Introduction: Many Asian businesses have problems with staying open because they are
not compliant with the law or do things that get them sued. The following
six points will help all business owners in starting a business in California.
Question: I have been told by the City of Arcadia to shut down my massage parlor
business. I was cited for failing to have proper licensing. When I opened
up, I got approved by the city and police department and now they say
that I am still non-compliant. They said I have to shut down until my
hearing occurs in one week. I need help. I am losing too much money. Plus,
this is unfair. Any suggestions? Samantha – Arcadia
Answer: Dear Samantha, I know that recently Arcadia and the surrounding cities
have been cracking down on the massage parlor businesses. It has been
a joint effort of the city, state, and sometimes federal government. This
was done because many businesses were doing illegal businesses apart from massages.
However, it is my belief that many of the businesses affected were not
illegal. It is my belief that many businesses are just unaware of how
to comply with the law. As such, the following six steps should help you
in making sure your business does not get closed down by the government or sued.
Get proper licensing. In California, there are two types of licensing that one should worry
about. One is licensing for the specific licensing board that one belongs
to. For example, contractors belong to Contractors State License Board.
Attorneys belong to the California State Bar. Failure to be licensed by
the proper regulatory authorities is illegal and may be criminal as well.
In addition, under current law, failure to be licensed renders you unable
to defend or request compensation for services rendered but unpaid for.
The other type of licensing is an approval by local, county, state and
federal governmental bodies. For example, in Arcadia, a massage business
must also be approved by the City AND the police department.
Understand the difference between 1099 workers and W2 employees. One that hires employees must do the following: 1) Pay a portion of their
taxes; 2) Give them 2-10 minute rest breaks and one 30-minute lunch break
(if based on an 8 hour workday); 3) Pay overtime; 4) Pay double time if
they work 7-days straight; 5) Make reasonable accommodations for work
place injuries; and many other laws. At last estimate there are over 1500
individual statutes that an employer must follow. However, if an employee
is a 1099 worker, little to none of the requirements above apply. However,
95% the people you hire will be W2 employees. Hence, before deciding your
hiring independent contractors, understand the difference.
Get Worker’s Compensation Insurance. Worker’s Compensation insurance is required of all employers that
have employees. Failure to get it allows the government to shut you down.
If you are debating whether to get worker’s compensation insurance,
get it. You can always cancel it later.
Get General Liability Insurance. One of the worst things that can happen to a business is getting sued.
However, we have been able to get many of our clients’ free legal
representation because the insurance they purchase covers the cost of
litigation. Studies show that at 50% of people in California either have
been sued or knows someone that has been. This should only encourage the
smart businessperson to get insurance that covers for many types of lawsuits.
Get every agreement in writing. Many Asian business owners, believe it or not, do business on a handshake.
While this may seem very honorable, this is one of the most dangerous
types of contracts one can enter into. Recently, someone came to me and
told me that they let someone borrow $500,000.00 at 10% interest per month.
After six months defendant no longer wanted to pay. None of the agreement
was in writing. While both parties were executing the terms of the agreement
because there was a failure of writing the ultimate amount $500,000.00
may be very hard to prove.
Incorporate whenever you do business. Incorporation of a business is very inexpensive compared to the consequences
of not doing so. A corporation allows you to shield yourself from personal
liability. When a company gets sued, unless you have comingled your personal
and business accounts, adverse judgment should not affect you personally.
Conclusion: The above list is not all-inclusive of all the ways to prevent lawsuits
or government inspections to shut down businesses. However, the above
list should take care of many problems I see that happen to business owners.