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.