Why Does a Small Business Need a Business Entity?

The right business entity can empower a small business operation.  The entity will grow and evolve with the business.  It will protect the owner of the business, and the owner’s personal assets, but it has to be done correctly to get the full legal and tax advantages.

Personal vs. Business Assets

The business entity, properly formed and kept current, will help protect the business owner’s personal assets. All businesses have liabilities, whether its payments to suppliers or employees that are due, or something more drastic, like a lawsuit if an employee or customer gets hurt by the company’s product.

If a person is operating a small business, but hasn’t filed for a business entity, then by default, the person created created a sole proprietorship (one owner) or a general partnership (multiple owners).  The operator is personally liable for the debts and actions of the company. If the company gets sued, or owes money, then the owner’s personal assets (bank accounts, car, house, etc.) are now at risk.

So How Does a Business Owner Protect Personal Assets?

  1. Incorporate the business entity correctly and keep it active
  2. Observe corporate formalities
  3. Keep personal and business assets separate
  4. Operate honestly and with integrity

Correct Incorporation

Instead of letting the state pick, identify the correct entity for the business, usually an LLC (limited liability company) or a corporation.  The legal protections are similar, but there are different tax consequences to consider.  Once the business entity is formed, the business is liable for its debts and actions, and the owners are not personally liable, if the owners observe the corporate formalities

Observe Corporate Formalities

Different business entities have different obligations.  Forms (and sometimes payments) have to be filed, meetings may have to be held, and the business must have governing documents.  It might seem a little silly to have a governing document for a single-member company, but if the owner wants to sell the company, sign a contract, or doesn’t want to be personally liable in a lawsuit, it’s important to have proof that the business assets are separate from the owner’s personal assets.

Separate Business and Personal Assets

Having separate accounts for business and personal assets is one way to demonstrate corporate formalities are being observed.  If the business is sued or has to pay a debt, the business entity formation means the owner’s personal assets are not at risk, unless the corporate veil is pierced.

Piercing the Corporate Veil

No matter what, the business still has to operate ethically and in accordance with the laws.  If not, the entity is disregarded for legal purposes. That means all of the business entity protections are unavailable, and the owner’s personal assets are exposed. This tends to happen when business owners either:

  • don’t observe the formalities of separating business and personal assets;
  • they defraud or mislead their customers or creditors;
  • taxes aren’t paid on time; or
  • business owner signs a personal guarantee (very common for commercial real estate leases and franchises)

This post originally appeared on Hire Effect™ : https://hireeffect.com/index.php/2019/02/01/protect-your-business/


This article does not create an attorney-client relationship. This article is for general education purposes only and is not legal advice. You should consult with a qualified attorney before you rely on this information.

The Default

Sometimes Landlord or Tenant, either inadvertently or deliberately, don’t abide by the terms of the commercial real estate lease, resulting in a breach. A breach, if not cured (fixed), can create an event of default. If there is a default, then the damaged party can seek remedy. Landlord remedies could be everything from hefty financial penalties to lockout to termination of the lease and suing for the monetary balance. If Tenant has any default rights, they are often limited to actual damages or specific performance.

The Notice

It’s not fair to have consequences without knowing what the action is, right? That’s why notice is important. The defaulting party should be informed of default by the damaged party, so the offending party can take action to fix it- this is notice.

The commercial real estate lease should clearly state Landlord and Tenant’s address for notice. Negotiation tip: don’t make the premises Tenant’s sole notice address. If Tenant is locked out or doesn’t otherwise receive mail at the space, then notice may be legally delivered, but not actually received!

Notice can be delivered in different ways:

– By hand

– By email

– By mail (US Mail, certified, or registered)

– By courier service

Notice should always be required to be in writing; it’s hard to prove a phone call occurred in court. Certified mail or courier service are often the most reliable ways to document that delivery occurred, and it’s important to understand the entire notice provision to confirm when the clock starts ticking on any cure period in the event a notice of default is received.

The Cure

Once the damaged party has provided notice, there should be some time for the offending party to fix the damage, known as the cure period. That’s not always the case! In an improperly negotiated commercial real estate lease, Landlord can theoretically tell Tenant that Tenant is doing something wrong (even if it’s easy to fix), then default Tenant and immediately pursue its remedy. That’s default without a cure period!

Each party to the commercial real estate lease has an incentive to make sure that defaults are remedied as quickly as possible- Tenant wants a safe place for its employees and customers to enter into business transactions, and Landlord wants to make sure that Tenant is paying its rent. Both parties enter the lease expecting the other to abide by the agreement, but if there is a breach, it does take a little time to fix the problem.

With a notice and cure period, Tenant has to be told something is wrong AND has an opportunity to remedy the default. Negotiation tip: Non-monetary defaults usually need more time to cure than a monetary one. State the exact amount of days for cure that each default has in the commercial real estate lease.


