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SPHINX® PUBLISHING AN IMPRINT OF SOURCEBOOKS, INC.

®

NAPERVILLE, ILLINOIS

www.SphinxLegal.com

Business $16.99 U.S.

As a small business owner, every decision you make directly impacts your future

success. Having an understandable answer to many of your business law questions

can keep your business moving forward.

The Law (In Plain English)® for Small Business is your one-stop guide for making the

right decision every time. It covers the topics that concern you the most and

provides clear and accurate explanations of the laws affecting your small business.

Understand all the essentials of starting and running a successful enterprise,

including—

✓ Filing taxes correctly ✓ Protecting your good name

✓ Obtaining necessary insurance ✓ Preparing your business plan

✓ Advertising your business ✓ Locating your business

✓ Hiring and firing employees ✓ Expanding your market

ISBN-13: 978-1-4022-2875-9

ISBN-10: 1-4022-2875-9

for

✓ Organizing Your Business

✓ Developing a Business Plan

✓Financing a New Business

✓ Working with Contracts

✓ Hiring Employees

✓ Keeping Taxes Low

The Law

(In Plain English)

Small

Business

Expert guidance that includes:

Leonard D. DuBoff

Attorney at Law

(In Plain English)®

Second Edition

DuBoff Law for

SMALL

BUSINESS

The English) (In Plain®

A MUST HAVE

FOR TODAY’S

BUSINESS OWNER

Expert Advice for

Meeting the Legal Issues

Every Business Must Face

Expert Advice for

Meeting the Legal Issues

Every Business Must Face

The Law

(In Plain English)®

for

Small

Business

Second Edition

Leonard D. DuBoff

Attorney at Law

SPHINX® PUBLISHING

AN IMPRINT OF SOURCEBOOKS, INC.

®

NAPERVILLE, ILLINOIS

www.SphinxLegal.com

Printed and bound in the United States of America.

SB — 10 9 8 7 6 5 4 3 2 1

Library of Congress Cataloging-in-Publication Data

DuBoff, Leonard D.

Law (in plain English) for small business / by Leonard D. DuBoff. -- 2nd

ed.

p. cm.

Includes index.

ISBN-13: 978-1-57248-599-0 (pbk. : alk. paper)

ISBN-10: 1-57248-599-X (pbk. : alk. paper)

1. Business law--United States. 2. Small business--United States. I.

Title.

KF390.B84D828 2006

346.73'0652--dc22

2006035227

Copyright © 2004, 2007 by Leonard D. DuBoff

Cover and internal design © 2007 by Sourcebooks, Inc.®

All rights reserved. No part of this book may be reproduced in any form or by any electronic or mechani￾cal means including information storage and retrieval systems—except in the case of brief quotations

embodied in critical articles or reviews—without permission in writing from its publisher, Sourcebooks,

Inc.®

Second Edition, 2007

Published by: Sphinx® Publishing, An Imprint of Sourcebooks, Inc.®

Naperville Office

P.O. Box 4410

Naperville, Illinois 60567-4410

630-961-3900

Fax: 630-961-2168

www.sourcebooks.com

www.SphinxLegal.com

This publication is designed to provide accurate and authoritative information in regard to the subject

matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal,

accounting, or other professional service. If legal advice or other expert assistance is required, the services

of a competent professional person should be sought.

From a Declaration of Principles Jointly Adopted by a Committee of the

American Bar Association and a Committee of Publishers and Associations

This product is not a substitute for legal advice.

Disclaimer required by Texas statutes.

Dedication

To my wife, Mary Ann Crawford DuBoff,

for all you have done and for all we have together,

and to my mother, Millicent DuBoff,

for giving me the tools necessary to create this work

and the drive to actually do it.

Finally, to my grandson, Brian,

with hopes that he will carry on the tradition.

Acknowledgments

There is a host of individuals who have aided me in preparing this edition of

The Law (in Plain English)® for Small Business for publication. It is impossible

to identify all of them within these pages, but some deserve special recognition.

