Richmond SCORE Chapter 12

Q:  I need a sample of an investor contract.  I have an investor who is willing to finance the purchase of a patent and need a contract that stipulates the terms.  Is there somewhere I can find a sample contract as a guide?

A:  With the proliferation of websites (LegalZoom.com, Nolo.com, to name a couple), many things that formerly required a lawyer's assistance can now be "do it yourself."  But for what you are asking, contact an attorney who practices in the area of intellectual property.  Accepting an investor, selling a patent, while insuring you have protected your intellectual property are generally not on anyone's "do it yourself" list.

A:  Yours is a very specialized question, specific to an industry where you have far more direct experience than we do. Every industry has its own margin level, and that's what  shapes compensation structure. Possibly the best source of the answer you need is other people in your industry; one thing I can tell you from experience is that for just about any industry, it's amazing how many people who do what you do will be happy to talk with you and answer questions about it – even potentially direct competitors. Sorry we couldn't come up with anything more specific than that, but if there's something less specialized in the future that we can help with, please get in touch again. Meanwhile, best wishes for success in your new venture.

A:  Yours is a set of good questions that most people who start businesses of all kinds have. While each individual step is relatively easy, there are a fair number of them, and also some basic decisions to make. (For example: Is a sole proprietorship really the best entity for your business?) An hour with a SCORE counselor can get most, if not all, of your questions answered for you, and if you don't have the time to meet face to face, we offer on-line counseling as well. So why not see www.RichmondSCORE.org or phone our office manager, Sandra Crone, at 771-2400, ext. 131, to set it up?

A:  Attending a SCORE Workshop will not guarantee that you will get a loan.  However, the workshop will provide you with information that will increase your chances of getting a favorable review of a loan application.  For example, one of the topics the workshop covers is how to construct a Business Plan, which is the document that most lending institutions require.  There are no government grants available to start a for-profit enterprise.  The Small Business Administration (SBA) does provide loan guarantees, but not direct funds to start up businesses.  Most lending institutions (and SBA loan guarantees) require the entrepreneur to provide approximately 20% of the required start-up funds.  Using the numbers you provided ($150,000 to $200,000), you should have between $30,000 to $40,000 of your own funds available.  I would encourage you to sign up for the SCORE Workshop.  The expert presenters will explain these issues and many more.  You can get more information and register by visiting the SCORE web site, www.richmondscore.org.

1. What would benefit me the most?

2. Can I have an intern work for me as either LLC, or Sole Proprietorship?

3. Can I negotiate with intern as a freelancer (independent/sub contractor) to pay a certain price at the end of the month?

4. What is important important information to gather from independent/subcontractors for 1099? 

Should I come in and talk about it in more detail?

A:  First, it’s better for you to have some sort of corporation than to operate as a sole proprietorship. There are tax advantages, and, more important, incorporation puts a wall of separation between your business and personal assets and liabilities. To find out what kind of corporation works best for you, you should either attend our one-day workshop – where an attorney and professionals in other business-related fields go through just about every aspect of getting a business up and running – or set up a SCORE counseling session. The workshop is $79 and includes an hour free post-workshop consultation with any (or all) of the eight experts.

Go to:   Workshop Information  for details and registration. Face-to-face counseling is free and can cover your questions in this area in about an hour. You can sign up at www.richmondscore.org  Regardless of what kind of entity your business is, you can pay employees. If not a sole proprietorship, you’ll need an Employer Identification Number, which you can get from the Social Security Administration either online or with a toll-free phone call. It’s easier for you to pay workers as independent contractors, because your only reporting is a 1099 form to them for payments over $600. They’re responsible for any other paperwork. If you hire salaried employees, you have to not only file payroll returns throughout the year to the state and the feds, but you also have to pay the employer’s share of withholding, social security, Medicare and unemployment compensation tax. So whether you do business as some kind of corporation or a sole proprietorship, it makes more sense to pay by 1099.

A:  I am not aware of any grants for people wanting to start a for-profit business.  Grants are usually reserved for not-for-profit and/or research activities.  In today's economic climate I doubt that you would be able to get a business loan if you have filed for personal bankruptcy.  Banks or other lenders would ask where you would get the funds to repay the loan if you cannot cover your current expenses and liabilities.

