces any distinct and new variety of plant
...
uspto
...

The application for a patent is a complex document and typically requires that you file
through a patent lawyer or patent agent
...
There are over 21,000 licensed patent attorneys and nearly 7,000 licensed
patent agents and the USPTO website can help you in your search for one
...
According to the USPTO, they receive over 300,000 applications each
year, primarily for non-provisional utility patents
...
The
application is reviewed and a patent is then either granted or denied
...
If the inventor uses the invention
publicly, puts it up for sale or describes the invention in a printed publication, the
inventor then has one year to apply for a patent or the right to patent the item will be
lost
...

While you await the acceptance or rejection of your patent application, you (or
preferably your patent attorney or agent) can inquire on the status of such an
application
...
This does not protect you legally but it might ward off others who are
looking to create a similar product
...

If two people team up to invent something that they want patented, they can file one
claim together and they will receive a joint patent for the invention if it is accepted
...


ü Patents are only issued for actual, concrete, new and novel inventions or
creations and not for ideas or plans
...
Therefore, you
should go online and do a search for any similar item
...

ü Patent attorneys can be costly, so be as sure as possible that you are
trying to patent an original invention
...
The USPTO will not
issue a patent if they do not feel that the object serves some practical
purpose
...

Do not expect to make a fortune off of your patented invention
...
In addition, having a patent, and
having a strong, marketable product that the public needs are two very different
things
...
A patent is just a preliminary precautionary step in
the life of a new invention or product
...

Copyrights can be registered at the Library of Congress in the Copyright Office
...
A copyright protects the specific work of expression and not the subject matter
described
...

A copyright can be used to protect:
•
•
•
•
•
•
•
•

Articles
Books
Written reports
Photographs
Movies
Scripts
Artwork
Architecture

103

A copyright generally cannot be used to protect:
•
•
•
•
•

Ideas
Subject matter
Concepts
Schemes or plans
Names

The protection afforded by a copyright guards against the use of the material without the
consent of the author
...

Unauthorized use of copyrighted works can make the author or creator eligible to
receive damages against the person infringing on the copyright
...
You can request the use of the material for your purposes by writing to the
owner of the copyright
...
However, it is not required that
the owner of a copyright be listed
...
Typically, contacting the publisher, producer or distributor of the
material will be your starting point
...
This
can run the gamut, from a mere mention by name to large sums of money
...
Ultimately,
whatever you both determine to be fair will be included in a contract, which should be
drawn up by a qualified attorney
Ownership of a copyrighted work can also be transferred in part, or in whole through a
copyright assignment, which transfers the rights to another party
...

As owner of a copyright, the owner has the right to authorize (or not) any of the
following:
•
•

Reproduction of the copyrighted work
A derivative work based on the copyrighted work

104
•
•

Distribution of the copyrighted work by sale, rental, lease or lending
Performance or display of the copyrighted work publicly

The owner does not have to provide any explanation if he or she chooses not to allow
the copyrighted work to be used
...
In the letter, explain exactly what
copyrighted material was used and in what manner
...

Send the letter by certified mail with return receipt requested and close the letter by
letting it be known very clearly that any failure to comply with the letter immediately will
result in further legal action
...

Of course, there are quotes, lines and photocopies that are typically part of the
everyday business process and “fair use” of materials should not violate copyright laws
...
The economic use of such
marks shows up in 500 B
...
during the Roman Empire
...
”
Service marks are the same as trademarks, except they refer to the source of a service
and not a product
...

The benefit of such a mark is that it will legally prevent others from using a similar name
or likeness that identifies your product or business
...
This protects a company in the event that someone tries
to confuse the public by presenting a very similar name, logo or slogan
...
By
legitimately using the ™ symbol next to your mark, it is possible to establish rights
...
S
...
FedEx® is an example of how the trademark is used in all packaging,
advertising and promotion of a brand name
...

A trademark search can save you time and money
...
thomsonthomson
...
allmarktrademark
...
Doing a web
search on Google is also advisable
...
If a word simply describes an
invention, a function or is a widely used generic term, it will not qualify as a mark and
the USPTO can refuse to register it
...

Filing Your Trademark Application
The USPTO encourages applicants to file electronically
...
Applications cannot be faxed to the USPTO
...
uspto
...
html
ü TEAS can be accessed at any Patent & Trademark Library
ü The USPTO automated phone line is 703-308-9000 or you can call 800786-9199 and order a form
ü The USPTO mailing address for new applications is:
United States Patent & Trademark Office
Commissioner for Trademarks
2900 Crystal Drive
Arlington, Va
...
uspto
...
While you do not need an attorney to file a trademark or
service mark application, it may be worthwhile to have one look over your application
before you send it
...


Outside of The United States
A federal trademark is not valid outside of the United States
...
Many countries, however, will recognize a
United States trademark and grant registration in that country
...
A Confidentiality
Agreement, sometimes known as a Non-Disclosure Agreement is, as the name would
indicate, an agreement that any confidential plans or ideas that you may have will be
held by the other party in the strictest of confidence
...


107
There are numerous instances where you may want to share confidential information
with another party
...
From software programs to
“secret” recipes, most businesses will typically have some confidential material that
needs to be protected
...

Many new businesses, particularly in the planning and development stages are very
diligent about making everyone associated with the company as an employee or
independent contractor signs such an agreement
...
Too often, inventors have been burned by disclosing an idea
to a potential business partner or investor without taking the time to draw up such an
agreement
...
It is your
decision, as the business owner to determine what information, in the hands of another
business or individual, could prove detrimental to your business or to you personally in

108
any manner
...
It is then equally important to determine which individuals
could, intentionally or unintentionally, use such confidential information for self gain or to
secure an edge in competing with your business
...
You will then keep them on file
...


109

Chapter 12
Sales & Marketing

Ø
Ø
Ø
Ø
Ø
Ø
Ø

Market Research
Advertising
Promotion
Press Releases
Email Marketing
Direct Mail
Web Sites

The frequently used term, “Sales & Marketing”, typically works in reverse order, as
marketing generates sales
...
There are many ways in which you can
market your goods or services
...


Market Research
Before selling a product or service, it’s important to know the market that you will be
entering into
...
Your goal is to build a demographic profile of your customers
...
You can then take a similar
approach, adding your own creativity and the particular benefits of your products or
services
...
You can also get basic information when a
customer calls for your services, visits your facility or browses your web site
...
In this manner you can better plan, and track, your marketing
efforts
...
You can then
proceed to use the most viable means to promote and advertise your products or
services
...
(Are you selling locally? Nationally? Globally?)
The amount of sales volume you can handle
Your methods of distribution
The amount of personal service you can or cannot provide
Your personnel

From market research you can also learn about pricing, trends and competition
...
Depending on your
position in the market, you may opt to undersell the competition and offer discounted
items or you may price items on the higher end, and offer personalized attention and
strong customer service
...

Market research will also help you gain a greater understanding of the actual value of
your product or service in the marketplace
...

Means of researching the market include:
•
•
•
•
•

Trade magazines
Trade associations or organizations specific to your type of business
Industry web sites & email newsletters
Visiting competing businesses and/or reading annual reports of
competitors
The local Chamber of Commerce

When gathering market data you can use either primary or secondary research
...
Secondary research means using other sources such as the
United States Census Report, books or trade magazines
...

Your Target Audience
The goal of your market research is to determine your sales demographics and
establish a target audience
...
Just as children’s games and toys clearly state on the box, for
ages 7 through 12, nearly every product or service has a specific demographic group

111
that will be most interested in spending money to buy the product or utilize the services
offered
...

Some products and services, such as selling soda or providing haircuts, will span a
wide range of potential customers
...
Conversely, other products and services have a narrow audience and need to
be targeted in a more specific manner, such as a new service for dermatologists
...

