Why Do 80% of Businesses Fail In Their First Year?

rows of silouhettes of diverse peopleEric is really angry. Less than a year ago, he started a business with four guys he knew from friends of friends. They shared the dream of opening a sports bar dedicated to soccer that would serve international beer and bar food.

They found the perfect spot and signed a lease. Eric personally guarateed the lease and put $30,000 down for a deposit. He paid for all the kitchen equipment and hired a contractor to bring the building to code.

His partners (they were all equal according to the one page document he typed up) chipped in for a little while. One brought in some TVs. Another bought some beer and tended bar sometimes. Another pitched in a few thousand dollars to buy some advertising to announce their grand opening.

After a month, the first partner was run out by Eric after taking cash from the till. He never came back.

Then one of the partners got sued for pinching the waitresses. Eric became embroiled because they were not a registered partnership or corporation.

Six months in, Eric ran out of savings before the bar started turning a profit and he got behind on rent. He asked the third partner for money. Instead, the third partner took all the TVs and left.

The waitresses quit because they were paid late. There was no cash for food or beer. And the landlord said that Eric was personally responsible for the five year lease — a debt of $250,000 at least.

After a few more months of barely scraping buy, Eric closes the doors to his dream bar. And the landlord sues.

Although this is a fictional story, I get a call from someone like Eric at least once a month. The details vary, of course. But the story is more or less the same: an erstwhile entrepreneur gets burned by less-than-honest partners or landlords and now has major problems. He’s broke, depressed and ruined.

It’s a really depressing story for an optimistic entrepreneur like me. But sadly, 80% of businesses fail within their first year. And the blow up is usually spectacularly devasting for an owner like Eric.

I am CONVINCED that many businesses would not fail if they had simply started off right. New business owners make a lot of the same mistakes that lead to failure. These include:

  • Not organizing legally, following ALL the steps necessary (e.g. just filing an LLC is not good enough)
  • Failing to keep professional accounting records from Day 1 and getting into tax problems
  • Not having good contracts with business partners and investors (this is one of the biggest mistakes)
  • Getting stuck in a bad commercial lease
  • Not having adequate resources to deal with all the things a new business must do because of lack of planning or education, which destroys cash flow because of constant traps and problems
  • Failing to follow good employment and pay practices from Day 1
  • Underestimating what starting and running a successful business takes

Eric didn’t call me before starting his business. If he had, I would’ve given him my ebook, How to Start A Business… Legally: A Quick and Easy Checklist.

I cannot stress this enough. Getting set up right and under the guidance of someone who has started or help start many businesses will save you thousands of dolalrs and help prevent failure.

Someone like Eric spends $100,000 to open his bar, only to crash and burn in just a few months. Now he’s liable for another $250,000 just with a broken lease…. There are still employee liabilities and taxes to deal with (and that’s if the partners all just disappear). His legal fees with me are going to be a minimum of $50,000. Alternatively, he will bankrupt and lose everything.

In a more perfect universe, Eric would have come to me a year ago. He would have hired me for between $5000 and $18000 and I would’ve helped him set up everything and given him the benefit of my years experience in business start ups.

He would’ve avoided the bad partners, the bad lease, the sexual harassment lawsuit and the waitresses quitting.

He also would have been on track to avoid the plethora of other problems that come from starting a business.

And then his $100,000 investment would not have been such a hopeless risk!

If I practiced law just for money, I would rather have people like Eric pay me $50,000 or more to pick up the broken pieces of their dreams and help them move on.

But I’d rather more small businesses be successful. And the odds of that are much improved when you invest in the foundation when you start up.

Either way, you’ll be calling me.

Partnership Disputes

PARTNERSHIP DISPUTES

A business partnership is a close, interpersonal relationship that is in no way immune to the usual problems.  Disputes may arise over trust, control or money. When a dispute arises between business partners however, much more than the immediate issues of trust, control, and money is at stake. Left unresolved, a partnership dispute can threaten the very existence of a business—hurting all of those who have worked so hard to make the business thrive — as the partners seek to preserve their own positions. hands in tug of war on ropeIf your business partnership is struggling, consider some of the following ideas to work through the issues.

