The Law (In Plain English)
®
for Small Business
can
get you started and drive you to the next level.
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®
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Business $16.99 U.S.
As a small business owner, every decision you make directly impacts your future
success. Having an understandable answer to many of your business law questions
can keep your business moving forward.
The Law (In Plain English)
®
for Small Business is your one-stop guide for making the
right decision every time. It covers the topics that concern you the most and
provides clear and accurate explanations of the laws affecting your small business.
Understand all the essentials of starting and running a successful enterprise,
including—
✓ Filing taxes correctly ✓ Protecting your good name
✓ Obtaining necessary insurance ✓ Preparing your business plan
✓ Advertising your business ✓ Locating your business
✓ Hiring and firing employees ✓ Expanding your market
ISBN-13: 978-1-4022-2875-9
ISBN-10: 1-4022-2875-9
for
✓ Organizing Your Business

MUST HAVE
FOR TODAY’S
BUSINESS OWNER
Expert Advice for
Meeting the Legal Issues
Every Business Must Face
Expert Advice for
Meeting the Legal Issues
Every Business Must Face
The Law
(In Plain English)
®
for
Small
Business
Second Edition
Leonard D. DuBoff
Attorney at Law
SPHINX
®
PUBLISHING
AN IMPRINT OF SOURCEBOOKS, INC.
®
NAPERVILLE, ILLINOIS
www.SphinxLe gal.com
Printed and bound in the United States of America.
SB — 10 9 8 7 6 5 4 3 2 1
Library of Congress Cataloging-in-Publication Data
DuBoff, Leonard D.
Law (in plain English) for small business / by Leonard D. DuBoff. 2nd

This publication is designed to provide accurate and authoritative information in regard to the subject
matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal,
accounting, or other professional service. If legal advice or other expert assistance is required, the services
of a competent professional person should be sought.
From a Declaration of Principles Jointly Adopted by a Committee of the
American Bar Association and a Committee of Publishers and Associations
This product is not a substitute for legal advice.
Disclaimer required by Texas statutes.
Dedication
To my wife, Mary Ann Crawford DuBoff,
for all you have done and for all we have together,
and to my mother, Millicent DuBoff,
for giving me the tools necessary to create this work
and the drive to actually do it.
Finally, to my grandson, Brian,
with hopes that he will carry on the tradition.

Acknowledgments
There is a host of individuals who have aided me in preparing this edition of
The Law (in Plain English)® for Small Business for publication. It is impossible
to identify all of them within these pages, but some deserve special recognition.
I would like to thank the following friends, colleagues, former students, and
associates for their valuable assistance.
In particular, I would like to thank Christy O. King, principal in the law firm
The DuBoff Law Group, LLC, for her aid in spearheading much of the revision
work that contributed to this book. Without her attention to detail, this revi-
sion would not have been possible.
Jed Macy of The Macy Company was extraordinarily helpful in providing up-
to-date and accurate information about pensions and profit-sharing plans.
I am also indebted to John Stevko, CPA, speaker and former CEO of the tax

into a readable volume. Her special talent in working with the foibles of the
computer system and transmitting the manuscript to the editors has been
extremely beneficial.
Finally, I would like to recognize the aid of my partner in law and in life, Mary Ann
Crawford DuBoff, for all of her work on this text. Words are inadequate to express
the appreciation I feel for all she has contributed to this and all of my projects.
Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv
Chapter 1: Finding a Lawyer and an Accountant . . . . . . . . . . . . . . . . . . 1
Finding a Lawyer
Finding an Accountant
Chapter 2: Organizing Your Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Sole Proprietorships
Partnerships and Joint Ventures
Limited Partnerships
Corporations
S Corporations
Limited Liability Companies and Limited Liability Partnerships
Hybrids
Chapter 3: Business Organization Checklist. . . . . . . . . . . . . . . . . . . . . 21
Accountant
Business Name
Business Structure
Chapter 4: Developing Your Business Plan. . . . . . . . . . . . . . . . . . . . . . 31
Executive Summary
History of the Business
Products and Services
The Market
The Competition
Source of Work