Some questions to ask yourself when outlining your target market or demographic
group include:
•
•
•
•
•
•
•
•
•
•
•
•
•

What is the age range of the customer who wants my product or service?
Which sex would be more interested in this product or service?
What is the income level of my potential customers?
What level of education do they have?
What is their marital or family status?
Is this a product or service they need or a luxury item?
How will they use this product or service?
What will draw them to this product or service? (Easy availability? Low
price? Personalized attention? Special features?)
Which, if any, special features are most appealing?
What do they like or dislike about the product or service in general?
Is this an impulse buy or something they are saving up for?
What is the common method of payment for this product or service?
(Cash? Credit Cards? Installment Plans?)
Where do they gather their decision-making information? (The Internet?
Newspapers? Magazines? Books? Television?)

These are just a few of numerous categories in which you can breakdown your target
market
...
To
successfully advertise you will need to allocate a portion of your budget for such
purposes
...
Proportionally, a small business and a multi million-dollar
corporation may spend the same percentage of their budget on advertising
...
For example a few well-placed
billboards in a small town might generate a 10% increase in sales for a small business
while a national commercial might produce the same 10% increase for a major retail
chain
...
e
...
The major risk is that the advertisements will not
generate enough sales to justify the costs of the advertising campaign
...

Print Advertising
Newspapers continue to provide a means of reaching a large audience in a city, town or
region
...

Advertising rates vary significantly by geographic region and market size
...
Buying an ad that will run for weeks will always be cheaper
in the long run than buying on a day-to-day basis
...
Photographs can, and typically do, enhance magazine
advertisements
...
The immediacy of newspapers is advantageous for special
promotions, sales and one-time offers
...
Often a reader will pick up the magazine two or three weeks after
it was initially published and the ad should still be of value to the reader
...
Also consider regional magazines if your business is regionally based or
trade magazines if you are doing business-to-business sales and marketing
...

Advantages to magazine advertising:
•
•
•

You can more easily create an image
You can use photos, color and a more elaborate layout than with
newspaper advertising
You can target a very specific audience (more so than with a newspaper,
where a reader may be buying the paper for any of ten very different
sections)

Disadvantages of magazine advertising:

114
•
•
•

More costly than newspapers
There is a long lead time (ads may need to be ready six months in
advance)
Typically, the ad will run only once per month since most magazines are
monthly publications

Whether you choose to advertise in a newspaper or a magazine, prepare print ads that
have some lasting power
...

Radio
Radio is often a far underutilized medium
...
For a radio commercial to be effective, it needs to
grab the listener’s attention quickly and cover all the key points in a concise, informative
and entertaining manner
...
Remember copyright usage (Chapter 11)
before using recorded music
...
Don’t try to pack
too much into the copy
...
An ad during morning or evening “drive
time” will be far more effective than an ad at 2 a
...
In addition, you will want to select
the type of station(s) most listened to by your buying demographics
...
Typically radio ads are bought in chunks since a high frequency of
commercials during a short period of time has been proven to be most effective
...

Advantages of radio advertising:
Inexpensive to produce commercial spots
Easy to make last minute changes and/or update radio scripts or spots
Can buy in blocks and reach your target market consistently for a period of
time
Disadvantages of radio advertising:
•
•
•

•
•
•

Very dependent on placement
Limited time in which to include all pertinent information
Scripts are typically only as good as the talent reading them

Before advertising on the radio, get the listener demographics and the ratings for each
station in your market
...
Your ad, however, needs to be carefully written and produced to
be effective
...

Advantages of advertising on television:
•
•
•
•
•

Reach a large demographic audience
Lends a degree of credibility
You can establish a specific image more easily
It allows for much more creativity
You can establish your presence or introduce a new product very quickly

Disadvantages of television advertising
•
•
•
•

High production costs for a quality commercial
Very dependent on placement
Very costly to buy time in medium to large markets: make sure your
budget allows for television advertising
Difficult and costly to make changes

Television advertising can be very draining on your budget
...
Buying time on local or
national networks will be the bulk of your cost factor, and like radio, you need to buy in
blocks and repeat a commercial many times to the same target audience to be effective
...

Establishing an image and accentuating the key selling points or benefits of your
product or service through your script are the keys to a successful commercial
...
Many advertisements are fun to watch, but moments later viewers cannot
recall what product was being advertised
...

Typically, such advertising is sold by the size of the page
...
Since you buy the ad once for a year, you need to keep your Yellow Pages ad
generic
...
You should also consider that
(unlike most other forms of advertising), you will be pitted against your competition by
virtue of placement in a specific section
...

Billboards, Signage & Posters
Billboards, signage and well-placed posters can be inexpensive ways of reaching a
large audience
...

A strong visual image coupled with concise copy and a catch phrase or logo can catch
the attention of many potential customers
...
Therefore, if you can
grab those two or three seconds of attention you build a presence in the market
...
Test marketing is recommended
...


ü You can often barter or trade your product or services for
advertisements
...


Web Ads & Paid Listings
Consider advertising on specific web sites with banner ads or rich media ads
...
Paid listings typically are
structured so that you are only paying if someone actually clicks on your ad to be
transported to your web site
...
However, unlike advertising,
promotion can be a less costly means of putting the name of your business in front of
the public
...
For example, a car wash
and nearby auto parts store might run a combined discount special
...
Service providers can benefit from speaking engagements
and other public appearances in which they can demonstrate their expertise in the field
while promoting their business
...
Promotion builds a need for your goods or services
...

Good promotion for a new business or a home based business might mean giving out
business cards, sending out an e-mail newsletter and providing good customer service
that leads to referrals
...

Before embarking on a promotional (or an advertising) campaign your should:
•
•
•
•

See what your competitors are doing to promote themselves
Look closely at the cost factor
Test out your idea(s) with a small sample or focus group
Seek feedback

There are plenty of creative means of promoting your business
...


Press Releases
All newsworthy events concerning your business should be written up in a press
release
...

An effective press release should provide the who, what, where, why and when of the
story in a concise manner
...

People in the media have little time to read the numerous press releases they receive,
so yours needs to be media friendly, meaning the writer or reporter can practically lift
the information from the page and use it in their story
...

Also make sure to include:
•
•
•
•

Contact information
The release date
A headline
A dateline – where the story is originating from

118
•

End with # or –30-, centered on the page, which mean “the end”
#

You need to be discerning in determining what information is worthy of a press release
...
You also need
to be accurate and up to date with your information, so double check your facts and
figures carefully before sending
...

Typically businesses, especially new businesses, will have a press kit, which will include
several recent press releases, a backgrounder (one-page history of the company),
newspaper clips (if there have been stories written about the business or individuals
behind the business) and possibly some photos
...

For a sample of a press release, see Appendix A: Forms & Agreements
...
SPAM clogs up
in-boxes and most people are quick to delete the deluge of mail they receive without
even reading it
...
The key is to get people to WANT to receive your
mailings
...
In this way, you can collect email
addresses without buying a list that may be created and/or sold illegally
...
It can also support the advertising that otherwise may be deleted
...

Establishing your own newsletter (which may only be a few paragraphs) can draw the
attention of your readers
...
This window can
literally provide you a “window of opportunity” to grab their attention
...
Unlike a press release, which tells the media what your business is up to,
email marketing needs to focus on benefits to the customer
...

They can elect to read it or not
...

A few email marketing rules of thumb:
•
•
•
•
•
•

Make sure everyone on the list has agreed to be there…don’t add names
Reassure readers that their information will not generally be shared
Give readers an opportunity to opt off of the list
Keep information concise, to the point and focused on their needs
Don’t blitz – emailing more than once or perhaps twice a week can be
annoying
Provide a choice of HTML or TEXT version

Landing pages are also important
...
Don’t send them
to a home page and make them search for the specific information that brought them
there
...
com if you click on a specific book you’ll get a page
with details and reviews of that book and suggestions of similar books
...
Your promotional emails should do the same thing and also give
the reader an opportunity to go to your home page
...
This puts your name in front
of the reader while giving them a chance to interact
...