This article does not create an attorney-client relationship. This article is for general education purposes only and is not legal advice. You should consult with a qualified attorney before you rely on this information.

A prudent Tenant that wants to stay in business won’t object to customers coming in the door. There shouldn’t be a problem with employees or contractors entering the space, either. Unexpected entrants arriving, however, can disrupt the ordinary course of business. A good commercial real estate lease, negotiated properly, will provide security and certainty about who can enter the space and who is liable if something goes wrong. No surprise guests, no surprise legal liability or business inconvenience for Tenant!


Landlord Employee Entrance

A Landlord employee that is performing an inspection or a minor repair should be able to come in during normal business hours to complete their task. Negotiation tip: Request advance notification before a Landlord party or representative enters the space, so Tenant knows who should be in the space and can plan accordingly.

Most Landlords will want an exception for an emergency situation, which makes sense. If there is a burst pipe in the space after hours, then it’s more important for someone to go in there and shut it off then to track down Tenant for notice before entering the space.


Entrance Request: Notification vs. Notice

This isn’t a legal notice requirement (see the post on legal notice, it’s a good one!); it’s actually a notification requirement. The important part is that anyone entering the space that isn’t invited by or controlled by Tenant should not be there unless Tenant knows about it. Tenant can decide how they want to get the notification from Landlord- put it in the commercial real estate lease, and put it in writing.


The consequences of notification

Tenant’s business probably contains sensitive information, which shouldn’t be shared with non-employees. It could be social security numbers or bank account information for clients, home addresses and phone numbers, payment records or other personal information. Some items are protected by federal law, some should just be kept private. If Tenant is required to have advance notification under the commercial real estate lease that someone is entering the space, then it can make sure this sensitive information is stored away from prying eyes.

A Tenant representative isn’t always in the space, and Landlord representatives may enter after hours, like janitorial staff or maintenance workers performing a repair so Tenant isn’t disturbed in its business operations. It’s important for Tenant to know who is in the space when, and to have good practices to protect sensitive information.


Potential New Tenants

Landlord has the right to sell or mortgage the building, and it makes sense that a prudent potential investor would want to tour the space before committing. If Tenant is vacating the space at the end of the term, then it’s okay for potential new tenants to enter the space to look around. Negotiation tip: if the lease isn’t expiring, there is an option available, or there are good-faith negotiations to extend the commercial real estate lease, Landlord shouldn’t be showing the space to potential new tenants!


This article does not create an attorney-client relationship. This article is for general education purposes only and is not legal advice. You should consult with a qualified attorney before you rely on this information.

Here are 4 tips for Landlord to entice Tenant to tour the space and sign that commercial real estate lease.


  1. Less Single-Purpose Space.

Less solid walls within a Tenant space! Tenant can customize the space for its use, whatever it needs at that time. More daylight can come in across the space (natural light isn’t just for the executives sitting in an office next to the window), and the space can be reconfigured as shared or private office space, open spaces for a large meeting or smaller, private huddle rooms for focus and collaboration.

Let’s get real, no one really likes an open office environment, except maybe the people in charge of controlling costs. It’s hard to focus! Which goes into…


  1. Customizable Space.

Make the space what the Tenant wants- just for them. Landlord will benefit from adding soundproofing within the Tenant space. If one part of the space had quiet focus rooms, which are separate from small action spaces where meet employees meet to collaborate and create in small groups, then you’ve created a win-win. Tenant can move around partitions or furniture arrangements within its space as needed, for large interactive sessions and birthday parties. With a quite focus space in one area, and a collaborative interactive on in the other, and an appropriate buffer between the two, Landlord has created a reason for Tenant to start negotiating its commercial real estate lease!

If Tenant employees are in the space all the time, it helps if they want to be there and they enjoy the ambiance. The best way to do that is…


  1. Add a Natural Element.

The lobby is usually the first space Tenant will enter- and their clients. If possible, add some real greenery, everyone likes plants. Even if that isn’t a practical option, the lobby can still be an open, inviting space, creating a good first impression on anyone who enters the building and creating a great mindset. Focus on welcoming people- pick seating that doesn’t just look good, but feels comfortable, while waiting for a meeting or an appointment. Lighting should be adequate, but not harsh. Pick soothing colors and if you play music, make it soothing and welcoming. A water feature (even if it’s a discreet fountain in the corner) creates peaceful background white noise, as well.

