The second deadly issue that we often see troubling businesses is the lack of a basic understanding of business structure.  In other words, a lot of small business owners don’t take the time to learn a little about what a “corporation” actually is before they start to do business.

In its most basic form, a “corporation” is an entity separate from you by which you do business.  Lawyers call it a “legal fiction,” because it doesn’t actually exist – it isn’t a thing.  But, this “fiction” may be very important to the small business owner for a variety of reasons, and therefore, you should know what it is and why do you want to be one.

The idea of doing business as a sole-proprietor without having a formal business structure is no longer feasible in today’s business environment.  Frankly, with the ease with which you can create a corporation, you would be a fool to start doing business without first creating a business persona or “corporation.”  I know that is probably strong language for many people, but many of the folks that might feel that way don’t really understand what a “corporation” actually is.  “Corporations” (which come in many forms) are completely separate entities from their owners, which can transact business, hold debt, hold property, and may have separate tax structure.  They range in form from LLCs, to C-corps, but each has the same basic characteristics that every business owner should be aware of.

For most business owners, starting a corporation is important because they want to protect their family or personal assets.  Simply put, because a “corporation” is a separate entity, it means that it has separate liability – it can be sued separately and (under most circumstances) your personal liability is separate if you are being sued.  And, while there are lots of other benefits in having corporate status, most business owners depend on this separate liability as the basis for having a strong corporate structure.  Notice though, I said “strong corporate structure.”  Under the heading of a little knowledge can be a dangerous thing, you should also understand that merely creating the corporate entity does not maintain liability protection – you corporation must also act like a corporation.  If you do not act like a separate entity, you may quickly lose corporate protection if you are ever sued. In other words, what we call “the corporate shield” will be useless to protect you.

The single easiest way to destroy corporate protection if you are ever being sued is to prove “commingling,” which is mixing your personal and corporate assets or debts.  In many closely-held (often family-owned) businesses, owners often mix personal and business assets, sometimes without even realizing it.  It may seem silly or too formal, especially with LLCs, but you must keep the finances and decision-making separate between your personal life and your business life.  If you take moony out of the cash register for personal use, you may be destroying your corporate protection.  Really?  Yes.  Think of it this way, you wouldn’t take money out of your friend’s pocket without some understanding of who owns that money and who will pay it back, so don’t do it in your business.   You must respect the corporation as a separate entity.

Moreover, you should also understand the amount of formal administrative stuff that you need to do to protect your corporate structure. Do you need to have an annual meeting?  Do you need an operating agreement? Do you need to file a separate corporate tax return?  Each corporation has different requirements, and a brief bit of research can help you set-up your yearly corporate calendar in such a way that accomplishes these tasks easily, such that your corporation is protected going forward without unnecessary effort.  Taking the time to understand your corporate structure and what it takes to protect it can save you significant heartache should you ever end up in a lawsuit.  File this under an ounce of prevention beats a pound of cure.  You can test yourself by looking at the questions in this paragraph – if the topics seem unfamiliar or you don’t know the answer to each of these questions, you may want to learn a little more about your corporate structure and how to better protect yourself in the future.  Trust me, some business advice now, even if you have to pay for it, is much cheaper than the lawsuit that might happen later.

Picture it: you are really angry about having been wronged. Your wife left you. Your business partner made some bad decisions with your money. Your husband doesn’t pay child support on time. Someone hurt you in a car accident. In every case, people want to show the other side how wrong it was to do those things. The wrong has caused you pain – be it emotional, financial or physical – and you want the other side to admit that they were wrong. That rarely happens. In fact, most litigation lawyers, like me, feel very uncomfortable with the notion of our clients apologizing to anyone, because it is an implicit admission of guilt.

But, you are still so angry at being hurt. You want our legal system to show the person that the were wrong as a matter of principle. Those feelings are natural; I have felt them myself. However, trust me, several months and thousands of dollars later, you won’t feel so strongly about your case. You see, principles are about morals, and our legal system isn’t built to make people more moral. Instead, it is a system of boundaries, where injuries are redressed by money (in most cases). In other words, when somebody hurts you, the only thing that you can ultimately get out of a lawsuit is money. You are probably saying, “that is alright, sign me up!” But, that isn’t all you get.

You get to spend money on court fees and litigation costs, like deposition fees, expert witnesses, copies and process servers. Depending on the type of case, you get to pay a lawyer a lot of money to spend time thinking about you and your problem. You get to take time from work for depositions, hearings and meetings. Then, there are mediation costs and time to try to resolve your problem. And for this trouble, you get to have an answer to your problem, maybe two to three years after it happened. That is assuming that there is no appeal. Oh, and we should always remember that you must be able to collect the money that you are awarded, so you should hope that the party that you sue still has some after the lawsuit.

Pretty bleak, huh?  I paint this picture bleakly for my clients, because there is a hard downside to litigation. It is an emotional and financial drain on your life and your business. As such, it should not be entered into lightly and for the wrong reasons, because you want to make the return worth the investment. That is why I say, “Never Litigate Over a Principle.” If you do so, you will never win.

“I started my own business because I want to work less hours.” I can’t tell you the number of times I have heard this from someone considering making the plunge into entrepreneurship. Guess what – doesn’t happen. It. Does. Not. Happen. I know very few business owners that work less than they did at a “normal 9-to-5 job.” If they do, it is because they have grown the business to such a large point that they have acquired staff to run the business like they would. When you start a business, you should be prepared to work, whenever, however, and for as long as necessary to make your dream a reality.