Direct Mail
Despite the glut of junk mail, direct mail marketing continues because it is still
successful for many businesses
...
If you have a well-honed, targeted mailing list, you can get a better rate of
investment (ROI) than if you are mailing randomly
...
However, it is essential that you make sure the list is targeted, current
and legally sold
...
There are too many
people passing off stolen or old lists
...
Often such lists are randomly generated from various other
lists and not frequently updated
...
Every three to six months
your list should be updated
...
This is only effective if you have the time
and manpower to put into creating a strong list
...
e
...
Color, texture, print, tone, wording,
phrasing, size of the piece and numerous other issues are all debated by the experts
...
In the end, a 5% return on investment (“ROI”) is considered extremely
good when embarking on a direct mail campaign
...
This will give you an idea of the impact of the piece
...

Don’t over-design
...

Don’t try to fool readers with “come ons” on the envelope such as
“Sweepstakes Winner”
...
Make them feel
important, since, in actuality, they are vital to your business
...

Sending to a title or a company name is usually an exercise in futility
...

Write conversational copy that focuses on what your product or service
can do for the reader
...

Make valid claims and promises that you can keep
...

Reply cards are often more effective than 800 numbers unless you have
competent round the clock operators on hand
...

If you have a web site, include it on all direct mail pieces
...
Include a
signature that appears personalized
...
A successful direct marketing campaign is
contingent upon generating a profit, so track your spending versus your
ROI
...


Web Sites
Many businesses today are on the World Wide Web
...

Domain Names
The first step in building a web site is purchasing a domain name that is not already
being used
...
Typically,
...
net will be used for a commercial business
...
Often it’s easier than you
think to find a close match
...
com will likely be taken
...
com you may likely find a domain name
...


Web Hosting Services
A web hosting service is in the business of keeping your site up on the web, maintaining
it for you and allowing you to select from many of the features that are found on
successful sites
...
Obviously the more web space you need,

122
additional features and the more traffic your site is generating, the more the cost will
increase
...
Typically,
companies will charge an initial set up fee, monthly fees plus additional charges for
various options
...
While most companies charge for updating the site, some offer deals that
allow for some free updates
...
Get
recommendations
...

The trick is finding someone who will do what you want
...
Contact the names of
developers listed at the bottom of the sites that you like
...
Shop around and
find someone who is easy to work with and comes highly recommended
...
, the costs will vary greatly
...
For some
businesses, a web site provides the backbone of the company’s retail operation
...
Some businesses use a web site primarily for
promoting their products or services and keeping their name in front of the public
...
Look at each site with a
critical eye
...

Some site planning and web page design tips include:
•
•
•
•
•
•

•
•

•
•

•
•

Less can be more, so don’t overcrowd a web page
...
Try to illustrate the key features
...

Make each page easy to navigate
...
You can always have readers click to get
more information
...
Make sure it is always easy to
return to
...

Provide customer service, phone numbers and contact information that
clearly illustrates an accessible business behind the site
...
Experiment with different colors to see which creates the
best presentation
...

Don’t get caught up in “bells and whistles
...

Make sure the site loads quickly
...

Be diligent about copyright usage and make sure you have the rights to all
information you are posting
...
Also,
keep in mind that you need to promote the web site
...


125

Chapter 13
Insurance
Ø
Ø
Ø
Ø
Ø
Ø

Liability Insurance
Property Insurance
Business Interruption Insurance
Deductibles
Making A Claim
Other Types of Insurance

If you are going to go through the time and effort to start a business, you need to
consider proper protective steps
...

Your first order of business is to determine your specific insurance needs based on the
nature of your business
...

While shopping for insurance, you will want answers to several key questions such as:
•
•
•
•

What are the deductibles?
Are the coverage limits high enough?
What items or occurrences are excluded from coverage?
Are there any gaps in my coverage?

As you read farther and determine your own insurance needs, your list of key questions
will grow depending on the nature of your business and the types of insurance coverage
you are purchasing
...
This type of
insurance can protect you from lawsuits resulting from:
•

Any bodily injuries that occur on your premises to customers, employees,
vendors or visitors

126
•
•

Injuries sustained as a result of the actions or negligence of one of your
employees
Property damage caused by your employees

There are typically four types of liability insurance
...
In many instances it is part of a larger insurance package
...
Some liability
coverage will also include libel, slander and/or infringement on intellectual property
...

A second type of liability coverage is called Professional Liability Insurance, which is
essential in the service industry
...
Examples of such insurance would include Malpractice Insurance carried by
doctors or Errors & Omissions Insurance carried by financial advisors, attorneys,
accountants, building contractors and other professionals
...
This coverage protects you in the event that an
item manufactured or developed by your company is responsible for an accident, injury
or death
...
Naturally, the type of product being manufactured
would indicate how much coverage you would need to purchase
...

And finally, the fourth and newest type of liability coverage insures a business against
the actions of the employer
...
This type of insurance typically protects you as the employer
against such claims made by employees, former employees or business associates
...
” An occurrence policy can cover claims made months or even
years after the incident occurred
...
The more commonly used
“claims-made policy” provides protection only while the policy is in force and claims are
made during that time frame
...
Claims-made premiums are typically lower than occurrence policies
...
However, it is strongly advised that you read the fine print carefully to
make sure there are no gaps where you specifically need to be covered
...
Property Insurance
typically covers your property in the event of theft or damage caused by fire, explosions,
accidents or acts of nature
...
If you are running a business from your home, you should also
have such protection to cover your work related equipment, which may not be covered
under a standard homeowner’s policy
...
By taking a detailed
inventory of all property, equipment and stock you can determine the amount of
coverage you will need
...

It’s important to take your time in assessing and determining a value for your property
...

Keep in mind that the higher the dollar amount of coverage, the higher the insurance
premium will be
...

Additional Property Coverage
There are other coverage areas you may choose to inquire about when
shopping for Property Insurance
...
Nonetheless, they
may be worth considering
...


ü Data or records protection, which covers loss of data or company
records that were destroyed and will take time, and cost money, to
reproduce
...

ü Off premises property protection, which extends your property
coverage to include protection at other locations such as trade shows,
fairs, installations, exhibits or any place where your company is doing
business with company-owned equipment
...


Property Insurance is sometimes offered by specific risks
...
Other companies will offer broad based policies
that cover a variety of risks and potential hazards
...

How well you are protecting your business against such potential risks can determine
how much you will pay for Property Insurance
...

Property and liability coverage can be purchased together under a general business
owner’s policy
...
Again, this will depend on your specific needs
...
If a business is forced to close because of a fire or due to disaster related
damages of any kind, the business can suffer significantly, losing revenue during the
time the business is closed and also losing customers to competitors
...
Having Business Interruption Insurance can save a business
...
A business will be covered for income they would have earned
during the time they are unable to conduct business
...
The policy will also typically cover expenses the
business still has to pay even though they cannot resume normal operations, such as
the phone or electric bill
...
Not unlike a deductible,
there may be a waiting period of 48-hours before Business Interruption Insurance
begins payment
...
In such a case you might consider Added
Expense Insurance, mentioned below
...
Therefore, if your policy has a $1,000 deductible and you have $5,000
worth of damages, the first $1,000 will come from your pocket and the remaining $4,000
from the insurance company
...

Depending on the risk involved, you can determine which option is better for your
business
...
Conversely,
it may be better for your monthly cash flow to pay a lower premium, although you then
carry a greater risk and will have a higher deductible
...

Property Insurance deductibles can be on an individual claims basis or an aggregate
basis
...
Smaller companies that have few claims might find paying per claim to
be advantageous, where a large company that may file many claims in the course of a
year might be better with the cumulative payments made on an aggregate basis
...
A
“cash value” basis is an assessment of the actual cost to replace the lost or destroyed
item (less depreciation)
...
Therefore, if the item stolen was a specialty piece of equipment, at the time cost
$2,000, but today would cost $3,000, you would receive $3,000 to replace it at today’s
cost
...