That’s great, but all of this costs money! Improve the Tenant experience and the Landlord’s budget with …


  1. Labor and Cost-Saving Measures.

Take advantage of smart technology and IoT (Internet of Things). Put lights and energy-gulping office equipment (printers, anyone?) on timers or motion-sensors, so they go into standby when no one is there. Add task lighting in the focus areas, and make it easy to dim lights if there’s a presentation going on. Let Tenant have some control- they can extend the time before the lights go out or make sure the printer is available on weekends, if that’s part of their business model. If anyone figures out how to make the temperature comfortable for everyone in the space, they will make a fortune.

Your commercial real estate lease will let Tenant and Landlord know exactly what to expect regarding these amenities so it’s important to negotiate for what matters to you.


This article does not create an attorney-client relationship. This article is for general education purposes only and is not legal advice. You should consult with a qualified attorney before you rely on this information.

If you’re producing, storing, fulfilling orders for or distributing goods, then you need an industrial commercial real estate lease for your operation. Ideally, you will operate in the space for a very long time, probably longer than any of the products you are manufacturing or distributing. It’s so important to have your commercial real estate leasing team in place, to identify and negotiate the best deal for you. You don’t want to walk away from money or your legal rights that you could have, if you’re smart about your industrial commercial lease negotiations!

Here’s a list of hot items to consider in your industrial commercial real estate lease. Just because you don’t get everything, you might be able to negotiate a tenant allowance (TI) to do things like deferred maintenance, abate hazardous materials, or bring the building up to code and outfit it specifically for your needs. Have these answers and your commercial real estate attorney will be prepared to secure the legal and financial protections you need!

Shipping and Receiving (Truck docks or rail)

  1. How much square footage is needed for the warehouse and how much for the office?
  2. How many truck level doors?
  3. Is a drive-in door needed each for shipping and/or receiving? What size?
  4. What are the bay sizes (column spacing)?
  5. What is the clear height?
  6. What is the turning radius?

Utilities- comfort for people and products

  1. What is the supplied HVAC capacity?
  2. What are the minimum and maximum temperature requirements?
  3. What type of heating/cooling is required, if any, in the warehouse?
  4. Does the building have any green technologies?
  5. How much power is supplied to the building in volts and amps?
  6. What is the lighting requirement in terms of foot candles required?
  7. What is the budget for lighting installation, on-going maintenance and electricity costs?
  8. What kind of sprinklers, building security, and life systems are required?

Floors- inside and outside, don’t forget the docks.

  1. Is there any special coating or sealant needed on the floor?
  2. What is the floor loading capacity?
  3. Is reinforced concrete required in the loading area?
  4. Is heavy-duty asphalt required at the truck docks?
  5. What is the optimal floor plate size?
  6. Does any equipment need to be recessed into the floor?

Special Equipment- is any necessary?

  1. Will specialized equipment or machinery be used?
  2. Is an overhead crane required?

The Building- what do you know about it?

  1. What is the deferred maintenance?
  2. What are the accessibility issues with the building?
  3. Who were previous tenants? Is there a possibility of hazardous materials?
  4. Are there any business hours or zoning requirements?

Partner smart and have your commercial real estate leasing team in place so nothing is left out of your deal!


This article does not create an attorney-client relationship. This article is for general education purposes only and is not legal advice. You should consult with a qualified attorney before you rely on this information.

A commercial real estate lease should be unique and negotiated especially for Tenant’s specific needs. There’s a lot to consider, but there are some common elements in virtually every commercial real estate lease that should be carefully negotiated and completely understood before Tenant signs on the dotted line. It’s a good investment to hire an expert to review the commercial real estate lease and assist in negotiating a fair and equitable agreement.


Here are 5 tips when negotiating any type of commercial real estate lease:

1) Limit that personal guarantee! A personal guarantee goes beyond the business entity. The signer of a personal guarantee is responsible, personally, for coming up with the cash if the business doesn’t have enough money. Landlord wants to protect the cash flow, which is understandable, but there’s a lot more on the line for the guarantor- who knows what events could happen, outside of your control, that affects Tenant’s ability to pay the rent? If the business runs out of money, then Landlord can come after your personal assets. Try offering a hefty deposit to reduce or limit the guaranty, or to reduce it.

2) Watch those insurance requirements! Tenant should carry its own insurance (if there’s a franchisor in the mix, they will usually set the requirements), but the requirements should make sense within the context of the business. If it’s a NNN (triple net) lease, then Tenant is contributing to Landlord’s insurance costs. Check out my post on Proportionate Share and make sure Tenant isn’t overpaying for Landlord’s insurance- or any other expense. Also, make sure Landlord is actually carrying insurance!