A:  To my knowledge, there are not general sources of tuition assistance.  You would have to contact each educational institution to inquire about their tuition assistance programs. That said, a Google search revealed some online courses and certifications in HR that do not appear to be very high-cost.  One, for example is ERI http://www.eridlc.com/?FuseAction=Main.Home#List.  Please understand that I have no personal experience with ERI and am NOT endorsing them.  I present it only as a suggestion for an alternative approach; there are probably other alternatives as well.  Best of luck.

A:  This is the way I would expect the IRS to view your tax liability. If the laptops you have been selling on Ebay were purchased by you for the purpose of selling them to the public at a profit, these, in my opinion, would be considered by the IRS as retail business transactions and would be subject to the appropriate income taxes. On the other hand, if these products had been pre-owned by you and your wife, were used, and you were looking to dispose of them, I don't feel that the income you made, if any, would be subject to tax. If you are truly concerned about this I suggest you call the IRS and explain the circumstances. Nowadays the IRS is not looking to make life miserable for tax payers, so don't be afraid to speak to them.  Whatever income you've earned on the sales of these products during 2008, whether they were on Ebay or your new corporation should be reported. Again, if you want to make certain phone the IRS. The tax liability will depend upon how you've structured the corporation. There are some differences in filing based on whether you are a C Corp, S Corp, or LLC.

A:  As you look to starting a business, there are a number of things to consider and steps to take.  They include: legal entity formation, tax structure, financing, insurance, marketing.  As you begin, all these issues will be addressed as you prepare your initial business plan.  I urge you to consider attending the SCORE workshop that is offered each month.  It is an investment of one day and $79; you will receive many, many benefits from the day.  Each workshop includes highly informative presentations from experts in each of the above subjects.  The workshop may not answer every question you have, but in my view, it is the single best place for you to start.

Q:  1. Can a business registered agent live in one city and have the business post office box in another?

     2. How can I register my business in a city other than where I live?

A: It isn’t clear, but I’d like to assume you are asking about registering an LLC entity with the Commonwealth of Virginia.  For that registration, the person starting the business can serve as his/her own registered agent, regardless of the location within the state.  In other words, if the entity’s place of business is inside Virginia, and the person starting the business is a resident of Virginia, he/she can serve as registered agent.  Cities don’t really matter for the state registration. BUT the registered office must be a street address, not a PO Box. (Review the requirements on the state website for registering an LLC at http://www.scc.virginia.gov/publicforms/320/llc10101.pdf).  Where the specific locality within the state does matter is business licenses.  Each locality has its own rules for the business license process.  Take Henrico County as an example:  That code (Ch.20, Article XI, § 20-385) requires that  there is a definite place of business in the county OR  if there is no definite place of business in the county, the person applying for the license is a resident of the county.  See http://www.municode.com/resources/gateway.asp?pid=10909&sid=46    Again, on the local business license, the localities vary and it is necessary to review the specific requirements of the county where  the business is.  (And if it is a home based business, there may be zoning questions as well).  Depending on the nature of the business, other licenses may also be required

Q:  I started an online store about a year and a half ago. I work with a distributor so I have no inventory on hand myself. Someone orders an item from my website, I then order it from the distributor and have it shipped to the customer. The problem started back in the spring when I finally started getting some orders. Most of the orders were purchased through fraudulent credit card activity. My payment processor would send notice of a chargeback. I would contest it with an approval code which they provided at the time of purchase and proof of delivery. Some charge-backs were reversed, but not all. Either way, I still had to pay the distributor for the item since it was shipped and delivered. Because of this and other maintenance costs (advertising, web-site maintenance, etc.) my business is $20,000.00 in debt. Is there a program out there that can help me pay off this debt without getting a loan?

A:  The payment processor does not have the right to arbitrarily reverse a payment, unless there is legal justification, and that you are advised of the reason for the chargeback. Without his justifying the reason for the chargeback the processor is technically committing fraud, because he is taking money that belongs to you. I would urge you to contact this company and demand that they return the funds that were taken from you, and remind him that what he has done is illegal. It's very possible that the processor can provide just cause for these various charge-backs. If so, it's his duty to give you the details to support his action. Without doing so I believe you have justification to take legal action against him.  As far as paying off your debt, there is no source of funds available other than the usual business or personal loan process. An alternative could be to offer a piece of your business to a private investor in return for providing you with the amount of funds you need.

