Episode 3: Navigating Legal Challenges for Entrepreneurs: Insights from SCORE Mentor Rita Leader

In this episode of Mentor Conversations at SCORE Houston, host PV Bala talks to senior mentor and retired attorney, Rita Leader. With over 40 years of experience in corporate law, Rita shares her journey, challenges faced as a female law graduate, and transition to mentoring at SCORE. She offers detailed guidance on setting up LLCs, corporate taxation, risk analysis, and maintaining work-life balance. Rita emphasizes the importance of thorough business planning and shares memorable client success stories. Listeners are encouraged to seek SCORE's free mentoring and educational services to help their small businesses thrive.

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Transcript

SPEAKER_00 0:00

Welcome to Mentor Conversations at SCORE Houston, where we bring you insights and stories from our mentors. You'll hear from senior executives, entrepreneurs, and professionals who volunteer their time to guide small businesses. SCORE is America's largest network of volunteer business mentors and is supported by the U.S. Small Business Administration. In Houston, we provide free, confidential mentoring and education to help entrepreneurs start, grow, and succeed.

SPEAKER_01 0:34

Welcome to Mentor Conversation at Score Houston. I'm your host, Pivi Bala. Today I'm talking to one of the senior mentors, an expert on legal matters, Rita Lida. Rita is a retired attorney, a senior mentor with Score Houston, specializes in legal matters for businesses. Rita has over 40 years experience in corporate law, with expertise in capital formation, business organizations, acquisitions and dispositions, and management control issues. Rita guides entrepreneurs through the process of registering an LLC or corporation in Texas, as well as the considerations in remaining a DBA or general partnership. She regularly advises clients about the various forms of taxation available to small businesses at the federal, state, and county levels. Topics for her seminar and webinar presentations include choice of entity, maintaining corporate records, protecting a business owner's personal assets, how a business owner is paid, and corporate taxation. Welcome, Rita. Thank you. Pleasure having you in this conversation. What Rita, the first question that obviously comes is what was your experience those years when you graduated as a female law graduate? What kind of challenges you faced then?

SPEAKER_02 2:10

Sure. I am happy to see now that most law school classes are made up of a majority of females. But that was not the case when I was in law school. Even if we graduated at the top of our class, many law firms were reluctant to hire females. And that was understandable because many of the clients were reluctant to have women represent their companies. I encountered a good amount of resistance in my early career. So I think it made me more resilient and more able to understand the barriers that many of my small business clients at school encounter when they're starting in their business. I was the first female to make a partner at my law firm. But then a few years later, I started having children and I found it very difficult to balance a busy legal career and the demands of family life. My conflicts were multiple. They started with the other women in my law firm who were very promising and viewed me as a role model, as the first female partner. I also felt a conflict in the loyalty I had to my clients who had followed me and been loyal to me over years. I felt a commitment to my fellow partners in the firm, of course, all men who had faith in my abilities and had given me this opportunity. And at the same time, I felt a real need to nurture and raise my children myself and to create a stable and a happy home life for them. Today, efforts of entrepreneurs to establish that work-life balance are always tricky and it may even be tougher today.

SPEAKER_01 3:56

I think that's very well put and the good decision that you took at that point of time. Tell me, I'm curious to know what types of work that you had in your long corporate career and how you transitioned from that to score.

SPEAKER_02 4:12

Sure. I worked at large law firms in the area of corporate finance and securities law. That basically involved representing major publicly held companies in their filings with the SEC, doing mergers and acquisitions and different forms of capital raising, like initial public offerings, debt offerings, private offerings as well. To a lesser extent, and later in my law practice, I work with small privately held companies trying to join the big time, which is more like what I see with my score clients. But they are similar in that if any business, any company is trying to raise money from investors, whether public or private, it must make full disclosure to any potential investor about historical performance of the company if they have it, and if it's a newly organized company, about its prospects of success. That is financial projections of how the company is going to do. That kind of information must be presented in a logical format with small businesses. It is a business plan that describes their operations, the management, the competition, their risks involved in their business, what the ownership is, the financial position of the company. With larger companies, this was all presented in a major document, a confidential offering memorandum, also referred to as a private placement memo. So the investors are fully informed. But our small business clients generally have a business plan, which we in school really recommend. And it's the same type of disclosure. So in that way, the big firm experience, very similar to my experience.

SPEAKER_01 5:55

And you're transitioning to school, how it happened?

SPEAKER_02 5:58

When I was practicing law, I had this client come in. He had a great idea for a money-making proposition. He had identified an investor who was also interested in his idea. The investor came with him to the meeting. So I went through with him the initial setup of a company, an LLC or corporation, and then contracts he would want, the arrangement he would have with this investor. But I could see what he needed was hands-on guidance, someone who had done this before and could take him through the steps to not just organize it, but fund his business, figure out how much funding he needed, to do the marketing, to actually operate the business and make sales, to figure out how to price his product and to grow his business. I was aware of SCORE at the time and that SCORE mentors offered that type of real-world experience. So I referred this particular client to SCORE. And then when I retired, it was natural for me to go to work to volunteer at SCORE.