 

  • Write down with specificity each partners role and responsibilities. Oftentimes, the break down of a relationship comes from someone’s expectations not being met.
  • Be direct with each other. The unsaid is more damaging than the said.
  • Pick one partner to be the executive. Equal partnerships often cause the partners to come to loggerheads over operational decisions, which is hugely damaging to a business. A business cannot be run day-to-day by committee in most circumstances. Pick someone to be the leader and avoid deadlock.
  • Be clear on the money. Expenses, owner draws and spending authority are all areas that should be negotiated in advance.
  • Map out both short and long term goals so that everyone is on the same page and envisions the business the same way.
  • Consider structuring as a limited partnership. Such legal entities keep the liabilities of one partner from becoming the liabilities of the other partners.
  • Make sure your partnership agreement is thorough and clear on issues of operational and spending authority, draws and exits.
  • Set up the business so that a partner is free to leave at their election without it massively disrupting the business. That way no one is afraid and no one has too much power. Also, when people are staying because they want to be there, rather than because they don’t know how to leave without destroying the business, their attitude and engagement will improve.
  • Consider using a lawyer or a professional mediator to work through issues and then memorialize them in the partnership agreement.
  • If the partnership must break up, use a lawyer to negotiate an amicable buy out or split to avoid litigation.

Sometimes litigation cannot be avoided (particularly if your partner has already sued you). In these cases, the partnership agreement and partnership laws (typically some variance of the Uniform Partnership Act) will govern how the business proceeds or is dissolved. In the event of a lawsuit, you must immediately seek counsel to defend the suit and to maintain operations legally.

If Your Company’s Business Partnership is Struggling, Our Attorneys can Help

If your business partnership is in a state of crisis, contact us to discuss your options. Better yet, ask about the Business Risk Review and address simmering issues before they explode and take the business with it.

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Business Law

BUSINESS LAW

Disputes, misunderstandings, and litigation impact the health and longevity of your business. Whether you’re the owner of a sole-proprietorship, a partner in a partnership, a member of a limited liability company, or shareholder in a corporation, it is critical to ensure that your entity’s legal and financial interests are being protected by an aggressive and experienced business law lawyer.

At Bellatrix PC, we pride ourselves on providing our clients with responsive, tactical business solutions.  Through critical analysis of the issues at hand, our legal team has repeatedly achieved favorable outcomes for numerous clients across a diverse range of industries and legal structures.  As a results-oriented firm, we aim to resolve complex disputes as rapidly and efficiently as possible, so that you can resume normal operations with clarity and confidence.

To arrange for a private consultation with the commercial attorneys of Bellatrix PC, call our law offices at (800) 449-8992 today.  The sooner you consult with us, the sooner we can get to work addressing your legal matter.

Experienced Business Law Lawyers

Even outwardly simple business transactions can lead to confusion and uncertainty.  Businesses of all structures are subject to myriad state, federal, and municipal regulations, which collectively encompass matters ranging from workplace discrimination to job site safety to the enforceability of non-compete contracts and other contractual agreements.

Even for highly knowledgeable and experienced entrepreneurs, it can be virtually impossible to keep abreast of the business world’s numerous and ever-shifting laws while busy with the daily demands of running a company.  All too many business owners have been unpleasantly surprised by federal investigations, the imposition of civil penalties, and lawsuits by employees, despite believing they were in full compliance with the law.

At Bellatrix PC, we bring a nuanced practical understanding of the full scope of business law to each and every legal matter we handle.  We will listen to your concerns, advise you with regard to your rights and responsibilities as a business owner, and explain the potential outcomes of the courses you could take on the path toward resolving your issue.

