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    Business Partnerships

    Partnerships

    Partnerships can create an opportunity for your business to grow and thrive. Sentient Law knows that the ins and outs of such a venture can be challenging for many business owners. Attorney, Matthew Rossetti, is the premier “Slicing Pie” expert in the United States; he will ensure that you structure your partnership right from the very beginning. Whether you are building your business from the ground up or looking to add a partner to your existing business, he will guide you through the entire process. Here, we’ve provided some key information to help ease you through the nuances of understanding partnerships. 

    Making it legal

    A formal, legal agreement between you and your partner(s) will allow you to manage and operate your business as co-owners. You will also share in the profits and liabilities. It is important to be safe, be good, and be prepared. Sentient Law uses a custom dynamic business formation model to create a perfectly fair equity split in the early stages of a company. This makes sure that everyone owns the percentage of the business that they deserve. In other words, you get out what you put in.  This is achieved by calculating the input values of each partner. Monetizing and verifying the value you have brought to the company incentivizes each partner to contribute to the business. Setting up this organic agreement means you’ll never have to concern yourself with wondering how to fairly and proportionally divide your company’s ownership.

    There are several types of partnership arrangements

    Be sure to explore and choose the most suitable arrangement for your business. The most important types of partnerships to consider are:

    • General Partnerships:  All partners represent the company when dealing with outside parties. Each partner has equal control and the right to participate in decision-making and the management of the business. Furthermore, the risks and returns are distributed equally, unless otherwise stated in your partnership agreement.
    • Limited Partnerships (LP): A limited partner has no authority and will not earn equal returns. Their personal assets are protected by limited liability in legal situations, unlike a general partner. Not to be confused with Limited Liability Partnership (LLP). 
    • Limited Liability Partnerships (LLP): This is a popular business formation because it allows for collaboration without holding all partners responsible for one partner’s mistakes. In this type of structure, some or all of the parties have limited liability, protecting their personal assets if legal issues arise.
    • Joint Liability Partnerships: In a joint liability partnership, all partners are equal. They share in all the responsibilities of the business, including liability for financial and legal issues.
    • Several Liability Partnerships: This is a complex arrangement. The weight of responsibility can shift, depending on the specific duties and responsibilities of each partner. Liability could fall to a partner for lack of due diligence and the legal responsibilities can be divided depending on where the obligation lies. 

    Who’s who and what’s what?

    Going into a partnership can leave you a bit confused as to what your role is in the company. To clear things up, here are some terms that may help you understand your role and may serve as a guide when seeking out potential partners.

    • Founder: The person or persons that created the company. The owner is not necessarily the founder. Your new partner can be an owner as well, however, if you forged this entity you are the founder.
    • Investor: Any person, company, or entity that invests capital into a business and expects to earn a rate of return. An investor may put money into the business or purchase stocks from other investors. The main objective is to maximize profits and minimize risk. Investors may contribute with labor, provide loans, buy shares, or perhaps even guarantee to pay creditors.
    • Angel Investor: Typically wealthy, these are individuals that provide a startup with seed money or capital for expansion, in exchange for ownership or equity. They are often willing to invest hundreds of thousands of dollars into a business if they believe they will reap the rewards of your success. However, angel investors are not always motivated solely by making a profit. These are often professionals that are well into their careers and are inspired to give something back and driven by doing a good deed for an aspiring entrepreneur. Angel investors are often referred to as informal investors, angel funders, private investors, seed investors, or business angels.
    • Equity Stakeholder: Although stakeholders are commonly thought to be large inventors that can afford to hold a viable stake in a company, there is much more to be considered. In actuality, anyone that invests in a company and whose actions determine the outcome of its business decisions is a stakeholder.  These investors have a long-term interest in the performance of the company. They don’t have to be actual equity holders, they can be shareholders, creditors and debenture holders, employees, customers, suppliers, the government, and more. Simply put, stakeholders rely on the success of a business to keep the supply chain going.

    It’s never too late to start using the “Slicing Pie” approach

    You may already have an existing partnership agreement. Due to ever-changing life events, your existing agreement may no longer be the right fit for you and your partners. If you have an LLC and it is pre-revenue, amending your agreements is straightforward and simple for Sentient Law. Depending on the circumstances, almost all partnership agreements can be amended with the consent of all parties involved. Matthew Rossetti will work with you to create a perfectly fair and balanced agreement and equity split. Set up a 30-minute consultation today to discuss how he can help you.

