Helping Small Businesses Get Started 

By Brian Burris, Chief Legal Officer, Occidental Management 

One fun part of my job as Chief Legal Officer at Occidental Management is helping small businesses get started with a new location. Many small businesses are first- or second-time tenants. Below are three things small businesses should consider during the leasing process and tenancy.

First, I often see small businesses not be formed as business entities that may provide them with advantages under the law. The two most popular business entities are corporations and limited liability companies. Any tenant that is operating instead as a sole proprietor or general partnership needs to strongly consider the advantages of forming a business entity. A business entity can shield an individual from personal liability associated with the business.  A business entity can provide tax advantages to the business. In addition, a business entity may also more readily qualify for available government incentives and lending from banks.  

Both corporations and limited liability companies provide a liability shield (i.e., each member’s or shareholder’s liability is limited to their investment in the business). In most cases, the liability shield will protect your personal assets from claims against the business, including lawsuits. A limited liability company is taxed as a partnership (also known as “pass-through” taxation). A corporation may be taxed as a corporation or may elect to be taxed like a partnership. Being taxed like a partnership, you will not need to file a separate tax return for your business. Your income and expenses will be reported on special schedules to your individual tax returns. Another benefit of a business entity is something of a soft advantage – having “Corporation,” “Inc.,” “LC,” or LLC” in your business name can make your business seem somehow more official. It implies that the business is registered with the state, and is somehow more substantial as a legal entity.

Second, I strongly encourage that small business owners read and fully understand the terms and conditions before signing a lease. My favorite tenants are the ones that ask questions about the lease prior to signing. Things can be more challenging when the tenant does not understand or comply with the requirements in the lease and the landlord comes calling to enforce the requirements. I always am happy to sit down and answer any questions relating to the lease at any time, including prior to signing the lease. I have even reviewed the lease on a provision-by-provision basis with a few tenants before signing.  

If an issue arises under a lease with one of our tenants, I am usually consulted to provide an explanation of how the lease applies to the specific situation. Honestly, the lease terms and conditions usually cover the issue in question in some detail – that is why our leasing form is so long. My goal was to make our form of lease user-friendly, but there are still legal concepts built into the lease that are sometimes hard to understand, such as the big lawyer words “indemnification” and “subrogation.” Please do not hesitate to ask me or your property manager any questions about the lease prior to signing.

My third recommendation to small business owners is that they establish a relationship with the property manager for their leased premises– I mean get to know the property manager and maintenance personnel assigned to your leased premises almost on a personal level. The property manager will be the first responder to any situation arising under the lease, so it is an advantage to have a good relationship with him or her. If there is a problem with the condition of the leased premises, call the property manager right away. If you are going to be late in payment, let the property manager know. You are more likely to get “grace” if the landlord knows in advance of any problems regarding your performance as the tenant under the lease. Also, the property manager may be aware of other resources and services that can be beneficial to your overall tenancy experience, such as marketing assistance offered by Occidental Management. If you do not ask, you probably won’t benefit from the available resources and services.