Should litigation arise, we are fully prepared to defend your business all the way to trial if necessary.  However, we are also qualified to function as mediators, to represent your company during arbitration, or simply to act as general counsel for your basic, daily questions and concerns.  We will help you understand the benefits and disadvantages of each available legal strategy as it pertains to your matter, so that you can make an informed decision about what’s right for your company.  When you work with Bellatrix PC, you can feel confident that your business is in capable hands.

Representing Partnerships, Corporations, and LLCs: Cases We Handle

As business owners ourselves, we are personally familiar with the seemingly endless complexities which can arise in business and commercial law.  In order to serve our clients effectively, we handle a wide variety of legal matters throughout every stage of the business life cycle, from formation to sale and dissolution.  No matter which point in its life cycle your company has reached, our dedicated attorneys are prepared to counsel you.

We are equipped to handle the full spectrum of commercial matters, including but not limited to the following:

Breach of Contract

  • Contracts act like blueprints, setting clear expectations for all parties to any business agreement.  When a contract is breached by one or more parties’ improper actions or failure to act, the other party or parties can suffer significant financial harm.

Business Formation and Dissolution

  • Selecting the right legal structure is critical for the long-term success of any business.  Likewise, proper dissolution ensures that debts and assets will be distributed appropriately when the company changes hands or reaches the end of its life.

Commercial Litigation

  • All types of disputes can lead to destructive lawsuits.  Whether your company has been accused of breaching a contract, engaging in discriminatory hiring practices, or other alleged misconduct, our attorneys will vigorously defend your business in court.

Contract Drafting and Negotiation

  • Contracts are the foundation upon which all business transactions are built.  We will prepare, review, revise, and aggressively negotiate your contracts with employees and other businesses, ranging from licensing agreements to commercial leases.

Employment Law

  • Whether your company has been named in a gender discrimination lawsuit, needs assistance determining overtime classification and fair payment of wages, or you simply have questions about drafting an employee handbook, our employment law attorneys are here to help.

Trademarks and Intellectual Property

  • Databases, recipes, software, and related information can be a company’s most valuable assets.  We work to protect your intellectual property and trade secrets with clear and enforceable contracts.

Our other areas of practice include, but are not limited to, the following:

  • Business Insurance
  • Creditors’ Rights and Debt Collection
  • Hiring, Firing, and Layoffs
  • Independent Contractors
  • Leasing Property and Equipment
  • Libel, Slander, and Defamation
  • Mergers and Acquisitions
  • Minimum Wage and Wage Disputes
  • Non-Competes and Non-Disclosure Agreements
  • Non-Profit Organizations
  • Payroll, Salary, and Bonuses
  • Permits and Licensing
  • Sexual Harassment
  • Stock Options
  • Tax Compliance
  • Unfair Competition and Unfair Business Practices
  • Whistleblower Lawsuits
  • Workplace Discrimination
  • Wrongful Termination

Whether you’re thinking about starting a company, need assistance resolving a stubborn dispute, or have already been named by a commercial lawsuit, the attorneys of Bellatrix PC have the skill and knowledge to help your business reach its goals.

To schedule a private appointment, call our law offices at (800) 449-8992 today.

What’s Your Problem?

Maybe We Can Help. Request Your Consultation Today.

Alicia Dearn

Alicia I. Dearn is the founder of Bellatrix PC, a woman-owned law firm with offices in Missouri and California. Bellatrix PC handles lawsuits and business transactions. We advise in business, employment, real estate, intellectual property, civil litigation, and election law.


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Commercial Litigation

COMMERCIAL LITIGATION

Business litigation is a complex area of law often made even more complicated by complex chains of events and factual scenarios. Given this, business law can be difficult to nearly impossible to fully master, understand, and manage on your own.  At Bellatrix PC, we represent and act as your Peace of Mind Advocates. Our commercial practice is structured so as to be responsive not only to the needs of large corporations, but also emerging start-ups and businesses everywhere in between in a vast array of industries.

