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Earlier this summer we talked about creating a solid foundation to elevate your side hustle to the next level. There are three initial areas that need to be accomplished in order to create that solid foundation. One of those areas is your legal foundation.

As we stated earlier, the term legal can be a bit vague as it can cover a variety of issues that may arise when starting a business. One of the first issues is having the proper entity structure selected for your business.

Whether it be a limited liability company (LLC), corporation, partnership or even sole proprietorship, it is important to choose the entity that offers you the appropriate protection. Once you choose the entity you need to make sure the entity is properly formed pursuant to the state you are registering the business in.

While most states have remarkably similar regulations regarding the registration of your business, each state has their own rules, and you need to make sure that it is done appropriately. Each entity also has their own unique documents and reporting requirements. It is easy for many new business owners to automatically choose to use a LLC for their entity structure because that is what many of their peers are doing.

While usually a LLC is the appropriate structure for your business, that is not always the case. It is important to fully understand the type of entity you are creating for your business.

Understanding the various requirements for each type of entity and the associated benefits, can help you determine which is the more appropriate entity structure for your business. Fortunately, for the most part, if you do select an entity structure and later determine this structure is no longer appropriate, you are maybe able to change your entity structure without having to start over.

This is not always allowed and maybe time consuming, so it is a good idea to understand the ramifications of each type of entity selection before you select it.

In addition to entity structure, it is also important to get contracts for your vendors/suppliers and if you need a customer/client agreement. Contracts help to clearly lay out the expectations for both you as the business and your customers and vendors.

While we like to believe that most people will honor verbal agreements and honor handshakes, sometimes called “Midwest Nice”, but unfortunately, Midwest Nice is not enforceable in a court. If a dispute arises and you only have the Midwest Nice version of an agreement, you may be out of luck in getting the dispute to be resolved in your favor.

Contracts are not just protection for you as a business owner but protection for your vendor and customers as well.

Once you have your contracts in place for your vendors and customers, you also need to make sure that any help you retain for your business has a proper agreement. Whether you hire employees or as most new business owners start using independent contractors to help you accomplish aspects of your business, you need proper documentation for those individuals.

This is especially true for independent contractors. COVID-19 allowed for independent contractors for the first time to claim some sort of unemployment benefit. This seemed to create a desire for state agencies to investigate more businesses as to whether they are properly classifying their independent contractors.

It is vital that when using independent contractors, you have a written agreement that helps to make sure that your independent contractor meets the definition of independent contractor under state law. Each state has a different requirement as to what qualifies an individual as an independent contractor.

Wisconsin in fact has two different tests, one for unemployment purposes and one for worker’s compensation purposes. If you don’t have a proper agreement in place, it may lead to your independent contractor being classified as an employee and you as a business owner may owe back taxes to the state.

Having a solid legal groundwork is an essential step in creating a solid foundation for your business. If you have questions regarding setting up your legal foundation, we can help!

Set up a time to speak with one of us today.


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