Common Legal Mistakes for Small Business
Small business owners face the risk of making legal mistakes every day. They are required to make quick decisions. Few step into the role with experience as manager, employee, director of operations and head of sales – just to name a few of the hats you’re expected to wear.
Avoid the following four legal pitfalls by carving out time for preparation and legal guidance. It could be invaluable in the long run.
Legal Mistake #1 – Failing to Organize & Register the Business Entity
Entrepreneurs may put off creating a business entity due to cost or lack of experience with the process. However, forming the entity can legally separate business liabilities from personal assets and provide a level of protection to both.
There are many resources available to teach first-time business owners about the difference between legal structures, such as sole proprietorships, partnerships and corporations. Once a legal structure is selected, business owners are then responsible for adhering to federal and state regulations around registering for operation.
Business attorneys can guide owners through the process or handle it entirely. Either way, it is crucial to complete every step, so that the business is not open to future liability.
Legal Mistake #2 – Not Putting Agreements in Writing
Never work without a written contract. It forces all parties to agree to exact terms. However, contracts do require time to work through and finalize.
Small business owners may justify “handshake deals” because they are engaging known vendors and contractors. In practice, if an issue in these circumstances goes to court, it typically ends up as a “he said/she said” fight with no guarantee of how it will resolve.
Business owners can work with their lawyer to establish a standard contract template that reflects the parties a business regularly works with – vendors, contractors, employees, customers, etc.
The clearer the contract, the easier it is to enforce if the business ends up in court for any reason.
Legal Mistake #3 – Failing to Protect Brand & IP
Many small business owners do not distinguish intellectual property (IP) with its unique categories or take time to determine how to best protect each type.
Do not wait until a competitor attempts to steal the “secret sauce” or claim rights to it. It will likely be too late to secure legal protection.
An easy first step is to inventory both current IP assets and the intent for future IP development, and then create a plan to protect it all appropriately.
Legal Mistake #4 – Not Preparing for Employment Issues
Taking on employees is a major milestone for small businesses. Good employees will help fast-track business growth. Subpar employees may intentionally or unintentionally undermine business objectives. The worst-case scenario is when bad employees become legal liabilities due to harassment, theft, or other legal issues that require time and money to resolve.
Avoid this problem by developing a legal strategy in advance that addresses all the relevant laws around hiring, managing and dismissing employees. This strategy should include creating an employment policy that covers terms of employment, disciplinary procedures and procedures for filing and dealing with complaints.
Hiring the right employees is important, but issues arise unexpectedly. Preparing for them in advance is the best way to protect business interests.
If you have questions related to business or employment law, you can call us at (781) 784-2322 or book a free consultation.
7/20/2022 08:57:26 am
The worst-case scenario is when bad employees become legal liabilities due to harassment, theft, or other legal issues that require time and money to resolve. I truly appreciate your great post!
7/20/2022 09:34:17 am
Once a legal structure is selected, business owners are then responsible for adhering to federal and state regulations around registering for operation. Thank you for taking the time to write a great post!
1/10/2023 07:07:43 am
You can create a corporation to shield yourself from legal peril. The most stringent record-keeping requirements apply to corporations, which are also subject to a separate corporate tax (in addition to your personal liability for your share of the money distributed by the corporation). If you adhere to all corporate procedures (have regular meetings, maintain accurate corporate documents, etc.), you should be protected from personal liability for the company's obligations. Many small enterprises don't adopt the corporation ownership structure due to the cost of keeping corporate documents (although many startups do – because that structure often makes it easier to sell the company).
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