Stand out from the crowd

Our legal team will listen to your concerns first prior to utilizing their years of experience and legal knowledge to help protect your interests. Whether you case is relatively straight-forward or a complex commercial matter, we will remain committed to aggressively pursuing legal solutions that are a fit for your business and its circumstances.

We work hand-in-hand with your existing business structure

Our legal team at Bellatrix PC is focused on providing the type of services that one would ordinary only expect from in-house counsel. We can recommend viable means for your management team to interface with our lawyers. When you work with Bellatrix PC you can always expect:

  • Steady legal guidance – In an uncertain and changing world, Bellatrix PC can be your business’ guiding legal star. A Bellatrix attorney can always handle your day-to-day legal concerns.
  • Clear communication – Our attorneys are dedicated to developing a strong relationship with each of our clients. We are dedicated to providing answers to your legal questions in a timely manner. If we are unable to take a call, we always strive to return in as quickly as possible.
  • Value for your legal dollar – A difficult economic climate has caused companies to cut-back and restructure their operations. Our firm is mindful of these economic pressures and the need to justify expenses. Therefore we always strive to provide real value for your legal expenditures.

Our attorneys are dedicated to fighting for your business. As an entrepreneurial business itself, Bellatrix PC empathizes and understands the current concerns and barriers growing businesses face in today’s economical climate. It is our deep personal desire for excellence that drives us to provide the most cost-efficient and in-depth legal services to each business we represent.

Providing Peace of Mind in Litigation

We understand that litigating a matter is rarely the preferred choice for any company.  Litigation can be expensive and time consuming. Therefore, we always explore all options that are likely to result in a favorable outcome for our clients whether by formal settlement, mediation or arbitration. However a settlement or form of alternative dispute resolution (ADR) is not always an appropriate or favorable means of resolving a dispute. In light of this reality, our attorneys always prepare thoroughly with the prospect or a trial in their mind. We handle a broad array of commercial litigation areas not limited to:

  • Breach of contract
  • Business succession
  • Business torts
  • Class action lawsuits
  • Closely held business planning disputes
  • Corporate takeovers
  • Corporate acquisitions
  • Corporate mergers
  • Contract disputes
  • Consumer fraud claims
  • Employment disputes
  • Insurance defense
  • Professional malpractice
  • Shareholder Actions

At Bellatrix PC, we assist our clients in navigating today’s legal challenges and regulatory compliance. At Bellatrix PC, we pride ourselves in our dedication and professionalism in all of our legal endeavors. To schedule your company’s free and confidential consultation with a Bellatrix PC commercial litigation attorney call (800) 449-8992 or contact our firm online.

 

Business Formation Attorneys

BUSINESS FORMATION

Starting your own business is an exciting time full of promise and opportunity.  But before your new start-up can hit the ground running, you must make some very important decisions with regard to business formation.  The structure you select will have a profound effect on issues ranging from the paperwork you must submit, to the degree of liability you will assume, to how many shareholders your company will be permitted.  Creating a solid and organized foundation now will allow your new company to prosper in the future, with the added benefit of reducing your risk of exposure to litigation.

At Bellatrix PC, our knowledgeable and experienced business formation attorneys are prepared to help you address all legal aspects of forming a new entity.  Our legal services range from helping employers ensure compliance with labor laws, to negotiating contracts and transactions on behalf of business owners, to defending companies against lawsuits brought by employees, independent contractors, and clients.  We are committed to empowering new businesses with the legal tools they need to foster growth, minimize costs, and maximize efficiency in daily operations.

To start discussing your goals in a private consultation, call Bellatrix PC at (800) 889-8376 today.  Let’s start talking about how we can help your new company succeed.

Launching a Business Name Tag Sticker New Company Start

Forming a Company: Types of Legal Structures

You have a few options to choose from when it comes to selecting a formal legal structure for your new entity.  No single structure is “superior” to the others: each comes with its own unique set of pros and cons, and a structure that would be completely inappropriate for one organization might be ideal for another.