“I started my business to make more money than I did at my old job.” This notion can be fatal to any fledgling business owner can quickly tell you, because building a book of business takes time. It also takes work (see the above). And, in many industries, you cannot make serious money from a business until you have more than one location or until you franchise. Plus, many people forget that there are a lot of costs associated with starting you own business, so you must be prepared to make less before you can make more. So, it is important to start your business with attainable financial goals. If you set unrealistic financial goals right off the bat, you will never feel like a success in your business, which just makes it harder to actually succeed.

Finally, my favorite, “I just want to be my own boss and call the shots.” I like shot-callers. I am a shot-caller; it is the very nature of the type of law that I practice. I love making decisions. But, there are people in this world who think that they want to make decisions, but they really don’t. Some people shy away from being decisive. It isn’t a bad thing, because shot-callers typically need more thoughtful people to keep us from running everybody else over. The problem is when someone thinks that they want to be the decision maker, but they really can’t actually do it. Shakespeare has it correct, “…to thine own self be true.” If you do not know the type of person that you are, you cannot succeed at owing your own business, especially if you do not like making decisions.

Starting out, you really need to think about why you want to start your own business and be able to articulate those reasons. The better you can articulate what you really want, the more concrete your direction will be. If fact, it will probably help you build an overall marketing plan, because you will discover the why and the who of your business in the process.

To a hammer, the entire world is nails. As an attorney, I often tell people this when asked for cocktail party legal advice. “Do I have a claim for this?” “Can’t I sue for that?” To a clever lawyer, all disputes can be solved through a lawsuit. Thus, nails.

The truth is that an answer as to your legal “rights” depends a lot upon whom you ask. The law is open to interpretation based on the facts. This inconsistency drives people crazy. It drives some of us lawyers crazy, too. The legal issue, however, is only part of a lawsuit.

Too often, we forget the larger picture of what we really want or need when faced with a legal issue. Harping only on the legal issue can lead to a real mess in people’s lives, ignoring what is best for you, your family, your business or your property. Good lawyers weigh the uncertainty and the practical realities of litigation (cost, stress, business disruption, etc.) and include options related to “alternative dispute resolution” or “ADR” in their advice to clients.

ADR is simply lawyer-speak for “let’s stay out of court and pursue a truce.” It comes up in arbitration with professional athletes and in mediation with celebrity estates. But, you don’t have to be a celebrity to use ADR, a little known secret.

People use mediation or arbitration to privately resolve disputes, either during litigation or without litigation. Why? With respect to mediation, which involves facilitated negotiations, the process is cheaper than litigation, less public, voluntary, done on your schedule, and you don’t have to pay to hang out with lawyers forever. Win, Win, Win, Win, and Double Win.

In family disputes or issues, such as divorce, same-sex family dissolution, and elder care/probate disputes, mediation is particularly effective. Due to the emotions and relationships involved, mediation is well-suited to positive and successful resolution. Families have the freedom to craft workable, ongoing solutions, with or without attorneys, and move forward without exhausting their financial resources or being placed at the mercy of the courts’ processes. Thus, the pursuit of truce through ADR may be preferable to becoming a nail.

To learn more about ADR, go to www.onemediation.com or www.thewrightattorneys.net and look for future articles on how ADR can be effective in specific areas of dispute or disagreement.

At the beginning of any dispute, both sides KNOW that they are right and KNOW that they are going to be able to prove it. But you should face facts that what you think at the beginning of a dispute isn’t often how things end up. Initially, the parties are physically, emotionally, or financially hurt (or more often a mixture of all three), and they think that the truth is just stating their case in court. But, that is not the way cases in litigation progress, because in trying to establish fairness for the parties, we have created a system of rules that grinds rather slowly. That statement is not a judgment of the system, but rather a mere fact of the process.

What people are surprised about is that litigation is just what we call it…a “system” or “process.” So to people who haven’t spent years of their lives studying precedent, it is rather mundane, confusing, and costly. Contrary to depictions on television, a lawsuit isn’t fun or creative most of the time, because there are set rules that must be followed and because the stakes can be enormous. For these reasons, more and more people are turning to mediation as an alternative. Now don’t assume that contemplating mediation means that you will be getting a creative solution from a beautiful ex-lawyer who gets arrested every five minutes…like the mediator depicted on a recent television series. What you will get is someone experienced in dispute resolution that can help the parties and the attorneys sift through the facts and creatively find a way to end the fighting. Too idealistic? Perhaps. But it works.

At mediation the parties get to decide what they are willing to accept as a resolution. Conversely, when you go to trial, a judge or jury tells you when you can see your kids, or how much your injury is worth, or whether your business partner is liable for ruining your business. But in mediation, you can choose. That fact is very empowering. You get to decide. How often in our lives do we still feel like we have the power to decide what happens? I would speculate that many of us don’t feel like we have any control over our circumstances, but in mediation, you do. You get to decide how to end your marriage, how to dissolve your business, or how to settle a personal injury matter. Are these decisions easy? No. This is some tough stuff. But, it is a lot more palatable to most people to have some choice in the matters that most affect their lives. They may still feel like sausage when it is done, but at least they can decide on the flavor.