SPEAKER_01 7:00

Yeah, absolutely. In fact, before your call, I was with a client who had something very similar. The two of them came for a business plan for a new facility they want to start. A brilliant idea. What are the typical problems they have? And how do you mentor them?

SPEAKER_02 7:34

Well, I always listen first to whatever the client has to say to me, what they think they're looking for, because often I identify things that are different. If there is any one question that stands out for my mentoring sessions, it is whether they need an LLC or corporation and the timing of setting that up. If we decide there is benefit to setting up a corporation or LLC, I describe the differences between the two, but I also advise on which state in which to register it. And then we go through the actual steps in which to file it. We can all do that online. The choice of name of an entity is a matter of a good amount of legal analysis. And I take them through their homework they need to do to make sure the name they're choosing isn't infringing on the intellectual property rights of a name company already out there. In filing with the Secretary of State of Texas, we go through the process, including what it means to have a registered agent in office. What is the difference between member managed and manager-managed LLCs, which is a bit unique in Texas? I advise them on the importance of an operating agreement. We then flip from the state filings to federal filings to get them an EIN given by the IRS on a federal level. Address the very need to set up a bank account to obtain insurance. We then launch into taxes, which starts with the state franchise tax, also the state sales tax if applicable to the product or service they're offering. We go then to the federal filings of income tax and finally the county, which in Texas means a tax on business, real and personal property. As you can imagine, it's a long list, and it's my goal to address each of those items with a client in a one-hour session. So they know they need to listen up and take notes. I'm always available for follow-up emails to clarify anything and make sure that the LLC corporation gets filed appropriately.

SPEAKER_01 9:56

Tell me, there are clients with this kind of clarification that they read and need whether DBA is sufficient. When would I go for LLC? Is it related to a risk analysis or what are the considerations to take a decision on that?

SPEAKER_02 10:13

You're right. It really is a risk analysis because LLC stands for limited liability company. The whole purpose, or I should say, a major benefit of having an LLC rather than doing business as a DBA is that you can protect your personal assets. You, the owner, can protect your personal assets from the risks that arise in the business if it is set up as an LLC. But those risks only arise when you have operations. If you don't have operations, you don't have liabilities. So I do advise most of my clients when they first come to me and want to immediately set up an LLC. No, step back. Let's think through this business proposition. Do a business plan, even if you don't need to present it to a bank to get a loan. You need to go through the mental process of a business plan to figure out is this going to work? And only when you prove up your business plan and test the waters to make sure it'll be profitable, should you then go to the next step of setting up an LLC. See, it can be set up in Texas in a matter of days, and there's no reason to do it precipitously. I have had clients come to me and say, I have this great business plan idea. So I'm going to, I need you to help me set up an LLC. We do it, they pay the$300 filing fee, and a week or six weeks later they come back to me and say, Yeah, I got this great job offer I want to take instead. Or I went through my business plan and I'll never be able to make money because the competition is too great. So I need to dissolve my LLC. Well, there are fees for that too. And there's no reason to do it too soon, I guess is the most important point here.

SPEAKER_01 12:03

Good advice, yeah. Uh tell me, are there clients with established and operating companies who come to you on taking advice on other issues like contract-related matters, employment compliance issues, regulatory compliance, IP risk management? Do such kind of clients also come in from people operating for a few years?

SPEAKER_02 12:31

They do, and we welcome score mentors who are attorneys really enjoy mentoring our clients through the life of their business. Wherever they are in the development of their business and growing with the clients, that's what's really fun for us. If they're in areas that I'm not familiar with, they want help because they're grown to the point they're ready to hire an employee and need some information about employment arrangements. I have within SCORE a number of fellow mentors who can help them with that. There are many collateral areas that our score mentors are familiar with, and I really enjoy referring my old clients to them. Now, I should say SCORE mentors who are attorneys can't really draw up these documents, but there's so much about legal terms, the process of selling a business, legal practices that can be helped to many of our clients.

SPEAKER_01 13:25

Over the years of mentoring, you would have come across so many clients, so much of interesting cases. Can you narrate one of them that is quite memorable for you?

SPEAKER_02 13:39

Sure. I will say because we're Houston energy industry, there are cycles in that industry, and we went through one several years back in which there were a number of mid to late career engineers, geologists who were laid off from their jobs, and they still needed to provide for their family, and they still had plenty of professional career left in them. They didn't know how to be an entrepreneur. So this one gentleman in that position came to me and we explored what he could do and settled on the fact that he could make money being a broker and brokering sales of equipment in the industry and the geographic area in which he had been working. So he we set up his new LLC, we chose the name, got him out there with a marketing plan. And after a few months, he called me so excited to say he had made his first sale. Well, this is one of those businesses in which you make eight or 10 sales a year, and that's well, after a few another maybe one month, he called to say he made his second sale. And I was so enthusiastic, so happy. Well, by the time I got the third call, I just told him, You're launched, just go with it now. You've got it. But I hear from him on a regular basis. Years later, he called me and said he needs help changing the form of taxation of his LLC because his income had gotten to the level it pushed him into a higher tax bracket. And a new form of taxation would be more beneficial. And I loved seeing him grow to that point.