    Attorney, Matthew Rossetti, specializes in start-up businesses and the formation of companies. He is the premier “Slicing Pie” expert in the midwest. Rossetti uses a custom dynamic business formation model to create a perfectly fair equity split, in the early stages of a company. Set up a 30-minute consultation for guidance.

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    Top 5 Online Business Ideas – Start-Up Edition

    The Time and Money Conundrum

    When you have the money you don’t have the time when you have the time you never seem to have the money. So many people, like yourself, have been baffled by this conundrum for so long. You work long, stressful hours to make the type of money that would allow you to grow your family or take those amazing vacations that you’ve been fantasizing about. Now that you’ve stockpiled your earnings and are ready to start planning, you realize that you can’t afford the time because you have sacrificed time for money. On the occasion that you have as much free time as anyone could ever hope for, you find yourself wishing that you had the type of career that could bankroll your wanderlust or support your desire to focus on family. Alas, you come to realize that you have sacrificed money for time. Having to choose between time and money would be a tough pill to swallow if you had to. Contrary to popular belief, you don’t have to.

    Buying Time Freedom and Independence

    Creating an online business can bring you the type of lifestyle and financial freedom you’ve been longing for! You can become a highly active full-time entrepreneur or keep your workload light by sharing some of the responsibilities with a partner. The greatest thing about having an online business is anyone can do it from almost anywhere. The sky’s the limit.

    Business Partner and Being Prepared

    Many entrepreneurs enjoy the thrill of being highly active and fully involved in the day-to-day of their business. It can be very rewarding to be the face and voice of your company by handling your own sales and marketing, along with networking and cultivating great relationships with your clients. There is also a sense of security when it comes to being the sole person in charge of accounting and finance. Going it alone has its perks for those that are great at managing their time and understand the skills needed to provide your business with a solid foundation.

    For some, handling all aspects of the day-to-day grind can seem overwhelming or in time, become overwhelming as your business starts to take off. A lot of people work better in teams, consider having a business partner to share some of the load. Partnerships provide an opportunity for you to focus on your strengths and to draw from someone else’s expertise, in areas that you are not highly skilled. In many instances, startups are unable to pay people upfront. It will be important to figure out when and how you will do that, once your company starts to see profits. Sentient Law specializes in using a dynamic equity framework to fairly distribute equity to your startup team. This allows partners to calculate the value of their time, making sure everyone is compensated fairly.

    Get your wheels turning with these Top 5 Online Business Ideas.

    1. Digital Products or Courses
    2. Virtual Coaching
    3. Dropshipping
    4. Box Subscription Business
    5. E-commerce Retailer

    Removing Mental Roadblocks

    Even though we are all constantly using online products and services, when it comes to launching a personal online business it can be intimidating. Self-doubt can quickly stifle your enthusiasm and bring creating and planning to an immediate halt. Why not you? You have all of the skills required to create and grow a successful online business. The first thing you must do is open your mind.

    While it is true that you should work with what you know, just because you are in finance, does not mean your online business needs to have anything to do with finance. Explore other areas where you are knowledgeable. For example, you may also know what a great shave should consist of. In that case, you could sell amazing razors, and other shave tools and products. Think outside the box.

    Another hurdle that people tend to face is the notion that their online business should spark from some sort of deep and meaningful passion. As lovely as that sounds, if you are someone who has had a career for at least five years, you probably already know, deep and meaningful careers can become just as daunting and monotonous, as with any other. Focus more on what will bring you the type of income that would allow a deep and meaningful life. Remember, money is a tool to buy time, freedom, and independence.

    What’s the Right Business for Me?

    Ask Yourself These Questions:

    • What am I good at?
    • What do I know?
    • What type of lifestyle do I want to lead?
    • What do I want my day to day to look like?
    • How much am I willing to invest in my business (multiply by 3)?
    • What do I know about this product or service?
    • Do I want to do this on my own?
    • Do I want or need a partner(s)?
    • Will I have employees?

    What Are You Waiting For?