3) Delivery vs. Acceptance of the location. Tenant expects to receive the space in a certain condition. If the space is already built out, Tenant wants it clean, ready to furnish and fixture, and vacant. All of the systems in the space should work, as well. If the space isn’t already built out, then Landlord and Tenant need to negotiate the condition in which it will be delivered. Will Landlord deliver the space finished out to Tenant’s specifications (a vanilla box) or will the space be roughly built out and ready for Tenant to come in and finish the final touches (a gray shell)? If Landlord delivers the space to Tenant, and it’s non-compliant, Tenant should not accept delivery. The commercial real estate lease (and other key terms, like rent) should hinge on Tenant getting exactly what it negotiated for (it’s okay to have an exception for punch-list items, especially in a newly constructed space.). Few things are worse than having to accept a space and pay rent when Tenant isn’t able to operate its business inside the location.

4) Parking. Very few locations can rely completely on public transportation to bring employees and customers. It’s important people have a safe, well-lit parking area that is easy to navigate. Tenant may be concerned about directional signage, dedicated parking spaces, or parking charges. Ask for what Tenant (and possibly the franchisor) wants in the commercial real estate lease.

5) Exclusivity. It’s important to you (and the franchisor, if there is one) to be the only tenant with that particular kind of business in the immediate vicinity. Landlord shouldn’t put a direct competitor right next door. If another landlord wants to put a competitor in a space on their property, there isn’t much Tenant can do, but it makes sense, when negotiating a commercial real estate lease, that Landlord will respect Tenant’s desire to be unique within the shopping center. Tenant will want to have remedies if Landlord doesn’t abide by the commercial real estate lease, but at the same time, don’t make it too easy for Landlord to kick Tenant out of the space to install a competitor in there, instead.

Bonus tip! In case you need another reason to read your commercial real estate lease closely and understand it:

None of the commercial real estate lease provisions should be automatic, such as a termination or a rent acceleration- Tenant should get notice before these occur. Tenant will want to negotiate for notice (and cure periods) in the event of a default, so Landlord doesn’t declare an automatic default.

A good commercial real estate leasing attorney can negotiate your commercial real estate lease, to give you security and reduce legal uncertainty so you can focus on your operations!


This article does not create an attorney-client relationship. This article is for general education purposes only and is not legal advice. You should consult with a qualified attorney before you rely on this information.

Fungible goods was something I learned about in economics (that and I can’t hand-draw a graph to save my life). Basically, units of widgets are all the same, and they are all are interchangeable. So each fungible item can be exchanged for one exactly like it, like different copies of the same book. They’re identical.

Fungible goods doesn’t cut it anymore in today’s competitive marketplace. The name of the game today is customization and personalization.

I want something made just for me, and I want to make sure it works. How can online storefronts get consumers to try out their products, without the hassle of returns or frustration in picking the wrong thing? Make it a convenient and novel experience.

Pop-up or temporary store commercial real estate concepts allow an online-only brand or concept try out physical retailing, or to experiment with an omni-channel retail strategy. Consumers get choices, and no waiting time. (Impulse purchases, anyone?)

What does this mean to the average shopper? Instead of 3 red lipstick choices, I have 25 to choose from, and I can’t tell the difference in the shades on my computer. Or there are 17 different leg cuts on a pair of pants, but I can’t figure out which ones will actually work for me, because the ones I bought last season and ripped were discontinued, and I have to start shopping all over again. I can’t buy a fungible good, I can’t replace the item I have with an identical one, because I want something different or the same item doesn’t exist any more. So I head out to the physical store, along with lots of other consumers, to see and try products in real life. Consumers want something novel, current and relevant. Pop-up shops can provide exactly that experience and capture those dollars.

Once I can actually see the shade of red in the tube and compare it in real light, instead of the glow from my computer screen, I’ve got confidence I’m making the right choice, and I’ll be the first to click and order the lipstick of my dreams online, since I know what I’m getting. If I’m not price sensitive, I might even pay a premium to have the lipstick right then- instant gratification.

Pop-ups or other super-short-term leases are usually around 6 months to 1 year, but could be even shorter. The commercial real estate lease form for a pop-up is usually a lot shorter than a traditional one, and provides both parties with greater flexibility to test drive a site, a concept, and to maximize the use of space to fit with community needs.

It might be a short commercial real estate lease, but you still have to read it and know what the rights and obligations are of each party. A short lease is still a binding legal document. As consumers have more options, retailers have to work to grab those eyeballs and those dollars, and that means providing a venue to showcase those goods and curating a novel engaging experience, making retail shopping an occasion or an adventure, not another chore to cram into a busy day.

Online retailers need to become commercial real estate destinations too, in creative and interesting ways that resonate with their audience and the community. That means a commercial real estate lease. While it pays to be creative in retailing, watch out for “creativity” in a short-term or pop-up lease, that could cost a lot more than the tenant bargained for!


This article does not create an attorney-client relationship. This article is for general education purposes only and is not legal advice. You should consult with a qualified attorney before you rely on this information.