Our employment attorneys will sit down with you to explain the rights, responsibilities, benefits, and drawbacks associated with each structure, so that you can make an informed decision which serves your best legal and financial interests.  For now, let’s begin by comparing the basic qualities of each structure.

Sole Proprietorships

Once a popular choice, the sole proprietorship has largely fallen out of favor as this structure offers neither separation of funds nor any legal protection against liability to the owner.  Realistically, only the smallest of entrepreneurial pursuits will comfortably operate under a sole proprietorship banner.  If you are planning on expanding your organization to include employees besides yourself, a sole proprietorship is probably not the right option for you.

Partnerships: General Partnerships, LPs, and LLPs

Partnerships can take many forms.  Despite the connotations of the word “partnership,” these structures can actually have more than two partners.

In a general partnership, two or more individuals join together to create a company.  General partnerships neither protect company assets nor shield the owners from liability, which renders them ineffective for many new businesses.

While the federal government and most jurisdictions do not require a formal operating agreement, failure to create a written agreement is akin to tacitly summoning disaster in the event of a partnership dispute.  Ideally, a partnership agreement delineates each partner’s role in the organization’s daily operations, as well as financial rights to company profits.  However, both parties are also bound to third-party agreements made by either party to suppliers, employees, etc. except under some limited and special circumstances.

In a general partnership, all partners share approximately equal involvement in liability and daily operations.  By comparison, a limited partnership, or LP, involves a general partner who has greater involvement at the cost of increased personal liability, and a silent partner who has reduced involvement and liability.  Therefore, unless the general partner is protected under some other formal structure, liability will accrue to the general partner, thereby placing the general partner’s personal assets at stake.

A limited liability partnership, or LLP, is the silent partner partnership.  In an LLP, there are no general partners. Instead, all partners share limited liability for debts incurred by the business.  If your business is being bankrolled by a partner with more collateral than you can personally access, he or she will likely want you to sign a limited liability partnership agreement, or LLP agreement.

Corporations: S-Corps, C-Corps, and LLCs

Corporate variants include S-Corporations, C-Corporations, and the limited liability company or LLC.  These structures enjoy great popularity among many entrepreneurs due to their considerable protections against liability.  Incorporating is only slightly more difficult than setting up a partnership, or applying for the business license and permits you would need to operate a sole proprietorship, but the benefits and the protections are orders of magnitude greater.

Under these types of structures, the business owner is generally not considered personally liable for the actions or debts of the business.  Under normal circumstances assuming the absence of fraud, if the LLC owes a supplier money, the supplier cannot pursue the owner’s personal funds and assets to satisfy the debt.

These structures prove effective and appropriate for many entrepreneurs.  Such a structure might be particularly beneficial if you are thinking about starting separate but related businesses in the future, as the failure of one organization will not “domino” into the others.

Business Formation Requirements

The business formation lawyers at Bellatrix PC will take care of every step of the process on your behalf, including any special requirements which may apply.  We will discuss your immediate needs and long-term goals, educate you on which entities limit personal liability and minimize tax obligations, and advise you regarding which entity type would be best suited for your objectives.

Once we have determined which structure would offer your new company the strongest legal and financial advantages, our legal team will handle all of the following steps:

  • Reserve the company’s name.
  • Obtain an EIN (Employer ID Number) for the company.
  • Draft and file articles of incorporation or organization.
  • Draft the operating agreement and bylaws.
  • Serve as the registered agent for the entity.
  • Draft and review contracts with potential vendors and clients.
  • Negotiate commercial leases and educate you on tenant’s rights and responsibilities.
  • Draft employment agreements, non-disclosure agreements, arbitration agreements, and/or employee handbooks, while ensuring your policies comply with state, federal, and industry regulations.

There are many more steps besides these that you must take to start up a business legally. We have a free guide for you: How to Start A Business… Legally: A Quick and Easy Checklist. Follow the link to get it or call the business law attorneys of Bellatrix PC at (800) 889-8376 to schedule a confidential consultation.