    There couldn’t be a better time than right now, to start your online business. You have already proven to yourself that you are ready to take the first steps in owning your own business by visiting our website and reading this blog. By now, you understand that it is possible to have freedom and independence when it comes to both your money and your time. After clearing some common mental roadblocks, your mind is open to opportunities you’ve never thought of before. You are armed with 5 fantastic online business ideas and hopefully, you have come up with a few of your own. Questions have been asked and answered as to some of the specifics about your new business and you are ready to take the next steps. Now it’s time for you to make it official and choose the best business formation for your new company. Sentient Law is here to walk you through the process and answer any questions that you may have.

    Attorney, Matthew Rossetti, specializes in start-up businesses and the formation of companies. He is the premier “Slicing Pie” expert in the midwest. Rossetti uses a custom dynamic business formation model to create a perfectly fair equity split, in the early stages of a company. Set up a 30-minute consultation for guidance.

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    Top 3 Business Formation Options

    Giving Your Start-Up a Head Start

    It’s time to commit to that great business idea you’ve been fantasizing about. This is a brave and bold move. Although you will face many challenges, watching your company grow and succeed will be extremely rewarding.

    By now, you’ve Googled how to start a business, done your research, hopefully started a business plan and financial plan. Now you’ll need to determine your business structure. This is a very important step in the process and can be a bit confusing. It is always wise to reach out to a knowledgeable business attorney who can help you select the business structure that best meets your unique needs.

    There are several business structure options to choose from. This decision will significantly impact your business profit, liability and taxes. You can always reevaluate and change your business structure as your business grows and needs change. Getting the assistance of an attorney, capable of navigating the nuances of business formation will ensure that your amazing business idea is set-up for success from day one.

    To get started deciding which business structure best fits your needs and goals, here are the 3 Top Business Formation Options.

    1. Limited Liability Company (LLC):
      • Owners of an LLC are called members rather than partners or shareholders. You can form an LLC with only one member, like a sole proprietor (without the personal Liability), or with multiple members.
      • This type of business formation carries with it similar benefits of both a Corporation and a Limited Liability Partnership (LLP), without some of the burdens those business structures may involve.
      • Similar to a corporation, an LLC is a separate entity from the owner, providing legal and financial protection. This protection allows an owner to avoid taking on the personal responsibilities for any debt or liabilities of their business.
      • Most small business start-ups will open as an LLC rather than a corporation. Forming an LLC is generally less expensive to start, has less formalities and you don’t have to pay corporate taxes on top of individual taxes. Limited Liability Companies share the same tax benefits as an LLP, where each member is taxed based on the owner’s individual income.
    2. Corporation
      • A Corporation is a company or group of people that are authorized to act as a single entity. This option is preferred by companies who are looking for outside investors or who want to take their company public.
      • Forming a corporation is essentially creating a person (legally a person). It is not a human being of course, but it is a single entity, that has a lot of the same rights and obligations of a person. This ‘person’ has a name, must pay taxes, debts and is liable for any wrongdoings.
      • Some believe that a corporation is the most advantageous business structure. A corporation is made up of individual directors (board of directors), officers and its members, called shareholders, which own a percentage of the business or stocks. This single entity is separate from the owners, providing legal and financial protection to its members, similar to an LLC.
    3. Limited Liability Partnership (LLP)
      • The main advantage of an LLP is that all partners are protected by some form of liability protection. An LLP is basically a general partnership, but it gives the partners some limited personal liability. In this jointly-owned business, two or more people agree to share in all assets, profits and financial and legal liabilities.
      • It is similar to an LLC in many aspects, including how individual owners are taxed. The structure does differ in that an LLP must have a managing partner that is liable for the actions of the partnership.
      • It is important to be aware that some states recognize LLPs formed in other states (called foreign LLPs), and some states do not. This could affect the limitation of liability in the other states, possibly treating your business as a General Partnership. With a General Partnership, owners are left unprotected. They are personally responsible for business liabilities and debts. This means that their personal assets can be seized and partners may be sued for business debts.
      • The degree of liability limitation for an LLP varies from state to state. It is crucial to do your research and/or reach out to a qualified attorney.

    Yes, these options can be confusing and there is so much more to consider when starting a business. Will you have members, partners or shareholders?  How will you divide the company? Should you have a Start-up Equity Agreement and Co-founder Equity Agreements? Fortunately there is help.