Advantages
Disadvantages
Special Laws for Artists
Chapter 9: Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Point-of-Sale Payments
Consignment
Invoicing
Ways of Encouraging Payment
When Payment Never Comes
Bankruptcies
Chapter 10: Expanding Your Market . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Franchising
Multilevel Marketing
Chapter 11: Patents and Trade Secrets . . . . . . . . . . . . . . . . . . . . . . . . 107
Patents
Trade Secrets
Chapter 12: Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Definition
Prohibited Trademarks
Protecting a Trademark
Confusingly Similar
Federal Registration
Applications Based on Actual Use
Applications Based on Intent-to-Use
Contents • ix
Constructive Use
Benefits of Registration
Duration
Supplemental Register
Loss of Protection

Chapter 15: Licensing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
General Considerations
Licensing Hazards
Method of Payment
Acknowledgment of Ownership
Quality Control
Signature
Chapter 16: The Internet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Protecting Business Property
Protecting Consumer Information
Domain Names
Internet Advertising
Audits
Copyright Concerns
Server Protection
Email
Spam
Viruses, Worms, and Traps
Chapter 17: Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
Express Warranties
Implied Warranties
Disclaimers
Magnuson-Moss Warranty Act
Using an Attorney
Chapter 18: Product Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
Defective Products
Types of Defects
Federal Laws
Product Liability
Liability Insurance

Charitable Deductions
Grants, Prizes, and Awards
Health Insurance
xii • The Law (In Plain English)
®
for Small Business
Chapter 22: Zoning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
Local Zoning Restrictions
Federal Regulations
Telecommuting and Web-Based Businesses
Chapter 23: Renting Commercial Space . . . . . . . . . . . . . . . . . . . . . . . 241
Premises
Cost
Te r m
Restrictions
Remodeling
Utilities
Security and Zoning
Written Document
Chapter 24: Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
Defined Benefit Plans
Defined Contribution Plans
Designing and Documenting a Plan
Employer-Sponsored Plans
Investments in a Qualified Plan
Chapter 25: Estate Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
The Will
Payment of Testator’s Debts
Disposition of Property Not Willed
Estate Taxes

various subjects discussed in this volume. However, even the principals of such
Preface
companies might gain a clearer understanding of the legal issues with which
they deal with by reading an In Plain English
®
book.
This book is not intended to be a substitute for the advice of a professional.
Instead, it is designed to sensitize you to the issues that may require the aid of a
skilled attorney or other expert. It is my sincere hope that this book will, like its
predecessors in the series, be practical, useful, and readable. One of my goals in
preparing this book is to enable the reader to identify problem areas and seek
the aid of a skilled professional when necessary—or preferably before it becomes
necessary. It is quite common for the owners of small businesses to become
embroiled in legal problems before they are able to appreciate the problem.
The law is quite complex and rapidly evolving. Since the first incarnation of this
text was published in 1987, many changes have occurred. New business forms,
such as limited liability companies and limited liability partnerships, have
emerged. The World Wide Web has become a vehicle for communication and
commerce, and the law has been scrambling to keep pace. In writing this edi-
tion, it was my intention to chronicle the changes and convert them into a clear
and understandable text that will aid the reader in understanding the current
state of business law. It is hoped that by my doing so, business readers will be
able to more effectively communicate with their business associates and legal
advisors when inevitable legal issues arise.
Leonard D. DuBoff
Portland, Oregon, 2006
NOTE:
For an online newsletter that covers many of the issues discussed in this book
and updates that information on a regular basis, go to www.dubofflaw.com/ci.
xvi • The Law (In Plain English)

tain business practices, state laws must be consulted on many areas covered in
this book. A competent local business attorney is, therefore, your best source of
information on many issues that will arise in the running of your business.
Many law firms have attorneys who are licensed in several jurisdictions, and oth-
ers have relationships with attorneys in other locales.
IN PLAIN ENGLISH
Most legal problems cost more to solve or defend after they arise than it would have
cost to prevent their occurrence in the first place. Litigation is notoriously inefficient
and expensive. You do not want to sue or to be sued, if you can help it.
FINDING A LAWYER
If you do not know any attorneys, ask other businesspeople if they know any
good ones. You want either a lawyer who specializes in business or a general
practitioner who has many satisfied business clients. Finding the lawyer who is
right for you may require that you shop around a bit. Most local and state bar
associations have referral services. A good tip is to find out who is in the busi-
ness law section of the state or local bar association or who has served on spe-
cial bar committees dealing with law reform. It may also be useful to find out if
any articles covering the area of law with which you are concerned have been
published in either scholarly journals or continuing legal education publica-
tions, and if the author is available to assist you.
2 • The Law (In Plain English)
®
for Small Business
It is a good idea to hire a specialist or law firm with a number of specialists rather
than a general practitioner. While it is true that you may pay more per hour for
the expert, you will not have to pay for the attorney’s learning time. Experience
is valuable. In this regard, you may wish to keep in mind that it is uncommon
for a lawyer to specialize in business practice and also handle criminal matters.
Thus, if you are faced with a criminal prosecution for the death of an employee,
then you should be searching for an experienced criminal defense lawyer.

