Whether you’re launching a startup or looking to expand your small business, a strong legal foundation is necessary. In this episode of The Agent of Wealth Podcast, host Marc Bautis is joined by Matthew Fornaro, Esq., Attorney and founder of Matthew Fornaro, P.A. Matthew delves into essential legal considerations for entrepreneurs, from critical steps in starting a business to navigating complex regulatory environments. Discover practical advice on drafting solid contracts, resolving disputes, and safeguarding intellectual property rights.
In this episode, you will learn:
- A variety of legal issues to consider when starting a business.
- Common legal challenges that small to medium-sized businesses face.
- How businesses can work to stay compliant with evolving regulations.
- Why entrepreneurs should consider protecting their business’ intellectual property.
- And more!
Resources:
fornarolegal.com | mfornaro@fornarolegal.com | Bautis Financial: 8 Hillside Ave, Suite LL1 Montclair, New Jersey 07042 (862) 205-5000 | Schedule an Introductory Call
Disclosure: The transcript below has been edited for clarity and content. It is not a direct transcription of the full episode, which can be listened to above.
Welcome back to The Agent of Wealth Podcast, this is your host Marc Bautis. Today I’m joined by a special guest, Matthew Fornaro, Esq.
Matthew is a Business Law Attorney and the founder of Matthew Fornaro, P.A., a law firm serving South Florida. Before starting the firm in 2003, he was an attorney at two prestigious AmLaw 200 law firms focusing on civil litigation.
As a member of the Florida Bar and District of Columbia Bar, Matthew’s expertise spans business transactions, business formation, business dissolution, business litigation, real estate transactions, real estate litigation, intellectual property, and more.
Matthew is also involved in mentoring new attorneys, as both a graduate and instructor of the Kaufman Foundation’s FastTrac NewVenture Program, presented by the Broward County Office of Economic and Small Business Development and the City of Hollywood. He is also a graduate and instructor for the Florida State University College of Business.
Matthew, welcome to the show.
Thank you for having me, Marc. I’m glad to be here.
I’d like to start off with a bit of your background. Can you share what inspired you to become a business law attorney, and eventually motivated you to start your own law firm?
Sure. I always knew I wanted to be an attorney since elementary school. I pursued political science as my major during undergrad to prepare for law school. After graduating from law school, I began my career at a boutique firm in Boca Raton. Subsequently, I worked at two large Am Law 200 law firms specializing in litigation, primarily assisting banks and Fortune 500 companies.
Growing up, my dad ran his own successful small business before retiring. Despite managing everything well, he often faced legal issues that I felt were not adequately addressed. About nine years ago, I seized the opportunity to start my own practice. Drawing from my experience in corporate law, I aimed to support small to medium-sized businesses and startups, inspired by my desire to apply large-scale business knowledge to smaller ventures. This decision shaped my career path in this field.
Legal Issues to Consider When Starting a Business
Okay, thanks for sharing that. Now, let’s begin by discussing startup companies or small businesses that are in the early stages. They’re likely eager to make their first sale or showcase their specialty. What are the key legal issues they should consider? What are some common misconceptions they might have about legal matters, and what should they prioritize in terms of legal considerations during the startup phase?
First and foremost, before taking any steps, it’s crucial for startups to have a well-defined business plan in writing. This plan should outline the business’s purpose, its goals, how it will generate revenue, operational strategies, the chosen business structure (such as LLC, corporation, or partnership), and include projections for one year, five years, and ten years ahead. Having this plan in place is essential before proceeding with securing funding, hiring staff, or any other startup activities. Without it, success is unlikely. A solid business plan is also necessary for practical matters like opening a bank account, managing legal issues, and working with accountants and attorneys.
Once the business plan is established, the next step is selecting the appropriate business structure and registering it in the chosen state. This process involves more than simply filling out an online form; it requires drafting articles of incorporation for a corporation, corporate bylaws, an operating agreement for an LLC, or a partnership agreement, depending on the chosen structure. These governing documents are crucial for defining how the business will operate and how decisions will be made.
After completing these foundational steps, then the focus can shift to actually launching the business and executing plans. It’s vital at this stage to collaborate with professionals rather than attempting to manage everything independently. Allocating resources for an accountant, banker, and ideally a business law attorney should be a part of the initial business plan. These professionals will provide guidance throughout the startup process, ensuring legal compliance and sound financial management.
Only after laying this groundwork can startups fully concentrate on developing their products or services. While it may seem like a lot of preparatory work, this diligence and setup are essential for setting the business up for long-term success.
As an attorney, do you typically get involved right from the start? I know many entrepreneurs first think to consult with their accountant. However, you mentioned that the team should ideally include an accountant, a business law attorney, and a banker. Should each of these professionals be brought in early on when an entrepreneur has an idea? Is it best to assemble this team early to tackle the foundational tasks you mentioned earlier?