    Attorney, Matthew Rossetti, specializes in start-up businesses and the formation of companies. He is the premier “Slicing Pie” expert in the midwest. Rossetti uses a custom dynamic business formation model to create a perfectly fair equity split, in the early stages of a company. Set up a 30 minute consultation for guidance.

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    Non-Competes: Useful Or Futile?

    By Matt Rossetti

    Originally Published on Forbes.com here.

    Bound by a Non-Compete?

    At least half of the founders who contact me are contractually bound by some sort of covenant not to compete with a current or former employer. A covenant not to compete is a contract between an employer and employee or contractor in which the employee or contractor agrees not to work for competitors of the employer for a specific amount of time after the employee or contractor completes their service to the employer. Whether you are an employee, contractor or employer, there are three basic issues to think about when analyzing your non-compete: purpose, restrictions and enforceability.

    Purpose

    Non-compete agreements protect proprietary information and restrict where an employee or contractor may work during the contract — and sometimes after they complete their service to an employer.

    The first purpose of a non-compete is tantamount to a non-disclosure agreement, as its goal is to keep a current or former employee or contractor from disclosing proprietary information to a third party. Proprietary information includes more than just intellectual property and can be anything from financial plans to marketing strategies and data.

    The second purpose is a work restriction on the current or former employee or contractor. Work restrictions contractually limit a current or former employee or contractor from working for a competitor in the same market or geographical area for a set amount of time.

    Restrictions

    Non-competes are a severe restriction on commerce and an individual’s ability to make a living. Because of this, the prevailing trend is to limit or bar the enforceability of non-competes. This enforceability, however, varies greatly by state.

    In states like California, non-competes are unenforceable as a matter of law if they restrict an employee or contractor’s activities after the term of the contract. There is a common misconception that non-compete clauses are still enforceable against California contractors (they are not). The relevant provision of CA’s Business and Professions Code Section 16600 states: “16600. Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

    Other states like Georgia provide employers specific guidelines for the enforceability of restrictive covenants Ga. Code Ann. § 13-8-53 (May 11, 2011).

    When reviewing your non-compete, you should have an attorney check the laws of the state where both the employer and the employee/contractor are located for restrictions.

    Enforceability

    For a covenant not to compete to be enforceable, there must be some form of consideration. Consideration may come in the form of payment with something of value or money. If an agreement containing a non-compete is signed at the outset of an employee or contractor’s employment, most courts will find that continuing employment is adequate consideration for the non-compete. However, if an employer tenders a non-compete to a current or former employee or contractor without consideration, then most courts will find that non-compete invalid for want of consideration.

    Because a non-compete may severely restrict an individual’s ability to make a living, the restrictions must be reasonable in scope. I recently had a software engineer present me with an independent contractor agreement that would have restricted him from performing any services as an engineer, whether indirectly or directly competitive with his employer, for five calendar years post-employment and without a geographic limitation. If enforceable, this agreement would have prevented the contractor from working as a software engineer in any capacity for five years.

    While proprietary information protected by a non-compete may be broadly interpreted and include more than just intellectual property, work restrictions must be reasonable in duration and geographic location. Generally speaking, a covenant not to compete should only last for one to two years maximum. The geographic limitation should also be reasonable in light of the circumstances. While a software engineer might be restricted from working in a certain market, it is probably not fair to ask a fast food worker not to work for a competitor globally.

    In many states, the employer bears the burden of showing that restrictions are both reasonable and necessary to protect against unfair competition. While some states might enforce this agreement, a state’s courts often are allowed to “blue pencil” non-compete provisions to those aspects that are absolutely necessary to prevent a competitor from gaining an unfair advantage.

    Restrictive covenants like non-competes can be unenforceable as a matter of law or cause all involved significant hardship in the future. I highly encourage employers, contractors and employees to avoid using form or stock agreements that contain non-competes without a licensed attorney’s review. An ounce of prevention is worth a pound of cure.

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    Illinois Supreme Court Commission on Professionalism Lawyer Spotlight: Matthew Rossetti

    The Illinois Supreme Court Commission on Professionalism’s Lawyer Spotlight recognizes attorneys throughout the state who are admired for their professionalism and civility in the legal field. The founder of Sentient Law, Ltd., attorney Matthew Rossetti, was featured in the Lawyer Spotlight today. Read more here.

    Matthew Rossetti