Making A Claim
Buying insurance is typically the easy part, once you understand the language and find
an insurance agent with whom you feel comfortable
...

To make a claim you need to:
•

•
•
•
•

Notify your insurance company immediately when you experience a loss,
damages or have a lawsuit filed against you or your business
...

Read your insurance policy, which will explain your responsibilities to the
insurance company
Assess the damages and/or list the items lost, stolen or destroyed
Find receipts or proof of ownership for as many lost, stolen or destroyed
items as possible
In a lawsuit from a third party, gather any information you may have on the
incident or reason for the lawsuit

Although you may elect to phone your insurance company, you should also send a
written notice by registered mail to have verifiable proof of the date that you notified
your insurance provider regarding a claim
...
Therefore, if you run out and hire a lawyer
prior to reporting the claim, you may pay out of pocket until you involve the insurance
company
...

For example, if you have Business Interruption Insurance, you will need to show, on
paper, how much business you are losing during the interruption period
...

They will be used to determine how much income you are losing
...
If you feel you are not receiving a fair settlement, schedule a time to talk with
your insurance agent, the claims adjustor and/or contact the customer service division
of the insurance provider
...
If you are completely dissatisfied, you may hire an attorney
familiar with insurance claims to help you with the settlement
...
Below are some suggestions:

ü Install sprinkler systems and make sure they are maintained
ü Have all electrical wiring properly installed by a professional and insulated
ü Maintain adequate and updated files of business transactions and
personnel information including all signed agreements

ü Adhere to proper industry specific safety precautions
ü Have all employees trained in the proper use of equipment – keep
manuals readily available

ü Make sure there is adequate lighting
ü Have all vehicles maintained, registered and inspected on a regular basis
ü Only allow employees with good driving records to operate a company
vehicle

ü Have clearly marked emergency exits and hold safety drills
ü Limit access and the number of keys distributed to your primary facility
and/or vehicles, warehouses or other facilities
ü Have an arbitration provision in all of your contracts for settling disputes
and to reduce the costs and hassles associated with disputes
...


Other Types of Insurance
Along with purchasing Property Insurance and Liability Insurance (including E & O,
Employment Practices, Product Liability and/or other forms of liability insurance), you
will pay Unemployment Insurance as mandated by law
...
Other types of insurance you
may elect to purchase include:
•

•

•

•

•

Health & Medical Insurance: The larger the business grows the more
you will want to consider some type of health insurance to cover your
employees’ medical costs and/or work related injuries
...

Generally you pay for part of the total health insurance plan and your
employees contribute a portion as well
...
The goal of this policy is to protect the officers
and directors of a corporation from personal liability in the event of a claim
or lawsuit against them claiming wrongdoing in connection with the
company’s business
...
The more your business relies on vehicles for deliveries or for
transporting goods, the more you can benefit from such insurance
...
Web Site Insurance covers claims
made against the company’s web site or as a result of actions taken or
items purchased through the company web site
...
Web Site
Insurance can protect you against lawsuits made in conjunction with
activities on your site
...

Key Man Life Insurance: This is a life insurance policy taken out on the
owner of the business or the key person behind the business, in the event
this individual dies
...


132

Choosing an Insurance Company
Before you sign with an insurance company, shop around
...
Below are several factors that you will want to
weigh when choosing an insurance company
...
Get quotes from three or four
companies for the same type of policies
...
Among the most common are: A
...
Best Company in
Oldwick, New Jersey, www
...
com; Moody’s Investor Services in
New York City,www
...
com; Standard & Poor’s Insurance
Rating Services in New York City, www
...
com; and
Weiss Research in Palm Beach Gardens, Florida,
www
...
com
ü Service: You will want to deal with an insurance company that
provides fast and sufficient answers to your questions; reviews and
responds to claims in a fair and timely manner; and provides both
accessibility and a degree of comfort
...
irin
...
You want to find out if there
are many complaints registered and the validity of such complaints
...
Also, try running a Google
Web search on the particular type of coverage you need

133

Chapter 14
Office Leases
Ø
Ø
Ø
Ø

Key Lease Terms
Options
Types of Leases
Getting Out of a Lease

Signing an office lease is a major step for anyone starting a business
...
It is typically among the first
milestones
...
Reading a lease can be difficult and intimidating
...
It is advantageous to have an attorney look over the lease
with you to help evaluate all of the terms and clarify any unfamiliar wording
...
Depending on the situation, they may be open for negotiation,
particularly the length of the term
...
You should carefully review such
clauses and match them with the projected cash flow of your business
...
A long-term lease can give you long term stability and keep
rent increases down, but may tie you to a location that may not be profitable or one,
which your business may outgrow
...

Among the other key terms you will want to focus on when evaluating a lease include:
•
•

What type of lease are you signing? (Various lease types are discussed
below
...
If the space you are looking to rent is highly sought
out by other businesses, your bargaining power will diminish greatly
...

If you have some leverage in negotiating the terms of the lease, look at several areas in
which you can work a better deal
...
Therefore, you may look at other terms such as:
•

•

•

Rent Escalations: If the landlord insists on rent escalations, try to
negotiate that there is no escalation for the first two years and then agree
upon a ceiling for increases after that
...
If the landlord has had trouble renting the
space, he or she may also want to sign you for a longer term provided
there are rent escalations
...

Returning the Premises to Their Original Condition: Typically most
construction and alterations need to be approved by the landlord
...
You may be able to
negotiate that such upgrades can remain and that you do not have to
return the premises to their original condition
...


Before negotiating terms of a lease, make a list of terms that would benefit your
business
...
If you are expecting to generate walk-in business, you will need
terms that allow you to put up necessary signage
...
In addition, make sure that zoning ordinances do not
prohibit you from opening up the type of business you chose to run
...
A building owner or landlord who has had an empty storefront or
office space for an extended period of time will be more agreeable to your terms
including options
...


Options
When you negotiate your lease there are several options you can have included
...
Since landlords will want to raise the rent at the
end of the initial agreed period, this will need to be addressed in advance
...

A short lease with one or more options to renew gives you some flexibility
...
There may be an additional fee, also agreed upon in the initial lease for
exercising your right to stay
...

Another option you might include is the option for additional space
...
A landlord who sees the potential of having an
important tenant that may attract other businesses, especially in a mall or similar retail
situation, may be more inclined to grant you an option for additional space
...

The option for additional space may state that you will expand at the same per square
foot rate that you are currently paying, at a fixed rate of increase or at the fair market
rate at the time of the expansion
...
Such an option can only be included if the landlord can
reserve or make such space available
...
Again, it is a matter of which one of you is in the stronger
position
...
Landlords may offer such clauses to higher profile businesses to entice them to

136
sign longer-term leases and help draw other established tenants into the facility
...
In the case of retail leases, particularly at malls, landlords may guarantee a
level of occupancy among surrounding storefronts
...


Types of Leases
A wide range of commercial leasing possibilities exist
...

From a broad perspective, there are a few types of leases commonly found
...

•

•
•

•

•

Gross Lease: The tenant pays a set amount of rent and the landlord is
responsible for payment of taxes, insurance and other costs associated
with owning the property
...

Triple-Net Lease: Typically, for a freestanding facility, this type of lease
has the tenant paying for all fees and operating expenses associated with
the space
...
Typically, the tenant will also
pay some common charges and frequently a certain percentage of the
gross sales
...

A shopping mall lease will often include terms about signage, hours of
operations, common areas and deliveries
...

Land or Ground Lease: The tenant leases the grounds and builds on the
property
...


There are numerous variations on common lease forms
...


137

Additional Costs
Leases typically address who pays for electricity, water and heat
...

ü Overages: The increase in the cost to operate the property from one
year to the next
...
30 per foot the next, the overage of $
...

ü Pass Through Costs: All expenses that are passed through from
landlord to tenant
...

