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Baby Boomers are Starting a Home Business - Part 1

July 16th, 2014
These are some of the issues Baby Boomers must consider when launching a home business. Part 1 includes topics such as entity formation, protecting confidential information, employees vs. independent contractors, and contracts with third parties.

Baby Boomers are Starting a Home Business - Part 1
by Michael Goldman

Baby boomers working from home have a number of issues to consider during the course of launching their business.

Here are issues for Baby Boomers to consider for a home business. 

Part 1 - Entity Formation, Protecting Confidential Information, Employees vs. Independent Contractors and Contracts with Third Parties. 

Other equally important concerns will be covered in Part 2 of this article.
Baby Boomers are Starting a Home Business - Part 2

These days, many baby boomers are leaving the mother ship of corporate life to become self-employed.  Our nation boasts a surplus of high-skilled workers that, combined with continued trends in downsizing and outsourcing, is creating a plethora of baby boomers that has no choice but to be self-employed. 

Many baby boomers working for themselves become consultants who can work anywhere, and, therefore, work out of their homes to save on expenses and enjoy convenience. 

Here are some of the key topics that a baby boomer working from a home office, as well as any typically self-employed person, needs to consider at the outset: 

Entity Formation:
Mario runs a successful landscaping business from home, storing equipment in his garage and employing three younger workers.  In the course of a tree removal, a massive branch fell on the customer’s house, damaging the roof and the master bedroom.  Compensating the customer could cost tens of thousands of dollars.
 
Although it is legal to be engaged in your business as a sole proprietorship or “dba”, it is almost always better to operate your business as a corporation or limited liability company (“LLC”).  In addition to the professionalism of having an entity, the entity affords some protection by shielding you from liabilities caused by others in the course of the business’ activities. 

Therefore, while the business itself will be liable for acts or omissions by employees, agents, contractors, etc., the business owner would not have her own assets at risk (like her house or savings) unless the claim arises from something that the business owner herself did.  A good attorney and tax advisor can help you choose the best entity for your situation.

Protecting Confidential Information:
Gloria was thrilled when a national charitable foundation hired her to help with a major campaign.  She quickly signed a contract, not realizing that the terms of the agreement required that she divulge a list of former donors she had amassed over her years as a professional fundraiser.

Your value as a self-employed consultant or salesperson derives from your years of experience, know-how and contacts.  Therefore, you must protect your “special sauce” -- your proprietary information and sales base.  This is facilitated with good confidentiality and non-disclosure agreements, which will also include provisions that prohibit solicitation of each other’s customers, clients, and employees.  

Frequently, consultants are all too willing to sign such documents provided by the bigger companies for whom they wish to work.  The problem with blindly signing them is that they frequently contain unfair provisions or are non-mutual, such that they protect the other party but not you.  Without legal review, you might find yourself having given the other party access to your contacts and know-how without knowing it.

Employees vs. Independent Contractors:
“Grandma’s Kitchen” was such a success that Grandma Esther had to hire an assistant, Delores, to meet the demand for her home-baked cookies and cakes.  Should Delores receive benefits at her new job?

If your business merits hiring underlings or associates, you need to determine whether they should be employees (W-2) or independent contractors (1099).  Many small business people try to consider everyone a contractor in order not to put them on payroll, to have more flexibility, and to save money on a payroll service. 

However, the rules about whether someone is an employee or independent contractor are very complex and are based upon the particular facts and circumstances of each unique relationship.  The penalties for treating someone as a 1099 independent contractor when he or she is really an employee are significant, and you can avoid big headaches by discussing each situation with an experienced attorney. 

In addition, the attorney can provide independent contracting agreements that will protect you from a contractor’s later trying to gain the benefits of being an employee and also protect you in the case you receive an inquiry by your friends at the IRS. 

Whether you are hiring an employee or engaging a 1099 contractor, you will also want to protect your customer base, proprietary information and, if applicable, contractor and vendor relationships with NDA’s and non-solicitation agreements.

Contracts with Third Parties:
Making the move from a high-pressure international publishing house to freelance editing from home was easy for Arthur, but his contract as a consultant to his former employer was more complicated.

Most businesses also need some sort of basic contract that obligates the client to make payment, evidence the amount of your compensation and protect you from delinquent customers by imposing  late charges, interest and court costs. 

In addition, most consultants would benefit by a contract that, in simple terms, defines the scope of the project, pays the consultant for extras, further protects confidential information, and limits your liability in case that the other party later alleges that it is dissatisfied with the work or has had other problems.  More complicated contracts will involve such issues as fixing defective work, warranties, indemnification, and dispute resolution. 

Some self-employed people make the mistake of using nothing more than purchase orders, which usually are not binding, or of blindly signing contracts provided to them by their client or customer.  These contracts are typically one-sided, often prepared by in-house attorneys who have added provisions buried in the “boiler plate,” which can go unnoticed by a layman and create trouble for you. 

For these reasons, having a lawyer review such contracts is very important, and typically, an experienced contract lawyer will not need to charge much to review contracts on small projects.

Of course, these are just some of the issues baby boomers must consider when launching a home business.  Other equally important concerns will be covered in Part 2 of this article.


Michael Goldman is an attorney with the Connecticut-based law firm Goldman, Gruder & Woods, LLC. 
He can be reached at 203-899-8900 or
mgoldman@goldmangruderwoods.com.

Goldman, Gruder & Woods represents individuals, employers and employees in matters related to business, real estate, employment, education, criminal, litigation and health care laws.   Its attorneys believe that the best and most economical client service is achieved within a smaller firm with few barriers between client and principal. The firm, with a focus on smaller or closely-held businesses, has offices in Norwalk, Trumbull and Greenwich.
Visit www.goldgru.com.

Article by:
Michael Goldman

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