I would like to thank the following friends, colleagues, former students, and

associates for their valuable assistance.

In particular, I would like to thank Christy O. King, principal in the law firm

The DuBoff Law Group, LLC, for her aid in spearheading much of the revision

work that contributed to this book. Without her attention to detail, this revi￾sion would not have been possible.

Jed Macy of The Macy Company was extraordinarily helpful in providing up￾to-date and accurate information about pensions and profit-sharing plans.

I am also indebted to John Stevko, CPA, speaker and former CEO of the tax

and accounting education company Gear Up, Inc., for his aid with the numer￾ous changes in tax law. I would also like to thank Laurie Miller, CPA, and

William Paxton, CPA, of the accounting firm of Paxton & Miller, LLC, for

their help in revising the tax chapter of this book. John, Bill, and Laurie are

exceptionally knowledgeable with respect to small business tax issues.

My colleague and former student, Emil Berg, was extremely helpful in provid￾ing recommendations with respect to the material contained in the chapter on

insurance law. I would also like to thank Bert Krages, Esq., for his help in

reviewing the section on hazardous substances in the employment chapter.

I also appreciate the assistance of Steve Silver, Senior Vice President and

Financial Advisor at Morgan Stanley, for his help in obtaining information with

respect to securities and the securities market.

I would also like to express my sincere appreciation to Gene W. Arant, Esq., a

registered patent attorney and an author himself, for his help in reviewing the

patent chapter. Gene’s knowledge of patent law is extraordinary, and his help in

understanding some of the newer, more complex developments has been impor￾tant to the quality of that chapter. Dennis McLaughlin, Esq., of Dennis

McLaughlin & Associates, a franchise law expert, was extremely helpful in

updating the chapter on franchising.

A special thanks to my brother, Michael H. DuBoff, of the law firm of Snow

Becker Krauss, P.C., for his astute comments and recommendations.

I would also like to thank everyone, and I mean everyone, at Sphinx Publishing

for their cheerful service with this book. In particular, I would like to recognize

the special help of my editor, Michael Bowen.

I am also indebted to Lynn Della for the countless days she spent assisting me

in reworking the earlier version and compiling the myriad of changes that have

occurred in the law. Lynn’s knowledge of law and business and their real-world

applications have proved to be a valuable resource. I could not have revised this

book without her help. My secretary, Peggy Reckow, deserves special recognition

for her extra effort in converting my numerous interlinings and cryptic notes

into a readable volume. Her special talent in working with the foibles of the

computer system and transmitting the manuscript to the editors has been

extremely beneficial.

Finally, I would like to recognize the aid of my partner in law and in life, Mary Ann

Crawford DuBoff, for all of her work on this text. Words are inadequate to express

the appreciation I feel for all she has contributed to this and all of my projects.

Contents

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv

Chapter 1: Finding a Lawyer and an Accountant . . . . . . . . . . . . . . . . . . 1

Finding a Lawyer

Finding an Accountant

Chapter 2: Organizing Your Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Sole Proprietorships

Partnerships and Joint Ventures

Limited Partnerships

Corporations

S Corporations

Limited Liability Companies and Limited Liability Partnerships

Hybrids

Chapter 3: Business Organization Checklist. . . . . . . . . . . . . . . . . . . . . 21

Accountant

Business Name

Business Structure

Chapter 4: Developing Your Business Plan. . . . . . . . . . . . . . . . . . . . . . 31

Executive Summary

History of the Business

Products and Services

The Market

The Competition

Source of Work

Management

Financial Data

The Business Plan Team

Chapter 5: Borrowing from Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Loan Proposal

Business Outlook

Application

Lender’s Rules and Limitations

Details of the Agreement

Communication when Problems Arise

Venture Capital

Chapter 6: Going Public. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Advantages of Going Public