The attorney-client relationship is such that you should feel comfortable when
confiding in your attorney. This person will not disclose your confidential com-
munications; in fact, a violation of this rule, depending on the circumstances, can
be considered an ethical breach that could subject the attorney to professional
sanctions. If you take the time to develop a good working relationship with your
attorney, it may well prove to be one of your more valuable business assets.
FINDING AN ACCOUNTANT
In addition to an attorney, most small businesses will need the services of a com-
petent accountant to aid with tax planning, the filing of periodic reports, and
annual tax returns. Finding an accountant with whom your business is compat-
ible is similar to finding an attorney. You should ask around and learn which
accountants are servicing businesses similar to yours. State professional account-
ing associations may also provide a referral service or point you to a directory of
accountants in your area. You should interview prospective accountants to
determine whether you feel you can work with them and whether you feel their
skills will be compatible with your business needs.
Like your attorney, your accountant can provide valuable assistance in planning
for the future of your business. It is important to work with professionals you
trust and with whom you are able to relate on a professional level.
4 • The Law (In Plain English)
®
for Small Business
Organizing Your
Business
2
CHAPTER
Everyone in business knows that survival requires careful financial planning, yet
few fully realize the importance of selecting the best legal form for the business.
Small businesses have little need for the sophisticated organizational structures
utilized in large, publicly traded corporations, but since all entrepreneurs must

prietor. If you recognize any of these dangers as a real threat, you probably
should consider an alternative form of organization.
If you are the sole proprietor of a business venture, the property you personally
own is at risk. In other words, if for any reason you owe more than the dollar
value of your business, your creditors can force a sale of most of your personally
owned property to satisfy the debt.
For many risks, insurance is available that shifts the loss from you to an insur-
ance company, but there are some risks for which insurance simply is not avail-
able. For instance, insurance is generally not available to protect against a large
rise in the cost or sudden unavailability of supplies, inventory, or raw materials.
In addition, the cost of product liability insurance has become so high that, as
6 • The Law (In Plain English)
®
for Small Business
a practical matter, it is unavailable to most small businesses. Even when pro-
cured, every insurance policy has a limited, strictly defined scope of coverage.
These liability risks, as well as many other uncertain economic factors, can drive
a small business and its sole proprietor into bankruptcy.
Taxes
The sole proprietor is personally taxed on all profits of the business and may
deduct losses. Of course, the rate of taxation will change with increases in
income. Fortunately, there are ways to ease this tax burden.
IN PLAIN ENGLISH
Maximize your tax savings by establishing an approved IRA or contributing to a pen-
sion fund. By deducting a specified amount of your net income for placement into an
interest-bearing account, approved government securities, mutual funds, or company
pension plan, you can withdraw the funds at a later date—when you are in a lower
tax bracket. There may, however, be severe restrictions if you withdraw the money
prior to retirement age. (See Chapter 24, “Pension Plans,” for a more complete dis-
cussion of this subject.)

This means that if you are getting involved in a partnership, you should be espe-
cially cautious in two areas. First, since the involvement of a partner increases
your potential liability, you should choose a responsible partner. Second, the
partnership should be adequately insured to protect both the assets of the part-
nership and the personal assets of each partner.
Formalities
No formalities are required to create a partnership. If the partners do not have
a formal agreement defining the terms of the partnership, such as control of the
partnership or the distribution of profits, state law dictates the terms. State laws
8 • The Law (In Plain English)
®
for Small Business