A tenant generally wants out of a lease because:
•
•
•

Business is growing and the facility is too small
Business is bad and the rent payment is too high or you simply want to
close up shop
You are dissatisfied with the service of the landlord or how the terms of
the lease are being handled

If you need to move to a larger space or a better location, one option is to sublease the
space to someone else
...
Most often a sublet is allowed with the approval of the landlord
...

Another option, if business is going well, is to buy out the remaining portion of the lease
with a lump sum payment
...

This payment may be worthwhile if you are moving to a bigger space or better location
...
Talk to your landlord about the
situation
...

If you are dissatisfied with the manner in which the landlord is meeting the terms as
outlined in the initial lease, re-read your lease carefully and see if any terms have been
violated that allow you to break the lease
...
Do you have sufficient grounds to get out of the lease? If, for example, the
lease states that you will have the only jewelry store in the mall, but a department store

138
opens directly across from you, selling jewelry in one of their many departments, does
that violate the lease? Your business is being affected
...
Therefore, the landlord may try to work out a compromise solution,
which might mean relocating your shop or talking with the department store about
moving their jewelry department farther away from your store
...

Legal counsel can advise on situations whereby you are looking to get out of a lease
because you are dissatisfied with how the terms are being handled
...


ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü

Lease term
Manner of payment and when payment is due
Type of lease
Escalations and manner of calculation
Responsibility for repairs and maintenance
Responsibility for common areas (if any)
Subleasing or Assignment of lease
Security deposit
Terms for early termination
Options to renew
Manner of settling disputes
Permitted use of space

A checklist for office leases can be found in Appendix A: Forms & Agreements
...
)
•
Addresses
(2) Recitals
•
Background of agreement
•
Purpose for entering into the contract
•
Key assumptions for the contract
(3) Obligations of the Parties
•
What is each side required to do?
•
By what date?
•
If something has to be delivered, whose obligation is it and at who’s cost?
(4) Terms of the Contract
•
Is the contract a one-shot situation or will it last for some designated time period?
•
How can the term be renewed or extended?
(5) Price
•
•

•

What is the price for the product or service?
Is it a fixed price, determined by a formula, by a project fee, or some other
manner?
Who pays any tax?

(6) Payment Terms
•
When is payment due?
•
Will there be installment payments?
•
Will interest be charged?
•
Is there a penalty for late payment?
(7) Representations and Warranties
•
What representations and warranties are to be made by the parties?
•
Are certain warranties disclaimed (e
...
, merchantability or fitness for a particular
purpose)?
•
How long are any warranties good for?

141
(8) Liability
•
What limitations of liability exist (e
...
, no liability in excess of payment received,
or no liability for consequential damage or lost profits)?
•
Under what circumstances is one party liable (e
...
, material breach of agreement or
grossly negligent in performing services)?
(9) Termination of Contract
•
When can one party terminate the contract early?
•
What are the consequences of termination?
•
What post-termination obligations are there?
(10) Confidentiality
•
What confidentiality obligations are there?
•
What are the exclusions from confidentiality?
(11) Default
•
What are the events of default?
•
Does a party have a period to cure a default?
•
What are the consequences of a default?
(12) Disputes
•
How are disputes to be handled – litigation, mediation or arbitration?
•
If arbitration, what rules will govern? (e
...
, JAMS/Endispute or the American
Arbitration Association)
•
If arbitration, how many arbitrators and how will they be picked?
•
If arbitration, will there be procedures for discovery and what the arbitrator can and
can’t do?
•
If litigation, where can or must the litigation be brought?
(13) Indemnification
•
Is there indemnification for certain breaches or problems?
•
What is the procedure required to obtain indemnification?
•
Is there a cap on or exclusions from indemnification?
(14) Miscellaneous
•
Governing law
•
Attorneys fees
•
Modification of Agreement
•
Notice
•
Entire Agreement
•
Severability
•
Time of the Essence
•
Survival
•
Ambiguities
•
Waiver
•
Headings

142
•
•
•
•
•
•
•

Necessary Acts and Further Assurances
Execution
Jury Trial Waivers
Specific Performances
Representation on Authority of Parties
Force Majuere
Assignment

(15) Signatures
•
What authority is required for one party to sign the contract (e
...
, Board of
Directors approval)?
•
How many signatures are required?
•
Are the signature blocks correct? For corporations, this is a typical appropriate
signature block:
ABC, Inc
...


Information for Articles of Incorporation
1
...


Trademark and trade name search for articles?

3
...
O
...


Total number of authorized shares of Common Stock

5
...

B
...


The street address of principal office of the corporation
________________________________________________________
________________________________________________________

2
...


Authorized number of directors:
(a) Fixed #
(b) Variable: From
(see Cal
...
Code § 212)
Fixed initially at

4
...


Optional provisions desired:
(see Cal
...
Code § 212)

to

144
C
...


D
...


Names and Titles of Officers and Driver's License numbers (*indicates a required
officer; all others are optional)
Name
______________________
______________________
______________________
______________________
______________________
______________________

2
...
for
DE-1 Form
_______________
_______________
_______________
_______________
_______________
_______________

Initial Issuance of Shares
(a) Aggregate shares to be issued:

Name
_______________
_______________
_______________

Address
_____________________
_____________________
_____________________
_____________________
_____________________
_____________________

Number of
Shares
_________

Consideration
(and Valuation if
Non-Cash)
___________

_________

___________

_________

___________

(b) Specify if issuance of shares is to be under:
California:
(1) ____

Section 25102(f)

(2) ____

Section 25102(h) of the Corporate Securities Law of
1968

(3) ____

Other exemption: ________

(4) _____

Qualification with the Department of Corporations

145

Federal
(1) ____

Rule 504, 505, or 506 of SEC Regulation D [Note Form D must be filed no later than 15 days after first
receipt of subscriptions or money]

(2) ____

Section 4(2)

(3) _____

Other exemption:

Other State Blue Sky Laws:
(1)
(2)
3
...


Authorization of bank account(s)
(a) Name and branch of bank(s)
(b) Number of signatures required
Authorized signatories:

(c) Dollar limitations, if any, on authority of signatories
5
...


S Corporation Election and Form SS-4 Information
1
...


Social Security numbers of Shareholders and Spouses:

Name

Shareholder’s
Social Security No
...


______________ ________________ _______________

_____________

______________ ________________ _______________

_____________

______________ ________________ _______________

_____________

______________ ________________ _______________

_____________

3
...


Date corporation first had shareholders

5
...


Date corporation will begin doing business

7
...


Description of principal business activity

9
...
Estimated number of employees in first year
11
...
Products or services to be sold:
[__] Wholesale [__] Retail [__] N/A

[__] Other:

F
...


Where will the company be doing business, for purposes of qualifying to do business in
those states?
________________________________________________________________________

147
Form A3

Offer Letter to Prospective Employee

[Date]
____________________
____________________
____________________

Re: Terms of Employment
Dear

:

We are pleased to inform you that after careful consideration,
(the “Company”) has decided to make you this offer of employment
...

