Mompreneurship 101 From a Lawyer's Perspective
/Part 1: Your Potential Liability Begins Day 1
Mobility, the "Great Recession," and the boom in startup small business has led to a meteoric rise in new moms (and dads) creating something out of nothing but a great idea. A great idea is just the seed of the business; the flowering tree requires a mompreneur or dadpreneur to pay great attention to many details, including the legal implications of launching such a business.
Of course, there is the question of the type of business entity that ought to be used. Very often, a new one-person operation starts out as a "sole proprietorship," a business entity that is attached to an individual, and offers very little protection from claims of liability. Many new small business owners don't worry about lawsuits, but people can be sued for almost any reason, and while lawsuits can be thrown out with a pre-answer motion, why take the risk?
One way solo business owners try to protect themselves is by investing in liability insurance. Liability insurance can be had for a relatively inexpensive amount of money, but insurance providers may try their best to "disclaim" responsibility for defending a lawsuit. Simply put, without a business entity that fully protects an individual owner from the potentially tortious actions of the business with which the owner is affiliated, an entrepreneur can find her own personal assets in danger of seizure.
The minute you endeavor to build a business, you are taking a risk. There is no way to truly remove risk; even established companies can have their "corporate veil" pierced if the actions of the liable individual are egregious enough. In other words, a person should not count on hiding behind the protections of a business entity such as an LLC or corporation if they are doing something illegal or unjustly enriching him or herself. Still, a business entity, especially one guided by a knowledgable lawyer, can substantially limit risk. A small business would be wise, however, to supplement competent legal services with a relevant insurance policy.
Related: Should Your Startup Be an S-Corp or LLC?
A mom or dad providing a service--throwing birthday parties, family photography, resume writing--often must consider different risks than the mom or dad selling a product, but the question of liability always lingers for a mompreneur or dadpreneur. If you are providing a service, a properly and thoroughly drafted contract between you and the customer may minimize most of the risk. Customers of a product rarely sign a business agreement before buying a product.
Moms and dads who start something small very often don't imagine that their little passion project will grow into an enormous success, or that word-of-mouth will spread beyond a small community. There is no excuse, unfortunately, for trademark or trade dress infringement. No matter how small your enterprise, T.G.I. Fridays is going to hear about your "Thursdays Lemonade Stand," adorned with red and white diagonal stripes, and you will recieve a cease-and-desist letter. So much of trademark law depends on the question whether a trademark, name, or appearance is confusingly similar to those already used in the marketplace, and trademark lawyers are aggressive in trying to shut down businesses that are even remotely similar, because if enough instances of trademark or trade dress infringement are ignored, the established brand may be rendered "generic" enough to be considered by courts to be fair game for infringement. Do yourself a favor, search the USPTO database for entities in America that have similar names, logos, and appearance. You will save yourself a lot of potential heartache later.