A Legal Guide to Mompreneurship Decision-Making

Part 1:  Your Potential Liability Begins Day 1

Part 2: The Price of Making Money

Once you have chosen among Solo Practitioner, LLC, or S-Corporation for your mompreneurial startup endeavor, you need to consider how you go about making money and spending money. Vendors, employees, independent contractors all should sign agreements before you engage them in a business relationship.

Crowdfunding or Seed Funding

Hopefully, you have put together a business plan and have our roadmap laid out.  Hopefully, you have an idea of how much your venture is going to cost.  But how are you going to raise that money?  If you are taking out a bank loan, your ability to negotiate is likely going to be limited.  But there are other options, and each of them will benefit from the watchful eye of a legal advisor.

You may decide that crowdfunding is the way to go.  Popular crowdfunding sites include Kickstarter, RocketHub, IndieGogo, and GoFundMe.  There are different terms for each site, and the legal and financial implications for each differ in subtle ways.  It is important to discuss these issues with an accountant and lawyer.  For instance, Kickstarter requires a threshold to be reached before the raised funds are released, while IndieGogo allows the funds to be released even if the financial goal is not yet reached.  Furthermore, the rewards to funders is not equity; it is product or service.  

If you are trying to launch a business which is not easily able to reward funders through product or service, you may want to try the more traditional approach of raising money: seed funding.  An attorney can draw up a fundraising instrument, such as a private placement memorandum or a convertable note, which is a promissory note that allows a loan from a potential investor become an equity investment after a certain amount of money is raised. There are various variations on this instrument, with varying degrees of benefit to the founding entrepreneur and/or investors, including discounts for being among the first to believe in the startup.

Go It Alone, Collaborate, or Hire?

Do you want to do this on your own? Is there someone who you want right by your side?  You have options.  If you are going to run the business with someone else, you will need a well-drafted joint venture or operating agreement that specifically and accurately outlines mutual expectations. You ought to consider what would happen in the event that you do not get along and are in need of a "business divorce." A Buy/Sell provision envisions the distribution of the business in the event you and your co-founder go separate ways.

If you hire someone, you will need an Employer Identification Number (EIN) before setting up payroll or a business bank account. You can get an EIN number online in a matter of minutes.

If you are not going it alone, you may need a number of helping hands.  If you need staff from day one in a retail business, you need to have a realistic perspective about the level of involvement of your staff.  You may say to yourself, "Oh, I'll just 1099 these workers because they're really independent contractors."  Don't be so quick to make assumptions.  You can call people independent contractors but if you treat them as employees, you may be on the hook for employee benefits. Employment is primarily determined by the level of supervision and control a business has over workers.  If you have employees, you will want them to sign an employment agreement which includes an employment manual which they acknowledge receiving and reading.  Outsourcing is another option, and working with an outsourcing service may be able to provide you with temporary support until you are financially able to bring services in-house.  If you have an LLC that is taxed as a partnership, you ought to discuss the nature of payment to yourself, your partner, and employees with your accountant.

Getting Down and Dirty with the Big Small Stuff 

Don't forget to investigate if you need a business license, or licenses.  It may come down to your local municipality having an obscure rule, or federal laws about interstate commerce. Check out the Small Business Administration's business license and permits tool.

Obviously, you will be dealing with a number of agreements and documents if you're setting up a brick-and-mortar business.  Even if you are dealing with "boilerplate" contracts, you may have a real ability to neotiate the terms of these contracts; an attorney can guide you with this negotiation.  Rental agreements and vendor agreements are often filled with labyrinthine clauses, and you shouldn't have to struggle to understand them. You have the power to make changes to the seemingly unchangeable!

Related: Should Your Startup Be an S-Corp or LLC?