1. COUNSELING THE MICRO ENTREPRENEUR
Legal Assistance To Microenterprises Project
Andrea Harrington

2. Introduction What is the Legal Assistance to Microenterprises Project
Transactional legal services
Pro bono opportunities
Community legal education
Short phone consultations
Clinic project fills identified gap in services; builds trust; introduces clients to legal services, legal community

3. Logistics Arrive at least 10 - 15 min prior to clinic opening
Check in at check-in table 
Look through resources library (dba forms, entity information forms, pro se answers and filing instructions)
Client will fill out intake form to self-identify legal problem and priorities for discussion. Will be in folder along with any documents for review
Use questionnaire (if needed) to identify any other legal issues, document advice given and recommendations for further action
Give client any forms/resources may need, and LAMP application eligible and needs extended services. If want to take case for pro bono representation, indicate that on attorney note sheet. 
Consultations should not exceed min!
Attorney notes very important; use for follow-up letters.

4. What is microenterprise?
Microenterprises are companies with five or fewer employees that need less than $50,000 to start up or expand
Can be sole source of income, or income patching

5. Why Small Business Pro Bono
1.6 million microenterprises in Texas.
17.3% of private non-farm employment is from microenterprise!
Nationally: 60% of microentrepreneurs are women, and 53% are people of color or ethnic minorities.
Association of Enterprise Opportunity

6. Microenterprise Works
72% of low-wealth entrepreneurs increased their income over five years; the average change was from $13,889 to $22,374.
53% of low-wealth entrepreneurs moved above the poverty line, reliance on food stamps, TANF and other forms of public assistance dropped by an average of 61%.
Aspen Institute

7. Client population Clients are inherently risk-takers, hard workers
Clients may be at varying levels of readiness for legal services/beginning business, may be established businesses. 
Clients have wide variety of educational levels, English proficiency and familiarity with legalese; try to stay at 10th grade reading/vocabulary level 
Clients may/may not be sophisticated/experienced in their own field
Big intimidation factor with legal fees/legal world, be creative to improve accessibility
Lots of unemployed folks starting own business

8. Client Population, con’t.
Income/assets – may be judgment proof.
Sophistication, will legal advice keep them in shadow economy because of intimidation factor?
Common misconceptions about legal issues.
have to incorporate to be ‘legitimate’
if pay someone salary no overtime requirements
if call someone contractor, they are contractor
entitled to take investment back if business doesn’t work out
think having entity means will start with good credit
Client may not be able to self-identify all or even most pressing legal issue
ex. Wants out of commercial lease because can’t afford it; mentions that had to stop paying payroll tax to pay lease.
Common issues: entity questions, contract questions, lease questions, federal taxes, sales taxes, licensing

9. Legal Topics
Likely to see questions about…

10. CHOICE OF ENTITY Liability
Client wants to open a business with more than one owner
Client cannot afford or cannot get adequate insurance coverage or more likely, has not considered insurance at all
Client’s business plan requires taking on some business debt; however, client must know that he/she will often be required to give a Personal Guarantee for certain debts
Exempt v. Nonexempt property
Client resources
Financial
Personal – time, organization, education

11. Sole Proprietorship
Easy to start & maintain/fastest way to get started
Questions on whether it is a “real” business
Little to no “intimidation factor”
Minimal filings & fees
Business debt is not an issue if clients don’t qualify for loans without a personal guarantee
Sole proprietorship is community property if owner is married 
Client can deduct business expenses but MUST keep receipts/records of business expenses
Client should keep business expenses separate from personal expenses and establish a separate checking account for business.
May need to file DBA. Filing fee and form differ by county. DBA typically must be notarized.

12. General Partnership
Formed by doing business with intent to share profits & losses with another; beware of unintended partnership
PRIOR starting a business, the intended partners should first be able to reduce their agreement to writing, understand & agree to the terms.
 Any partner can take action that can legally bind the business, including sign contracts, make purchases, open credit accounts, borrow money, operate the business, hire & fire employees, etc.
Partners have equal rights & responsibilities to one another including the right to full information about the affairs of the business, duty of good faith, duty of loyalty, duty of fairness, and a fiduciary duty; cannot “lock out” a partner
Partners are personally liable for the debts & liabilities of the business, whether or not they agreed to the transaction or committed the offense that resulted in the debt or liability.
If business closes, partners need to pay outstanding obligations.
May need to file a DBA. Filing fee and form differ by county. DBA typically must be notarized.
Limited partnerships may be option for mom/sister/friend investors

13. Corporation
Corporations must observe “corporate formalities;” adopt and abide by its by-laws
Must keep a separate bank account & books, cannot comingle
Must file annual state reports – public information report & yearly franchise tax report  
Social purpose clauses
C Corporations – default tax status by IRS:
Corporate profits are subject to the issue of “double taxation”
Sub-Chapter S Corporations:
To elect Sub-Chapter S status, corporation must meet requirements and fill out Form & file it with the IRS within 3 months of registering the corporation;
The Sub-S Corporation is a pass-through entity