Q:  I have a friend in NC that is being offered a 40% ownership of a restaurant (the Remington Grill). The ownership is being given to him as a reward for doing a good job.   However, the restaurant is not profitable, and there are 3 total owners if you include him. He's in a little over his head with this implications of this deal, and doesn't know where to turn for advice or help. He's worried he's being set up as a patsy for debts and creditors that he hasn't been made aware of.  I saw a write-up of your organization featuring an old employer of mine, Raul Cantu (Nacho Mamma's). It sounds like you may really be able to give him some sound advice. Could you please tell me if there is a chapter in the Wake Forest, NC area where he could get a little guidance?

A:  It sounds like your friend could use some face-to-face SCORE business counseling. There are SCORE chapters throughout the country and North Carolina. Finding the nearest one is as easy as going to http://www.score.org/findscore/index.html and keying in your zip code. That will give you the nearest chapter's contact information, and from there experienced business counseling help is just a click or a phone call away.

Q:  Can you help me with me develop a successful business plan?  My ideal is to start my own Fashion Line of Clothing and also freelance for other major Designer Companies? I already have a clothing line fully completed and a website.  I just need help 1 on 1 in developing the structure of my business.

A:  Your question really involves two areas – setting up your business entity and creating a business plan. Fortunately there are two good ways to deal with each. The first is our SCORE startup workshop on the second Friday of each month. It's a full, eight-hour day, packed with professional input from experts on law, business plans, taxes, insurance, leasing, marketing, websites and other useful subjects. In addition, each attendee is entitled to an hour's free consultation with any and all of our presenters at a later date.  The workshop is a bargain at $79. For more information and to register, go to  http://www.richmondscore.org/workshop/workshop_information.html or call our office at 804-771-2400, ext. 131 on Tuesday or Thursday. The next workshop is this Friday, and the next one won't be till next year.  Business plans are also a staple of our one-on-one business counseling. One of our counselors will be glad to take you through the structure and purpose of a business plan, go over yours with you as you compose it and help you make it a roadmap to success for your business. Our counselors can help you compare the advantages of different kinds of business entity and take you through the ins and outs of setting up your business entity. Just call our office number or go to www.richmondscore.org to set up an appointment.

Q:  What would it take to start an advertising company?

A:  There are several levels of answers to your question.  The first level is what it takes to start a company of any kind – deciding on what kind of business entity you want to have (sole proprietorship, partnership, S corporation, LLC), where you’ll locate it, what your business plan will be, etc. There are too many specifics to cover briefly in an e-mail, but there are two ways to get excellent input. The first is to meet with a score business counselor. Sessions usually run an hour or so, can be set up to your convenience, are free, and give you input from an experienced business professional who’s very likely set up and run a successful business of his or her own. The second is to attend a monthly SCORE workshop. These usually take place on the second Friday of each month and cost $79. What you get for your money is a full day of professional experts – an attorney who specializes in small business work, an accountant, real estate and insurance experts, a business banker, etc. – plus the opportunity to get an hour’s free consultation with any of them at a later date.  On another level, you need to figure out just what kind of advertising company you want to start: Full-service agency? Media planning and buying? Design? Creative? Account planning? Specializing in print? In broadcast? In new media? Do you have the credentials, work samples and people to persuade prospects that you can do the work they need? Do you have a pricing structure? Do you have the infrastructure you need – the computers, the software, the domain and e-mail addresses, etc.? Will you have capital to run the business while you’re building it?  Most important, do you have a client? Or, that failing, do you have a list of prospects to go after? Have you worked out a pitch, a presentation, a brochure or direct- or e-mail letter or other promotional materials?  So when you get right down to it, the first thing it takes is a good deal of thinking, planning and decision-making. As you drill down to more specific questions, the business counselors or Richmond SCORE will be more than happy to work with you to develop good answers.