Position; Duties
...
Your duties and responsibilities, will be as designated by the
Company, with an initial focus on (i)
and
(ii)

...
The employment term will begin on

,


...
Your compensation will be $
a year, paid twice monthly
consistent with the Company’s payroll practices
...
You will be
entitled to
week’s paid vacation (equivalent of
business days) for each year of
full employment
...
You will be granted options to acquire
shares of the
Company’s Common Stock, vesting over a [four (4)] year term with one (1) year cliff vesting for
1/4th of the options
...
The
terms and conditions of your stock options are contained in a Stock Option Agreement of even
date herewith and must be executed by you and returned to us immediately to be effective
...
Our employment relationship is terminable at will, which means
that either you or the Company may terminate your employment at any time, and for any reason
or for no reason
...
You will be subject to the
Company’s Confidentiality and Invention Assignment Agreement, which is enclosed with this
letter and must be signed and returned by you before any employment relationship will be
effective
...
During employment with the Company, you will not do anything to
compete with the Company’s present or contemplated business, nor will you plan or organize
any competitive business activity
...
You will not during your employment or within one
(1) year after it ends, without the Company's express written consent, directly or indirectly solicit
or encourage any employee, agent, independent contractor, supplier, customer, consultant or any
other person or company to terminate or alter a relationship with the Company
...
You represent that you are aware of no obligations legal
or otherwise, inconsistent with the terms of this Agreement or with your undertaking
employment with the Company
...
You represent and
warrant that you have returned all proprietary and confidential information belonging to all prior
employers
...
Upon your acceptance, this letter will contain the entire agreement and
understanding between you and the Company and supersedes any prior or contemporaneous
agreements, understandings, term sheets, communications, offers, representations, warranties, or
commitments by or on behalf of the Company (oral or written)
...
In making this offer, we are
relying on the information you have provided us about your background and experience,
including any information provided us in any Employment Application that you may have
submitted to us
...
In the event a dispute does arise, this letter, including the
validity, interpretation, construction and performance of this letter, shall be governed by and
construed in accordance with the substantive laws of the State of [California or other State]
...


149
If these terms are acceptable, please sign in the space provided below and return this
letter to us
...

Yours truly,

[Name]
[Title]

Agreed and Accepted:

[Name]

150
Form A4

Stock Subscription Agreement
The undersigned hereby offers to subscribe for the number of shares of Common Stock
(the “Shares”) of ______________________________ (the “Company”) set forth on the
signature page of this Subscription Agreement at a price of $__________ per Share
...
The undersigned further acknowledges and certifies that the
undersigned received and read the Private Placement Memorandum of the Company
dated ____________________ and any supplements thereto (the “Private Placement
Memorandum”), and the undersigned is familiar with the terms and provisions thereof
...


Representations, Warranties and Agreements
...


(3)

There are significant restrictions on the transferability of the Shares;
the Shares will not be, and the investors will have no rights to
require that the Shares be registered under the Securities Act of
1933 (the “Act”) or any state securities laws; there is no public
market for the Shares and none is expected to develop; and,
accordingly, it may not be possible for the undersigned to liquidate
the undersigned's investment in the Company;

(4)

No federal or state agency has made any findings as to the fairness
of the terms of the offering; and

151
(5)

Any projections or predictions that may have been made available
to investors are based on estimates, assumptions and forecasts
which may prove to be incorrect; and no assurance is given that
actual results will correspond with the results contemplated by the
various projections;

(b) That at no time has it been explicitly or implicitly represented, guaranteed
or warranted to the undersigned by the Company, the agents and
employees of the Company, or any other person: (1) That the undersigned
will or will not have to remain as owner of the Shares an exact or
approximate length of time; (2) That a percentage of profit and/or amount
or type of consideration will be realized as a result of this investment;
(3) That any cash dividends from Company operations or otherwise will be
made to shareholders by any specific date or will be made at all; or
(4) That any specific tax benefits will accrue as a result of an investment in
the Company;
(c) That the undersigned is financially responsible, able to meet all obligations
hereunder, and acknowledges that this investment will be long-term and is
by nature speculative;
(d) That the undersigned has received and carefully read and is familiar with
the Private Placement Memorandum, this Subscription Agreement, and all
other documents in connection therewith, and the undersigned confirms
that all documents, records and books pertaining to the investment in the
Company have been made available to the undersigned and/or to the
undersigned's personal investment, tax and legal advisers, if such
advisers were utilized by the undersigned;
(e) That the undersigned has relied only on the information contained in the
Private Placement Memorandum and that no written or oral representation
or information that is in any way inconsistent with the Private Placement
Memorandum and has been made or furnished to the undersigned or to
the undersigned's purchaser representative in connection with the offering
of the Shares, and if so made, has not been relied upon;
(f) That the undersigned is capable of bearing the high degree of economic
risks and burdens of this venture including, but not limited to, the
possibility of complete loss of investment and the lack of a public market
which may make it impossible to readily liquidate the investment whenever
desired;
(g) That the undersigned is an “accredited investor” as that term is defined in
Regulation D under the Act or is otherwise a sophisticated, knowledgeable
investor (either alone or with the aid of a purchaser representative) with
adequate net worth and income for this investment;

152
(h) That the undersigned has knowledge and experience in financial and
business matters (either alone or with the aid of a purchaser
representative), is capable of evaluating the merits and risks of an
investment in the Company and its proposed activities and has carefully
considered the suitability of an investment in the Company for the
undersigned's particular financial situation, and has determined that the
Shares are a suitable investment;
(i) That the offer to sell Shares was communicated to the undersigned by the
Company in such a manner that the undersigned was able to ask
questions of and receive answers from the Company concerning the terms
and conditions of this transaction and that at no time was the undersigned
presented with or solicited by any leaflet, public promotional meeting,
newspaper or magazine article, radio or television advertisement or any
other form of advertising or general solicitation;
(j) That the Shares for which the undersigned hereby subscribes are being
acquired solely for the undersigned's own account, for investment, and are
not being purchased with a view to or for the resale, distribution,
subdivision or fractionalization thereof; and the undersigned agrees that
such Shares will not be sold without registration under the Act or an
exemption therefrom
...

2
...
The undersigned shall indemnify, defend and hold
harmless the Company, and any officers, employees, shareholders, partners, agents,
directors or controlling persons of the Company (collectively the “Indemnified Parties”
and individually an “Indemnified Party”) who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, against losses, liabilities and
expenses of each Indemnified Party (including attorneys' fees, judgments, fines and
amounts paid in settlement, payable as incurred) incurred by such person or entity in
connection with such action, arbitration, suit or proceeding, by reason of or arising from
(i) any misrepresentation or misstatement of facts or omission to represent or state facts
made by the undersigned, including, without limitation, the information in this
Subscription Agreement, or (ii) litigation or other proceeding brought by the undersigned
against one or more Indemnified Party wherein the Indemnified Party is the prevailing
party
...

Entity Investors
...

4
...
The undersigned agrees that the undersigned may not
cancel, terminate or revoke the offer to subscribe for shares for a period of 120 days or
any agreement hereunder at any time and that this Agreement shall survive the death or
disability of the undersigned and shall be binding upon the undersigned's heirs,
executors, administrators, beneficiaries, successors and assigns
...


Certain Securities Law Matters
...
The undersigned will cause any proposed purchaser, assignee,

154
transferee or pledgee of the Shares held by the undersigned to agree to
take and hold such securities subject to the provisions and conditions of
this Section 5
...
SUCH SHARES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE COMPANY RECEIVES
AN OPINION OF COUNSEL OR OTHER EVIDENCE
REASONABLY ACCEPTABLE TO IT STATING THAT
SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT
...

The undersigned consents to the Company making a notation on its records and giving
instructions to any transfer agent of the Shares in order to implement the restrictions on
transfer established in this Section 5
...
Prior to any proposed sale, assignment, transfer or pledge
of any Shares, unless there is in effect a registration statement under the
Act covering the proposed transfer, the undersigned thereof shall give
written notice to the Company of the undersigned's intention to effect such
transfer, sale, assignment or pledge
...


155
6
...
Therefore, certain information is requested below
...

(3) My estimated annual gross income was or is (do not include your spouse’s
income):
Current Year

Last Year

Year Before

$_________

$_________

$_________

(4) My spouse’s actual gross income and estimated gross income was or is:
Current Year

Year Before

$_________
(h)

Last Year
$_________

$_________

Previous Investment Experience in Other Private Offerings of Securities or
Other Relevant Experience:

Name of Program
Or Company
Amount Invested

1
...

3
...

2
...


(i) In which state do you currently
(a)
(b)
(c)
(d)
(e

Maintain your primary residence?
Maintain your secondary residence?
Vote?
File income tax returns?
Maintain a driver’s license?