14. Limited Liability Company
Offers liability protection with tax & management flexibility not always available to a corporation
Contribution can be cash , property, services, the promise to provide any of these in the future
Business is run according to an Operating Agreement- best practice is for members to reduce their agreement to writing & agree to the terms PRIOR to registering the company
LLCs offer flexible management structure- terms of operation & management are determined by owners & can be less restrictive than corporate standards
An LLC can elect to be taxed like a sole proprietor, partnership, C Corp or an S Corp and offers flexible distribution of profit & losses- business can be creative as to how these will be allocated
Must file annual state reports – public information report & yearly franchise tax report

15. Licenses & Permits Possible requirements at the Federal level:
Licenses/Permits- certain business activities or products, i.e. meat products (FDA); tobacco products or alcohol (BATF); moving company (across state lines; DOT)
Possible requirements at the State Level:
Occupational & Professional Licenses
Licenses for certain products sold- liquor, food, lottery tickets, gasoline
Environmental - emissions, wastewater, hazardous waste
Possible requirements at the Local Level:
Business permit- more than one may apply & may need from multiple cities
Health permits- food preparation or sales; includes inspections
Building & safety permits- required for construction & remodeling projects
Compliance with zoning ordinances- includes home-based businesses
Cottage Foods

16. Insurance Considerations
Follow state law requirements on commercial use of vehicles
Comply with requirements in commercial lease agreements
Home-based business: check homeowner’s insurance policy
Property Damage Insurance
Fire Insurance/Flood Insurance: additional coverage warranted?
General Liability Insurance- protects from most legal claims of injury or property damage
Business Interruption Insurance- covers lost income while business is closed (due to damage, destruction or disaster) , and expenses to keep business going while the lost property is repaired or replaced
Industry-Specific Insurance- i.e. for a manufacturing business
Life Insurance or Key Man Insurance- especially important in Partnerships & Partnership Agreements 

17. Starting a home-based business
Need to pick a name, decide legal form, and register business
Apply for business license & permits, purchase insurance and pay taxes
Special tax and insurance considerations
Standard Deduction now available
Zoning can limit use of residential space as a business, including:
Type of business or professions allowed and activities allowed
The amount of car & truck traffic, on-street parking, employees
Outside signs
Land use restrictions can limit use of residence as a business
Property deed (restrictive covenants)
Subdivision’s declaration of building & use restrictions or covenants
Planned unit development (PUD) rules and condo or co-op regulations
Title insurance policies
Leases- landlord may even have the right of eviction

18. Commercial Leases
Commercial leases governed by a different part of the property code than residential leases. 
For Sole Proprietor or General Partnership, signatory is personally liable for the rent whether or not the business is making money/profits or not
For corporation or LLC, beware of ramifications of personal guarantee.  
Monthly amount due may be higher than base rent advertised; utilities, landlord’s insurance, common area maintenance, and property taxes.
Landlord can change the door locks if the tenant fails to pay rent-
Written notice on the tenant's front door stating the name/address or telephone number from which the new key may be obtained. New key is required to be provided only during regular business hours and only if delinquent rent paid.
Read and understand lease before signing and keep a copy of the lease outside of the leased premises.
Unless the landlord has done something to make the space unusable, client is legally responsible for the entire rent for the entire lease time, even if the business is not making any money.

19. Employees
Avoid discriminatory practices- job ads, applications, interview questions, hiring decisions, etc.
People “Helping Out” - unpaid internships & unintended partnerships
Comply with immigration laws by having all new employees complete Form I-9, Employment Eligibility Verification & provide proof of required identification
Avoid negligent hiring claims- check references (with consent); duty to protect others from injuries caused by employees
Register with Texas Workforce Commission for unemployment taxes and withhold, pay and report federal employment taxes
Texas is an at-will state; workers are free to quit anytime and can be fired at any time for any reason that isn’t illegal
Trade secrets & unfair competition can be protected through signed agreements with new hires: non-solicitation, non- disclosure, non-compete agreement

20. Discrimination
Title VII- applies to businesses with 15 or more employees; state laws apply to smaller businesses; can’t use race, color, religion, gender or national origin as the basis for decisions on any aspect of employment.
Sexual Harassment- one form of prohibited sex discrimination
Age Discrimination- ADEA prohibits discrimination against those 40 years and older; applies to businesses with 20+ employees; state laws apply to smaller businesses
Pregnancy Discrimination Act (PDA) applies to businesses with 15 or more employees
Disability Discrimination- American with Disabilities Act (ADA) applies to businesses with 15 or more employees
Citizenship Status- IRCA applies to businesses with at least 4 employees; illegal to discriminate against a non-U.S. citizen or national; forbids discrimination against persons admitted for permanent or temporary residence as well as those who have applied for temporary residence status.