Yes, ideally, you want that team in place right from the start. It’s crucial not to assemble it piecemeal after making critical decisions or taking actions. The best approach is to have your team of professionals ready before launching your business. By proactively setting up this support system beforehand, you avoid the risk of needing to backtrack or correct things later on, even if you believe you’ve done everything correctly initially. My advice, and my goal, is to have these professionals on board before any business activities begin.
Common Legal Challenges That Small to Medium-Sized Businesses Face
Now, let’s take it one step further. Let’s say that all of those preliminary tasks have been completed – the business is formed and structured properly – and operation of the business has begun. What are some common pitfalls business owners might encounter? How can they proactively minimize these issues?
The main challenges typically involve issues related to employees, taxes, and if you have a physical location, aspects like commercial leasing. These are essential matters to address as you progress.
For startups or new businesses with employees, it’s crucial to consult with your attorney and accountant on how to classify them:
- As regular employees,
- 1099 contractors, or
- Per diem workers.
Similarly, if you’re leasing commercial space or a warehouse, ensure your lease is thoroughly reviewed and financially sound.
Regarding taxes, it’s important to work with your accountant and attorney to determine the optimal business structure based on your economic circumstances. While an LLC might be ideal for one situation, a corporation could be more suitable — or vice versa — depending on your personal financial situation or that of your partners. These are common startup issues that arise once businesses are established and operational.
I guess every business is probably different, and each one has its unique set of challenges to navigate. As an attorney advising on these matters, do you typically consult with the entrepreneur to identify which areas require immediate attention, and which can wait? You mentioned that employee issues can span a broad spectrum of concerns. How do you determine what the entrepreneur needs to address as their business grows? Is it a reactive process, dealing with issues as they arise, or is there proactive planning involved to anticipate future needs and set up necessary structures in advance?
Proactively, every business will inevitably encounter certain common issues, which we can start addressing right away. As I mentioned earlier, these are the fundamental aspects relevant to most businesses. For those with unique or specialized requirements, we’ll assess what proactive steps we can take in advance to mitigate potential issues. By tackling these challenges preemptively, we aim to minimize the number of problems that arise as the business progresses, dealing with them promptly as they emerge.
How Businesses Can Work to Stay Compliant With Evolving Regulations
What types of regulatory issues might entrepreneurs face, considering that some are specific to states while others are more universal? How should they prepare to handle these regulations effectively?
Yes, every state has its own distinct laws governing regulations, including those concerning employees, real property, and various other areas. Federal regulations also play a significant role, varying depending on the industry, business type, and market. Compliance requirements can differ significantly, involving oversight from city, county, state, or federal authorities. It’s not a one-size-fits-all scenario; regulation depends on the specifics of your industry and who oversees it.
For all businesses, IRS regulations are universal due to tax obligations, necessitating collaboration with accountants. Similarly, compliance with Department of Labor regulations is crucial for managing employee matters. These are generally among the primary challenges facing businesses.
Additionally, specific industries like cannabis or blockchain face heightened state or federal regulation. The cannabis sector, for instance, deals extensively with state-level regulations, while blockchain companies handling financial data are subject to stringent federal oversight concerning personal finances.
Each business must navigate both common regulatory challenges and industry-specific requirements. Consulting with experts ensures businesses remain compliant and well-prepared to address regulatory demands effectively.
As you mentioned, it can become complex when dealing with varying state regulations, especially with the rise of remote work and businesses conducting operations across state lines. How do these factors influence the laws they must comply with? As a consultant or attorney for a company operating in a state where you may not be licensed, do you need to involve someone from that specific state, or can you navigate and advise based on the regulations specific to that state?
I’m based in Florida and licensed in both Florida and DC. When my clients conduct business nationwide or specifically in jurisdictions where I’m not licensed or familiar, I collaborate with business law attorneys from states like New York or California to provide expertise on the nuances of operating in those regions. This assistance is particularly crucial when clients establish a physical presence or significant operations in these states, not solely for selling products but also for ensuring compliance with local laws.
One fundamental concern that applies universally is sales tax. Whether you’re selling goods or services across state borders or online, it’s essential to understand the sales tax obligations in each state where you conduct business. Failing to comply can lead to significant penalties, as states rigorously enforce their sales tax collection requirements annually. This issue underscores the importance of careful consideration and adherence to state-specific tax regulations.
Why Entrepreneurs Should Consider Protecting Their Business’ Intellectual Property
Business owners in certain industries often wrestle with questions about protecting their intellectual property (IP) and whether it’s worth the cost. Some may dismiss the idea due to perceived expense, believing it impractical to pursue patents or safeguard their IP. When should a business decide that protecting their intellectual property is worthwhile?