Disadvantages of Going Public

Federal and State Securities Laws

Initial Public Offering

Privatization

Chapter 7: Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Contract Basics

Types of Contracts

Understanding Contract Principles

Proving an Agreement

Essentials to Put in Writing

viii • The Law (In Plain English)® for Small Business

No-Cost Written Agreements

Contracting Online

Consumer Protection Laws

Chapter 8: Consignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Advantages

Disadvantages

Special Laws for Artists

Chapter 9: Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

Point-of-Sale Payments

Consignment

Invoicing

Ways of Encouraging Payment

When Payment Never Comes

Bankruptcies

Chapter 10: Expanding Your Market . . . . . . . . . . . . . . . . . . . . . . . . . . 97

Franchising

Multilevel Marketing

Chapter 11: Patents and Trade Secrets . . . . . . . . . . . . . . . . . . . . . . . . 107

Patents

Trade Secrets

Chapter 12: Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Definition

Prohibited Trademarks

Protecting a Trademark

Confusingly Similar

Federal Registration

Applications Based on Actual Use

Applications Based on Intent-to-Use

Contents • ix

Constructive Use

Benefits of Registration

Duration

Supplemental Register

Loss of Protection

Infringement

Antidilution

International Protection

State Registration

Using an Attorney

Chapter 13: Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

Copyright Law Foundation

Copyrightable Material

Scope of Protection

Ownership

Works Made for Hire

Derivative Works

Collective Works

Copyright Protection for Utilitarian Objects

Notice Requirement

Application Process

Period of Protection

Infringement

International Protection

Chapter 14: Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

Government Regulation

Comparative Advertising

Publicity and Privacy

Unauthorized Use of Trademark

Trade Dress

Celebrity Trade Dress

Conclusion

x • The Law (In Plain English)® for Small Business

Chapter 15: Licensing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155

General Considerations

Licensing Hazards

Method of Payment

Acknowledgment of Ownership

Quality Control

Signature

Chapter 16: The Internet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

Protecting Business Property

Protecting Consumer Information

Domain Names

Internet Advertising

Audits

Copyright Concerns

Server Protection

Email

Spam

Viruses, Worms, and Traps

Chapter 17: Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175

Express Warranties

Implied Warranties

Disclaimers

Magnuson-Moss Warranty Act

Using an Attorney

Chapter 18: Product Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

Defective Products

Types of Defects

Federal Laws

Product Liability

Liability Insurance

Contents • xi

Chapter 19: Business Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 189

Basics of Insurance Law

Property Covered

When and How to Insure

Chapter 20: People Who Work for You . . . . . . . . . . . . . . . . . . . . . . . 199

Independent Contractors

Employees

Employment Contracts

Other Considerations in Hiring

Hazards in the Workplace

Discrimination

Harassment

Age Discrimination

Disabilities Discrimination

Employee Handbooks

Zero Tolerance Policies

The Family and Medical Leave Act

Termination of Employment

Chapter 21: Keeping Taxes Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215

Income Spreading

Spreading Income Among Family Members

Family Corporations and Limited Liability Companies

Qualifying for Business Deductions

Deductions for the Use of a Home in Business

Other Professional Expenses

Travel Expenses

Entertainment Expenses

Conventions

Logbooks

Charitable Deductions

Grants, Prizes, and Awards

Health Insurance

xii • The Law (In Plain English)® for Small Business

Chapter 22: Zoning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235

Local Zoning Restrictions

Federal Regulations

Telecommuting and Web-Based Businesses

Chapter 23: Renting Commercial Space . . . . . . . . . . . . . . . . . . . . . . . 241

Premises

Cost

Term

Restrictions

Remodeling

Utilities

Security and Zoning

Written Document

Chapter 24: Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247

Defined Benefit Plans

Defined Contribution Plans

Designing and Documenting a Plan

Employer-Sponsored Plans

Investments in a Qualified Plan

Chapter 25: Estate Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257

The Will

Payment of Testator’s Debts

Disposition of Property Not Willed

Estate Taxes

Distributing Property Outside the Will

Probate

Contents • xiii

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295

About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303

xiv • The Law (In Plain English)® for Small Business