Legal Line broadcast from October 29, 2011
In episode #79 of I Love Lucy (first airing on 1/11/1954), Lucy comes up with her million dollar idea. She will make and market her Aunt Martha’s old-fashioned salad dressing. She and Ethel proceed to lose money on every jar they produce. Maybe Lucy figures she can make it up on volume. A listener called in with his million dollar idea, but clearly was headed down Lucy’s road. Before you commit to your great business idea, give it the reality check of a business plan. How will you operate your business? Who will use your product or service? What costs are involved? Imagine you are borrowing from a bank and you must prove to the bank that you will be able to repay the loan. From a legal standpoint, have a look at The Legal Guide for Starting and Running a Small Business, by Fred Steingold. Fred walks you through the many legal issues confronting a small business start-up. Consider forming a limited liability company or corporation to operate your business, to give you some legal structure and protect your personal assets from a business failure. Assemble your team of advisors, like an accountant and attorney. Use your attorney as a coach.
On Saturday’s program, we had a call from a listener who holds a second mortgage (really a deed of trust) on someone’s home to secure payment on a promissory note. She wants to collect on the note. If the note is in default, she can foreclose on the home, but she’ll have to deal with the first mortgage. And, if the first mortgage is foreclosed, she runs the risk of having her second wiped out unless she is willing to step in and take over the first. As Ted pointed out, she can also consider suing on the note and obtaining a judgment that will potentially cover all assets and last for ten years (with the ability to extend for another ten years), unless, of course, the person declares bankruptcy. You become the bank when you loan money, so think about the options if there is a default and protect yourself.
Ted and I are on the air each Saturday with a new edition of Legal Line, taking your general legal questions. Check it out.