Regarding intellectual property, let’s focus on the “P”… property part of your business. Just like you’d insure a rented space or personal belongings, it’s crucial to protect your IP as soon as possible. This is especially true for businesses involved in franchising, developing new technologies, or creating original content, where exposure to the public without protection could result in others claiming your IP as their own. They could potentially register trademarks, copyrights, or patents based on your work, leaving you vulnerable.
It’s essential to prioritize IP protection from the outset of your business. Incorporating IP protection into your budget and business plan is critical if you generate intellectual property. Failing to do so is akin to leaving your door wide open for anyone to walk in and take what they want. Once IP is public without protection, it becomes significantly harder and more costly to secure retroactively.
Protecting your intellectual property early ensures that your creations and innovations remain safeguarded, preventing potential disputes and loss of ownership down the line.
You mentioned cannabis and its heavy regulation. Are there other sectors facing similar legal challenges or specific considerations that business owners should be aware of before entering those industries?
Cannabis serves as a prime example due to its intricate regulatory landscape, varying significantly from state to state and remaining federally prohibited. Understanding the specifics in your jurisdiction is crucial to avoid legal repercussions. Another rapidly evolving area is Bitcoin, blockchain, and related technologies. Some states are pioneering regulations for these multifaceted industries, navigating issues such as commodities classification, securities implications, and taxation at both state and federal levels. Web3, which aligns closely with blockchain technology, also requires careful monitoring of state and federal regulatory developments. Staying abreast of these technological advancements and regulatory changes is essential for businesses operating in these sectors.
Business Contracts: Drafting, Reviewing, Negotiating
Contracts are undoubtedly a significant part of your role, involving the legal aspects of entrepreneurship. How do you assist in negotiating favorable terms while fostering positive, long-term relationships with clients, partners, suppliers, and vendors?
Contracts are fundamental in business relationships as they outline how parties conduct themselves, handle payments, fulfill obligations, and address breaches. Essential components like dispute resolution and venue are defined within them. My advice to clients always emphasizes the necessity of having contracts in place. Even for routine transactions, I suggest replacing invoices with signed agreements to ensure clarity and protection.
Regarding negotiations, my role often involves reviewing and revising contracts for clients. Whether negotiating terms on their behalf or drafting contracts for their use in negotiations, it’s a collaborative process. Negotiations can involve going back and forth until terms satisfactory to both parties are reached. However, sometimes the other party may not agree to all terms, requiring clients to make informed business decisions based on legal advice provided.
While I strive to make contracts fair and advantageous for my clients, negotiations can be challenging, especially with larger entities like corporations or government agencies, where terms may be less negotiable. In such cases, it ultimately falls to the client to decide whether to proceed with the contract, even if it’s not perfect.
Even with solid contracts in place, disputes are bound to arise. As an attorney, how do you advise entrepreneurs on whether to pursue litigation or opt for alternative dispute resolution methods like arbitration or mediation? What factors do you consider in guiding them toward the best approach?
If a contract is breached, there may be a dispute resolution provision dictating the course of action. Generally, there are three avenues:
- Mediation
- Arbitration
- Litigation
Mediation is voluntary, confidential, and non-binding, where a mediator facilitates reaching a mutual agreement between parties. If successful, the case settles; if not, arbitration is another alternative.
In arbitration, akin to a private court, parties submit their claims and defenses, engage in discovery, present their cases before arbitrators, who issue a binding decision based on their findings. While arbitration is typically faster and private, it can be costly due to fees for arbitrators and attorneys.
Litigation, resembling what’s seen on TV, involves filing a lawsuit, responding to claims, engaging in discovery, and possibly undergoing trial before a judge or jury. Although litigation can be lengthy and expensive, it differs from arbitration as courts charge minimal initial filing fees. Recent reforms have streamlined court processes, aiming for quicker resolutions within specified timeframes.
Choosing between these options hinges on various factors: goals, budget, opponent’s stance and resources, and the potential for collecting damages post-resolution. Whether pursuing court action, arbitration under contract terms, or mediating to resolve disputes, it’s essential to weigh costs against potential outcomes and assess the feasibility of enforcing any awards or judgments.
Yeah, there’s definitely a lot involved. Alright, Matthew. That’s all the questions I have for you today. Thank you for joining me for an episode of The Agent of Wealth Podcast. Before we go, how best can our listeners learn more about what you do?
The best way to reach me is my website, fornarolegal.com. There, you’ll find my contact information, social media channels, podcast episodes, videos, white papers, and blog posts. At this point, if you have a question, I probably have the answer on my website for it.
Great. We’ll link to that on the resources section of the show notes. Thanks again Matthew, and thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review of the show. We are currently accepting new clients, if you’d like to schedule a 1-on-1 consultation with our advisors, please do so below.