This post isn’t meant for everyone. It’s specifically for creative entrepreneurs.
What do I mean by a creative entrepreneur?
When I say “creative,” I mean someone who leans on the right side of their brain as a part of their profession—or at least wants to. I mean someone who depends on their creativity to provide value to their clients and customers.
When I say “entrepreneur,” I mean someone who is addicted to the idea of running his or her own business. I mean someone who enjoys the business side of things more than the particular craft or skill that they build the business around.
Not every creative is an entrepreneur, and not every entrepreneur is a creative. It’s a pretty rare breed, honestly. And that’s okay. I just want to let you know ahead of time: this post might not apply to you. Some of it might, but probably not all of it.
If you’re a creative entrepreneur, here are the 3 legal steps you need to take when starting your business, and one bonus step.
Let’s get into it.
Step 1: Form a sandbox LLC.
Never heard of a “sandbox LLC” before? That’s probably because I just made the term up.
Here’s the idea. If you’re an entrepreneur and you’re just starting out, two things are probably true. (1) You probably don’t have a business that’s bringing in sustainable revenue yet. (2) This great business idea you have right now probably won’t be the last one you come up with.
For those reasons, you want to create a “sandbox LLC” — a business that shields your personal assets and acts as a testing grounds while you work on the business. Every separate business concept you have then gets its own fictitious name, often called a “doing business as name” or a “DBA.” All of these DBAs are run out of your one sandbox LLC.
Picture a house. Your personal life — everything you own personally, your day job, etc. — that all fits in the basement. The first floor is one big room. Feel free to section off certain spaces for certain uses (like a kitchen area and a living room area), but it’s all one room. That’s important. This is your sandbox LLC. Everything you do out of that sandbox LLC, all of the different DBA’s you’re working on, it’s all coming out of the first floor. The basement ceiling is super important here. If your sandbox LLC ever gets sued, no one can reach what’s in the basement (well, it’s at least a lot tougher to do).
“But Joey, won’t that expose my different businesses to a ‘shared space’ of liability?”
Yes, that’s true. But when you’re just starting, the businesses themselves won’t have assets worth protecting. You’re still in test mode. You’re still a startup. You haven’t yet validated that there’s a market willing to pay for your product or service.
So what happens when you start to build those assets, and you want to protect that business from the rest of the businesses you’re working on? Let’s go back to the house example. In addition to the basement and first floor, you’ve also got a second floor with a bunch of separate bedrooms. When a particular business in the sandbox LLC starts to do well, you can move that business up to a bedroom in the second floor. In other words, you create a new LLC for that business, and you transfer ownership from the sandbox LLC (the first floor) to the new LLC (the second floor bedroom). See what’s happening here? You’re giving yourself a “safe space” to work on new business ideas while at the same time protecting personal and business assets as you build them.
You might have these follow-up questions:
- What do I name this sandbox LLC? If you’ve got a few business concepts you want to move forward with, and/or if you’re struggling to come up with a great name, just use your own name: “[First Name] [Last Name], LLC.” If you’ve already got a business name in mind or that you’re already using, go with that (here’s a helpful resource for choosing a name that’s available).
- What state should I form the LLC in? If you’re planning on bringing on investors, form it in Delaware, and make it a corporation and not an LLC. Investors love them some Delaware corporations. Otherwise, form it in the state you’re living in.
More goes into forming an LLC than you might think. For instance, you’ll want to have an “operating agreement” drafted for the new business. If you’d like more guidance, we’d be happy to help you.
Step 2: Get all appropriate permits and licenses.
You’ll have to do some research here, and there’s not much my firm can do to make sure you have what you need.
Luckily, the Small Business Association (“SBA”) is a super valuable resource. Their website is very helpful here. Here are some particularly useful links from their site:
- SBA Home Page
- SBA Learning Center
- Starting a Business
- Business or hobby?
- Tax obligations
- Federal and State licenses and permits
- Federal licenses and permits
- State licenses and permits
- Blog Post — How to Find the Right License and Permit for Your New Business
- Local Assistance
Step 3: Get an NDA.
An NDA, or a non-disclosure agreement (sometimes called a confidentiality agreement) is a contract where the parties agree not to disclose whatever information is covered in that contract. As a creative entrepreneur, you will get so much peace of mind by having an NDA in place. Basically, you should use an NDA whenever you let people help you with your business. For instance, let’s say you hire someone to help you build a website. Part of the project requires them improving your email opt-in page so you can collect more emails. With an NDA in place, the website developer has agreed not to disclose the people in your email list or to use them for her own gain.
I’m not saying you need to make it rain NDAs whenever you walk in the room. Don’t get caught up in the idea that you need to be super cautious and protective with your business idea. The likelihood of someone stealing your business idea is pretty low, especially when you’re just starting out. Still, if you’re sharing internal processes, client information, or the “secret sauce” of your business, you want to make sure there’s an NDA in place.
Bonus step: Invest in at least one business mentor.
Okay, this isn’t legally related. But I couldn’t resist.
One of the best decisions I made when launching my law firm was to invest in the mentorship of a business expert. We worked together to identif
y my target market, build a business model that provided solutions to major pain points, and figure out how to best spend my limited time to grow my business.
Look. There is so much information out there about starting a business, marketing, branding, etc. A business mentor will help cut through the noise and tell you where your focus needs to be. Honestly, the most valuable thing I get out of our relationship is her telling me “No!” all the time.
If you’d be interested in learning more about my business mentor, I’d be happy to connect you. If you’d prefer not to invest money into a business mentor, at least sign up for a free SCORE mentor.
Here’s the point: There’s so much that goes into starting a successful small business. You can’t do this all by yourself. The sooner you face that reality, the better off your business will be. Telling yourself, “Oh, I’ll just do a bunch of research and figure things out myself,” is a very dangerous mindset. Why? The search will never end. And you’ll find conflicting information. And in all that time you’ve spent “DIYing,” you could have been making sales that would have paid for someone else to help you. I’m not saying you need to go into debt (far from it!), but invest in help and allow them to take things off your plate.
Wait. That’s it? Just those things?