21. Payment of Wages
Fair Labor Standards Act (FLSA)- minimum wage, requires premium pay for overtime
Equal Pay Act requires equal pay for men & women doing the same work
Child Labor Law contains special rules for hiring minors
Some employees are exempt from minimum wage & overtime pay requirements:
Executive employees
Administrative employees
Professional employees
Outside sales people
People in certain computer related occupations
Job titles/how salary is calculated alone do not determine whether someone is an exempt employee or not; actual work relationship is what counts - TIMESHEETS
Texas Payday Law

22. Independent Contractors
Avoid misclassification; business has to pay taxes that should have been withheld, with interest & penalties
True independent contractors are in business for themselves, have specialized services, offer their services to a number of companies & are responsible for paying their own taxes
EIN, identity theft
Independent contractors differ from employees in two main ways:
control not only the outcome of a project but also how the job gets done
Independent contractors control their own economic destiny to a large extent, making decisions & business investments that affect how much profit they’ll earn & whether they’ll suffer loss
Employer must complete Form 1099-MISC at the end of the year if the independent contractor was paid $600 or more during the year; must send to the IRS & the contractor
If contractor creating original work: work for hire doctrine
Revisit the working arrangement; reclassify if necessary

23. Trademark/Servicemark
Business/Trade Name- identifies business, not the product or service it offers. May be the same or different from the product or service name
Registering a domain name DOES NOT give a trademark or service mark over the name or guarantee the name is not already in use as a mark
Trademark- used to market products; product name, a word phrase, design, logo, slogan or symbol that identifies a product brand.
Service Mark- used to market service; service name; a word phrase, design, logo, slogan or symbol that identifies a service brand.
State Trademark Register- only gives state-wide use & protection rights, not federal. Mark must be in use for the state to accept registration
Federal Trademark Register- must be engaged in interstate commerce
First user of a distinctive name or symbol gets the exclusive right to use it on the relevant goods or services
Registration not required, but confers additional rights & legal protection
If federally registered, use the ® symbol; if not registered, use ™ or SM

24. Copyright Legal protection for the authors of “original works”
Copyright protection is secured automatically when the work is created
Should give notice to inform the public that the work is protected
Example: © 1996 Jane Doe
Advantages of federal copyright registration-
Established public record
Registration is necessary before an infringement suit may be filed in court
If made before or within five years of publication, registration will establish prima facie evidence in court of the validity of the copyright and of the fact stated in the certificate
If registration is made within three months after publication of the work or prior to an infringement of the work, statutory damages & attorney’s fees will be available to the copyright owner
Registration may be made at anytime during the life of the copyright

25. EIN EIN is required for a partnership or corporation
EIN is required for LLC with two or more members who are not married
EIN is required for One-person LLC with employees or that is taxed as a corporation
Need a new EIN if any of these changes occur-
Decide to incorporate sole proprietorship or partnership
Convert sole proprietorship or partnership to an LLC
Sole proprietorship decides to take in partners & operate as partnership
Partnership is taken over by one of the partners & begins to operate as a S.P.
Corporation changes to a partnership or to a S.P.
Purchase or inherit an existing business that will operate as a S.P.
Individual represents an estate that operates a business after the owner’s death
Decide to terminate an old partnership & begin a new one

26. Tax Basics Income Tax - Applies to NET income
Self-Employment Tax (FICA) - Applies to NET income from actively working in business but not as an employee (Sole proprietors, partners & some LLC members)
FICA- employer’s & employee’s portion of social security & medicare tax
Employer must withhold Income tax, and FICA taxes from employee’s paychecks and pay the employer’s share of FICA taxes for each employee
Employer must report & pay State & Federal Unemployment Taxes, but not on the owner’s compensation
Sales Tax:
Imposed sales of tangible personal property (or providing a taxable service) at retail within the state
State collects sales tax through reporting system; business must file report & pay taxes monthly, quarterly or annually
Must file even if owe nothing/no taxable sales

27. Buying a business Are all owners in agreement to the sale?
What information has been gathered about the business? Assets? Liabilities?
Why is the business for sale?
How will client finance this purchase?
Extensive investigation and paperwork and attorney/accountant/appraiser expenses
Advantages of buying assets only:
Avoid assuming the liabilities & debts of existing business
Avoid assuming contracts with unfavorable terms
Gives tax advantages- can allocate the purchase price among various assets that can be deducted, depreciated or amortized
Avoid acquiring unwanted assets

28. Contracts Commercial Lease Agreements Personal Guarantee
Loan Agreements
Independent Contractor Agreements
Service Agreements
Sales Agreements
Consulting Agreements
Business Entity Agreements
Mediation/Arbitration Agreements
Clients should always put contracts in writing!
Writing can be an exchange of letters detailing the agreement.
A contract is only enforceable against the party whose signature appears on the contract

29. Business Torts and JP Courts
Contract Disputes
Landlord/tenant
Between co-owners of business; partnership
Dispute over payment for goods/services
JP Courts
Jurisdictional limit of $10K
Informality a plus, client can explain her side in own words
No automatic discovery
Can represent business even if its an entity
Venue; must file in precinct where defendant resides

30. Opportunities Community legal education Transactional pro bono
Entity formation, contract formation
Creating resource materials
“Hiring Your First Employee”
Legal clinic volunteer attorney

31. Thank You!
Questions?

32. END