Business Law

Getting Your New Business Off the Ground

New businesses spring up overnight. In tough economic times, employers tighten their belts and start laying off workers, or they're forced to go out of business. Workers who can't find new jobs may go into business for themselves.

And don't forget about good old American entrepreneurialism. You may need a change of scenery, or you want to be your own boss, so you're ready to hang up your own shingle. No matter why you're interested in starting a new business, there are a lot of things you need to keep in mind and plan for.

Keeping Your Day Job?

Like many people, you may keep your current job while getting the new business started. After all, you still have bills to pay and you need to eat, so keeping your paycheck is crucial.

Also, as a practical matter, you need money to pump into the new business. Getting outside financing isn't guaranteed and it usually doesn't happen quickly, either. Start saving a chunk of your paychecks to help finance your business.

Keeping your current job raises other issues, too:

Moonlighting isn't Easy

You're moonlighting when you work for your employer during most of the day and work on your new business at night, over the weekend and during lunch breaks. This raises health issues - are you eating properly and getting enough rest?

It also threatens your current pay check. You might be fired for:

  • Working on the new business while being paid for working your current job
  • Using your employer's phones, printers, computers and other resources for your new business
  • Not performing well in your current job because you're focused on your new business

When Do You Quit?

As a practical matter, you want to keep your current job until you're able to support yourself on money coming in from the new business. The vast majority of US workers have at-will employment, meaning you can quit at any time you want.

Keep in mind, though, an employment contract or employee handbook may specify when you may quit. For example, you may have to give your employer advance notice that you're quitting.

Start Networking

Your new business needs customers, suppliers, vendors and maybe even employees. Start networking now. Talk to trusted co-workers and customers about your new business venture. Also, try social networking web sites like LinkedIn to build a list of contacts that may be able to help you in the future.

Avoid Legal Problems with Your Current Employer

Leaving your current employer to go into business for yourself raises many potential legal problems.

Competition Problems

Your employment contract, employee handbook or other rules may contain a no-compete clause. Usually, it bars you from competing with your current employer for a certain period and in a certain geographic area after you quit.

For example, if your current job involves manufacturing or selling a particular product, you may not be allowed to make or sell the same or similar product for one year anywhere within 100 miles of your employer's office or plant.

Trade Secrets and other Intellectual Property

You need to be careful not to take property belonging to your current employer when you quit. Even if you created that property, your current employer has intellectual property rights in things such as:

  • Customer lists
  • Manuals and computer software developed by the employer or its employees
  • Recipes and formulas

You face serious legal consequences for taking and/or using property that belongs to your current employer.

Taking Co-workers with You

While networking is important, you need to be careful when trying to get co-workers to quit and work for your new business. Co-workers need to be warned not to take or use information or property that belongs to the current employer. You and the co-worker may be legally responsible for violating the employer's intellectual property rights.

Also, your current employer may sue you and the co-worker if the co-worker violates an employment contract by quitting and going to work for you.

Taxes & More Taxes

Naturally, you pay federal and state income taxes on money you earn while working for your current employer. The money made from the new business is taxable, too. You need to keep these two sources of income separate. And, depending on how your new business is set up - such as a sole proprietorship, corporation, etc. - the business may have to file tax returns.

Of course, there are dozens of other things you need to do and be aware of when starting your own business, including writing a business plan and securing financing. You can help your new business be a success by taking your time and careful planning.

Questions for Your Attorney

  • Can an employer bar a former employee from competing with it forever?
  • What should I do if a co-worker who came to work for me stole a customer list from our old employer?
  • Should I incorporate my business, or run it as a sole proprietorship?
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