SPEAKER_01 15:14

I think we all as mentors look forward to such kind of experience we want the clients to have and to hear from them when the business goes through the success. We are here for that. I think that's the whole satisfaction that we get out of mentoring.

SPEAKER_02 15:29

I have to say though, not all my client stories are successes. Sometimes the best mentoring we can do is to help a client see that their business idea would not work. I often see clients who are so in love with their business idea, they're not able to see the very real likelihood of failure. But score mentors try to always be supportive. We are cheerleaders for a client's idea, but bring them to the realistic conclusion that they make on their own that the business plan won't ultimately be successful. I've seen clients who have spent all their retirement savings on a business that had no hope of succeeding and they were desperate and depressed over it. So the best thing we can tell some clients sometimes is no, uh look hard at this business plan and understand for yourself it won't work.

SPEAKER_01 16:26

Exactly. I think that's the right thing. I also believe that after doing so many business plans in my career, certain things you need to face it and say that it is not workable and drop it rather than regretting later in life. Yeah. Yeah. How do you look at your journey from active corporate career and then transitioning to scores so far? How are the journeys?

SPEAKER_02 16:50

I described a conflict that I had when I had children and I was in a law firm. And the right choice for me came with making a decision to stay at home with my children until the youngest was in elementary school. And then I returned to the practice of law on a part-time basis. Now, as a result of that, my career was unquestionably set back in a substantial way. But I like to think my returning to work provided a good role model for my children, and it certainly satisfied my need to keep my mind in the practice of law. So I stuck with it for a number of years. I retired from the full-time of practice of law several years ago, but I do still maintain my law license. I take continuing legal education courses, keep up with changes in the law. There have been a number recently that are really interesting and that I like to know about to pass on to my score clients. For example, the cottage industry food laws that exist in the state of Texas that allow a person to cook in their own kitchen and sell, retail, or wholesale certain foods and beverages that are made. There was a major expansion of that in the most recent legislative session. The franchise tax in Texas is applicable to any LLC incorporation except there is an exemption that was expanded two years ago that really applies to so many of our small business clients. I'm always happy to tell them you have to make over$2.47 million in revenues before you're paying franchise tax. And they are going, whoo! And I hope I get there. I hope revenues come to that level. Another change in this year's legislation was to expand an exemption for veteran-owned business. If your business is 100% owned by an honorably discharged veteran, you are exempt from the filing fees and from five years of franchise tax in the state of Texas that was passed some years ago for a limited period of time, has now been expanded. So is there is no expiration. And you might remember maybe eight years ago, crowdfunding became a very popular way to raise money. And that was an interesting. So I enjoy learning about it and passing it on to my clients.

SPEAKER_01 19:17

New regulations coming, you've got to be well aware of what's happening on a day-to-day basis. So what do you enjoy most being the school? What gives you the kick, satisfaction?

SPEAKER_02 19:30

Two major points. One is the diversity of industries, backgrounds, challenges my clients provide me really keeps me on my toes. The energy industry changes that I mentioned are one, we see different clients as a result of cycles in that industry. Many years ago, there was a massive layoff at NASA. And believe it or not, we had rocket scientists in our office to go into a new area of business. And these are 55-year-old lifetime employees who didn't know how to be an entrepreneur. So it was different. That's really fun. Another enjoyable aspect that I have to mention is that poor mentors are typically retirees. So many simply are still in business and just enjoy giving this time as volunteers to small businesses. But we're all interested in learning and growing and giving back. They have interesting business backgrounds, and we all like to keep learning. Many of my clients come to me with questions that no, I'm clueless about the answer, but let's go look it up together and find an answer.

SPEAKER_01 20:40

How do you look back and on life and the satisfaction your experienced?

SPEAKER_02 20:47

You know, I've enjoyed each chapter of my life and so glad I have had the ability to change in that way, to represent New York stock exchange companies, and then to work with as a volunteer with the little guy with a big idea. I would say a significant difference is working with score clients. I am aware of the material and direct impact that my mentoring has on their business. My score clients are the face of their business. And often I believe, I hope it's true, that the information I provide them can be the difference in whether or not they succeed, or at least just the level of support that they can provide their family. I have enjoyed getting to know my clients personally and enjoy cheering on their entrepreneurial spirit. Perfect, perfect.

SPEAKER_01 21:37

Thanks, Rita. That was inspiring visiting to you. I'm sure small businesses one who is listening to this conversation would love to seek your guidance further. Thanks and best wishes, Rita.

SPEAKER_02 21:50

You bet. Thanks for the questions. I enjoy this opportunity.

SPEAKER_00 21:53

Lovely. Thanks for listening to Mentor Conversations at Score Houston. If you're an entrepreneur, Or, small business owner, we'd love to support your journey. You can reach us at 713-487-6565 or visit us at 8701-South Gestner, suite 1200, Houston, Texas, 77074. Our office is open Monday through Friday, 10 a.m. to 2 p.m., except for federal holidays. Walk ins are always welcome. To learn more, to request free mentoring, or to register for workshops, visit us online at score.orgslash Houston. Until next time, keep learning, keep growing, and remember, at Score, we're here to help you thrive.