(j) List any other information you believe is relevant in showing that you are
able to adequately evaluate the risks and merits of this investment:

In furnishing the above information, I acknowledge that the Company will be relying
thereon in determining, among other things, whether there are reasonable grounds to
believe that I qualify as a purchaser under applicable securities laws for the purposes of

157
the proposed investment
...


Miscellaneous
...

(b) This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without reference to conflict of law
principles
...

(d) The undersigned acknowledges that the Company may, in its sole and
absolute discretion, accept or reject this subscription offer in whole or in
part
...


Certification
...
The undersigned hereby certifies that he has read and understands the
Private Placement Memorandum and this Subscription Agreement
...

Number of Shares Subscribed for
at $__________ per share
$
Total Purchase Price

NAME OF PURCHASER
Signature
Title of Authorized Signatory if Purchaser
Is a corporation, partnership or other entity
Signature of Spouse or Co-owner

159
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES
ARE REGISTERED UNDER THE ACT OR AN EXEMPTION THEREFROM IS
AVAILABLE
...

900 Remington Road
Philadelphia, PA
Phone: (215) 976-4000 Fax: (215) 976-4001
E-mail: mpeterson@aol
...
ppi
...
(the “Company”) was founded by an experienced management team to
develop and market new types of consumer products in the picture frame, photography products
and photo album markets
...

Industry and Market Description:
The picture frame, photography products and photo album markets have annual sales in excess
of $15 billion, expected to grow to $20 billion by 2015
...

Photo albums are made and distributed by many of the same companies
...

The photography products industry consists of numerous companies large and small (Kodak,
Fuji, Arrelle)
...

The Company plans to develop and market comprehensive innovative product lines to
intelligently compete in all three areas, with the goal of obtaining significant and profitable
market share
...
Since that time, the Company has (1) designed four
new picture frame products, (2) designed two new photo album products, (3) lined up several
distributors, (4) made product demonstrations to Macy’s, Nordstrom’s, Wal-Mart, JC Penney,
and other major retailers, and (5) implemented manufacturing contracts
...
The Company has
designed a new series of frames, the DateFrame™ picture frames, which incorporate a feature
that displays the date when the picture was taken on a built-in mechanism in the frame
...
The Company has also designed picture

161
frames and photo albums, samples of which are available on request
...

Marketing:
The Company intends to use a combination of employees and distributors for marketing its
products
...
The Company has also been
developing distinctive packaging and logos to achieve brand recognition for its products
...
20 years of industry
experience
...
; 10
years of operations experience with Carr Frames, Inc
...
15 years of industry experience
...


Chief Financial
Officer:

Confidential Candidate: CPA, Big 4 Accounting experience; Controller
and CFO for consumer products companies; 15 years of industry
experience
...
and Burnes of Boston
...


Funding:
Amount Needed:

$3-$5 million of funding is needed over the next two years for
development, marketing, manufacture, sales and personnel
...

****

163
Form A6

CHECKLIST FOR OFFICE LEASES
1
...


Permitted Uses of the Premises
(a)
(b)
(c)
(d)
(e)

3
...


What uses of the premises are permitted?
Is the permitted use clause broad enough for possible changes in the business?
Is the permitted use clause broad enough for potential assignments or subleases?
Can the use clause be drafted to include “any lawful purposes”?
Can uses be changed with landlord’s consent, which consent can’t be
unreasonably withheld or delayed?

Primary lease term
(a)
(b)

4
...


What is the base rent for the primary term?
Are there escalation clauses?
Are there cost of living increases?
Is there a cap on any rent increases?
Is there a reasonable grace period and written notice before a late charge is
imposed?

Common area maintenance, HVAC, and Operating costs
(a)
(b)
(c)
(d)

What does the tenant have to contribute for common area maintenance,
ventilating, heating, air conditioning, and other building operation costs?
Is there a cap?
Can the amount be increased each year?
Real estate taxes and other impositions:
(i)
Does the tenant have to pay a portion of the real estate taxes?
(ii)
What increases over base year are allowed?
(iii)
Is there a cap on tax increases?

164
(iv)
(e)
(f)
(g)
(h)
(i)
(j)
6
...


What responsibility does the tenant have for repairs or replacements?
What responsibility does the landlord have for repairs or replacements?
At the end of the tenancy, is tenant’s obligation to return the premises in same
condition at the beginning of tenancy, excluding (1) ordinary wear and tear, (2)
damage by fire and other unavoidable casualty, and (3) alterations previously
approved by landlord?

Utilities:
(a)
(b)

9
...


Does the tenant have to pay increased taxes that may occur on sale of the
building?
Are there any special provisions or exceptions on the payment of these expenses?
When is payment due?
What detailed reports does the landlord have to provide the tenant showing the
actual expenses?
What audit rights does the tenant have to review the landlord’s books and
records?
Are there provisions made for weekend and holiday service? What are the
charges?
Does the tenant have a remedy for service interruption?

Direct supply or individually metered?
Method of computing payment?

Assignment and subletting:
(a)
(b)
(c)
(d)
(e)
(f)

Is the landlord’s written approval required?
What standard is there for approval? absolute discretion? reasonable approval?
Does the landlord have the right to cancel the lease if notified of a proposed
assignment of sublease?
If the assignment or sublet is at a higher price than the base rent, who keeps the
excess? or what split is there?
Can the lease be assigned to affiliates of the tenant without landlord approval?
Can the landlord terminate the lease if the stock ownership of the tenant changes?

165
10
...


Destruction:
(a)
(b)
(c)

12
...


Quiet enjoyment of premises by the tenant?
First class services?
Security building?
Ownership of building?

Option to renew
(a)
(b)
(c)
(d)

16
...


Indemnity mutual or tenant only?
Waiver of claims mutual or tenant only?
Waiver of subrogation?
Landlord liability limited to interest in property?

Default:
(a)
(b)

14
...


All present or future mortgages?
Execution of estoppel certificates required?
Tenant agrees to attorn to landlord’s successor in interest?

What is the scope of any right of first offer or first refusal?
How is rent determined?
How long does the tenant have before exercising the right?

Security deposit:
(a)
(b)
(c)
(d)

What is the amount?
Can it be a letter of credit?
Is there interest on the security deposit?
Does the lease provide for the return of the tenant’s security deposit within a set
number of days after termination of the lease?

166
18
...


Mortgages:
(a)

20
...
g
...


Are there any peculiar landlord obligations that should be included?

22
...


Insurance:
(a)
(b)
(c)

24
...


Does landlord warrant that the premises are in compliance with applicable law?
If tenant is obligated to comply with applicable law, does it exclude matters that
should more properly be the responsibility of the landlord (e
...
, asbestos
problems, disability access)?
Is landlord obligated to comply with all laws applicable to its control of the
building?

Are there specific rules and regulations in existence?
Can the rules be changed without approval of tenant?
Is the landlord required to enforce the rules and regulations against other tenants?
Are there any rules that interfere with the expected operations of the tenant?

Rights of Entry:
(a)
(b)

Exclusive of emergencies, what notice must the landlord give in advance for entry
into the tenant’s premises?
Are there any restrictions on landlord interfering with tenant’s business in
showing the premises to buyers, lenders or prospective tenants?

26
...


Parking:

(a)
(b)

How many parking spaces will be available to the tenant?
At what cost?

168
Form A7

Press Release – New Product
For Immediate Release
Contact:

Richard Anderson
Catchy Software Inc
...
com
New Software for Small Businesses

San Francisco, California (November 30, 2012) -- Catchy Software Inc
...

Biz LegalAdvisor™ combines a comprehensive package of forms, checklists and
agreements with explanations and guides
...