Why Do 80% of Businesses Fail In Their First Year?

Eric is really angry. Less than a year ago, he started a business with four guys he knew from friends of friends. They shared the dream of opening a sports bar dedicated to soccer that would serve international beer and bar food. They found the perfect spot and signed...

When your business dies: should you wind up, bankrupt or just walk away?

GraveyardIt is a well-documented fact: most small businesses fail.  All too often, I advise business owners and officers on what to do when it looks like the company just cannot make it another month.  What to do?  Should the business owners file for bankruptcy?  Should they file corporate dissolution papers?  Or should they just walk away from the whole mess and leave the shell corporation to die a slow, natural death?

This is actually a complex topic that requires good legal advice.  But the one teaser I will give you is that, in my experience, more often than not, just walking away is actually the right answer (with some caveats).  Dissolution and bankruptcy are sometimes both right, too.

But what you absolutely cannot do: ignore it and literally walk away while Rome burns behind you.  Once an officer or owner of a business becomes aware that the business is insolvent or virtually insolvent, he or she has a duty to the business’s creditors and shareholders to make decisions that protect the creditors and shareholders interests.  That is why you must consider whether bankruptcy, dissolution, or leaving an empty shell is the best solution.  Otherwise, you may end up being personally named in a lawsuit.  If you have assets — the reason for forming a corporation in the first place — you do not want to be embroiled in something that could drain you and your finances for several years after the business has already died.

So, very broadly speaking, what are your options?

1.  Bankruptcy.  Businesses can bankrupt, and a liquidation can be similar to a personal total bankruptcy (they are both Chapter 7).  Bankruptcy may not get rid of all the liabilities, however.  First, there is no such thing as a “discharge” for corporations — that means that the debts stopped being collected on against the company as it dissolves, but they do not disappear if the business wants to start up again.  More importantly, if there are any personal guaranties by owners or officers, the bankruptcy may simply accelerate those, because they would not be stopped by the bankruptcy.  So it is necessary to determine whether there is any protection or advantage to filing a bankruptcy.  If there are, owners and officers should seriously consider it.  Bankruptcies ultimately are neat and final and wind everything up permanently.

As an aside, there is such a thing as a debt reorganization bankruptcy for a business — i.e. Chapter 11s — and if the business is viable, that might be the best route.  You will need experienced bankruptcy counsel before going this route.  Reorganizations are expensive and frequently fail.  But they do offer the chance to save a company and have been used effectively by some of America’s biggest corporations.

2. Dissolution.  If the corporation is done and can be wound up, dissolution is the legal way to do this.  What this means is that the corporation winds its business, and the shareholders file a document terminating the business entity with the Secretary of State.  This has the advantage of finally ending the affairs of the corporation, but can trigger personal liabilities if not done properly.  If you are a Type-A personality, you may choose to go with this option because it just feels neater. It also allows you to be in front of liabilities and wind them up so you can move on with life.

3.  Empty Corporation and Suspension.  When I first began practicing business law, I was surprised to learn that this is a very common practice.  It is essentially the “you can’t get blood from a rock” strategy of corporate wind down.  The company winds up its affairs as best as possible and simply stops conducting business.  Any liabilities that remain exist in theory, but are noncollectable in practice.  Eventually the Secretary of State suspends the corporation for failing to adhere to certain requirements, like paying the franchise tax.  The corporate entity exists, but only in an empty-husk form.  In many cases, this is a real and surprisingly cunning strategy.

So, if you are ever faced with this unpleasant prospect, which should you choose?  That depends on what your books say, what your liabilities are, how much personal skin you have in the game (i.e. personal liability), and what you plan to do next.  The best thing to do is just call your lawyer, who can give you some savvy and realistic advice on how to maneuver through the depressing bone yard of the dead and dying business.  You may be surprised at what you can end up salvaging for your next (hopefully more successful) venture. Contact our business law and real estate law attorneys today for a consultation.