“This is a cutting edge product far superior to anything in the marketplace,” said Richard
Anderson, the President of Catchy Software Inc
...
”
The software provides guidelines and forms for almost any legal matter encountered by
small businesses -- from issues relating to employment to stock sales to intellectual property
...
“With Biz LegalAdvisor™,
many business owners and entrepreneurs will now be able to avoid legal pitfalls and save
thousands of dollars in legal fees,” said Richard Anderson
...
is a San Francisco based software company whose mission is to
provide software products to start-up and emerging businesses that are comprehensive, useful

169
and of high quality
...
More information can be obtained by visiting the company’s Web site at
www
...
com
...

Total Fixed Assets
Other Assets
Total Assets

Liability and Equity
Liabilities
Current Liabilities:
Accounts Payable
Notes Payable
Taxes Payable
Other: ________
Total Current Liabilities
Non-Current Liabilities:
Long-Term Debt
Other: ________
Total Non-Current
Liabilities
Total Liabilities
Equity:
Stock (Capital)
Retained Earnings
Total Equity
Total Liabilities and Equity

$

171
Income Statement
Period of _______ to ________
$
Revenues
Sales – Cash
Sales – Credit
Less Returns and Allowances
Net Sales
Cost of Merchandise Sold
Beginning Inventory
Purchases (Net)
Direct Labor
Outside Services
Other: ______________________
Less Ending Inventory
Total Cost of Merchandise
Gross Profit
Operating Expenses
Selling Expenses
Advertising
Commissions
Other: ______________________
Total Selling Expenses
General Expenses
Salary
Insurance
Depreciation
Repairs and Maintenance
Interest
Taxes
Utilities
Other: ______________________
Total General Expenses
Total Operating Expenses
Income From Operations
Other Income
Other Expenses
Income (Loss) Before Income Taxes
Income Taxes (Credits)
Net Income (Loss)
EBITDA

172
Statement of Cash Flows

Current
Period

Prior
Period

Increase/
(Decrease)

Percent
Change

Period Ending:
Cash Flows from Operating Activities

$

$

%

$

$

$

$

$

$

$

$

$

$

$

$

Net Income
Non-Cash Expenses Included in Net Income
Gain / Loss on Sale of Assets
Depreciation
Net Change in Receivables
Net Change in Payables
Net Change in Inventory
Net Change in Accrued Items
Other: _____________________________
Other: _____________________________
Net Cash
Provided by Operating Activities
Cash Flows from Investing Activities
Purchases of Capital Assets
Sales of Capital Assets
Loans Given
Loan Repayments
Other: _____________________________
Other: _____________________________
Other: _____________________________
Net Cash
Used by Investing Activities
Cash Flows from Financing Activities
Debt Reduction
Short-Term
Non-Current
Dividends
Other: _____________________________
Other: _____________________________
Other: _____________________________
Net Cash
Used by Financing Activities
Net Increase / Decrease in Cash
Schedule of Non-Cash Investing and Financing
Purchases of Capital Assets
Loans on Capital Assets
Other: _____________________________
Other: _____________________________
Total Net Change

173
Form A9

CONFIDENTIALITY AGREEMENT
This
CONFIDENTIALITY
AGREEMENT
(the
"Agreement") is by and between ___________, a
___________ corporation (hereinafter "Disclosing Party"), and
the undersigned (hereinafter "Recipient")
...

WHEREAS, in the course of consideration of the
possible transaction or relationship, Disclosing Party may
disclose to Recipient confidential, important, and/or proprietary
trade secret information concerning Disclosing Party and
his/its activities
...

1
...
For purposes of this Agreement,
"Confidential Information" shall include all information or
material that has or could have commercial value or other
utility in the business or prospective business of Disclosing
Party
...
By
example and without limitation, Confidential Information
includes, but is not limited to, the Company’s Business Plan
and plan of operations
...

For purposes of this Agreement, the term
"Representative" shall include Recipient's directors, officers,
employees, agents, and financial, legal, and other advisors
...
Exclusions
...

3
...

Recipient
and
its
Representatives shall not disclose any of the Confidential
Information in any manner whatsoever, except as provided in
paragraphs 4 and 5 of this Agreement, and shall hold and
maintain the Confidential Information in strictest confidence
...

4
...
Recipient may disclose
Disclosing Party's Confidential Information to Recipient's
responsible Representatives with a bona fide need to know
such Confidential Information, but only to the extent necessary
to evaluate or carry out a proposed transaction or relationship
with Disclosing Party and only if such employees are advised
of the confidential nature of such Confidential Information and
the terms of this Agreement and are bound by a written
agreement or by a legally enforceable code of professional
responsibility to protect the confidentiality of such Confidential
Information
...
Required Disclosures
...

6
...
Recipient and its Representatives shall
use the Confidential Information solely for the purpose of
evaluating a possible transaction or relationship with
Disclosing Party and shall not in any way use the Confidential
Information to the detriment of Disclosing Party
...

7
...
If Recipient does not
proceed with the possible transaction with Disclosing Party,
Recipient shall notify Disclosing Party of that decision and
shall, at that time or at any time upon the request of Disclosing
Party for any reason, return to Disclosing Party any and all
records, notes, and other written, printed or other tangible
materials in its possession pertaining to the Confidential
Information immediately on the written request of Disclosing
Party
...

8
...
Neither the holding
of discussions nor the exchange of material or information
shall be construed as an obligation of Disclosing Party to enter
into any other agreement with Recipient or prohibit Disclosing
Party from providing the same or similar information to other
parties and entering into agreements with other parties
...
Additional
agreements of the parties, if any, shall be in writing signed by
Disclosing Party and Recipient
...
Irreparable Harm
...
Such right of Disclosing Party is to be in addition
to the remedies otherwise available to Disclosing Party at law
or in equity
...
Recipient expressly waives the defense that a
remedy in damages will be adequate and any requirement in
an action for specific performance or injunction for the posting
of a bond by Disclosing Party
...
Survival
...

11
...
This Agreement and
each party's obligations hereunder shall be binding on the
representatives, assigns, and successors of such party and
shall inure to the benefit of the assigns and successors of such
party; provided, however, that the rights and obligations of
Recipient hereunder are not assignable
...
Governing Law
...

13
...
If any action at law or in
equity is brought to enforce or interpret the provisions of this
Agreement, the prevailing party in such action shall be
awarded its reasonable attorneys' fees and costs incurred
...
Counterparts and Right
...

The person signing on behalf of Recipient
represents that he or she has the right and power to execute
this Agreement
...
Entire Agreement
...
This Agreement is not, however, to limit any
rights that Disclosing Party may have under trade secret,
copyright, patent or other laws that may be available to
Disclosing Party
...
This Agreement shall be construed as to its fair
meaning and not strictly for or against either party
...

Date: ________________
_________________
...
Board Approval
...
This can be accomplished through
resolutions adopted at a Board meeting or by written unanimous consent
...
Shareholder Approval
...

Amendment of the Articles will typically require approval by the holders of
the majority of the outstanding shares, either by resolutions adopted at a
meeting or by written consent
...
Review the Company Charter
...

4
...
Before an offer or sale of stock
can be made, you need to ensure that the proper steps have been taken to
comply with the federal securities laws and the securities laws of the states
where the offers or sales of stock are made
...

5
...
The sale of the stock should be documented
by appropriate agreements
...
If the transaction involves venture capitalists
or strategic investors, then a more detailed negotiated Stock Purchase
Agreement will be necessary
...
Review How the Sale Will Affect Future Action
...
Ideally, the stock
issuance should not unduly restrict the ability of the company to issue
additional stock in the future
...
Price and Number of Shares
...
The dilution to the
existing shareholders resulting from the new issuance must be reviewed and
determined acceptable
...
Make Securities Law Filings
...

9
...
After the sale, the company should issue a stock certificate,
signed by the appropriately authorized officers of the company
...
Each
stock certificate should be dated and numbered
...

10
...
The issuance of stock should be recorded on the company’s
Stock Ledger, showing the date issued, consideration paid, name and address
of each shareholder, certificate number and other relevant information

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