Being a small business owner is a juggling act of many hats and, for many, legal issues are the lesser priority when compared to pressing business issues. Unfortunately, failing to pay attention to the law can cause expensive disagreements, fines, or even business-ending liabilities. Knowing what potential legal mistakes to avoid can help small business owners do the same.
The critical importance of legal diligence early on.The need for legal diligence early on.
Many legal problems that arise in small businesses are avoidable in a proper planned manner from the outset of business and documented. Preempting problems with these issues is typically far less expensive than resolving a dispute or compliance issues once they have caused harm.
Choosing the Wrong Business Structure
Overlooking Liability Protection
Some business owners are sole proprietors, and do not realize that they may leave themselves vulnerable to business obligations by doing so. An LLC or corporation can provide some liability protection and it’s worth considering which one is best for you.
When a business expands, failing to reassess its structure can be a major mistake.It’s easy to make the mistake of not reevaluating structure as a business grows.
The type of structure that works well during the initial years of a business might not be suitable as the company expands and/or faces new risks. It is a good idea to review your business structure periodically with a professional to make sure that it continues to meet your needs.
Neglecting Proper Contracts
Using verbal agreements.
It is important to have a written agreement in place as otherwise there may be big problems when a handshake deal or verbal agreement is followed up. When working with clients, vendors, and/or partners, having agreements in writing is a good way to ensure everyone is covered and has clarity in case of disagreement.
Avoid using templates that are generic or out-of-date.
Using standard contract formats without customizing them to your industry or business may leave out key aspects or components that can be deemed unenforceable. One has to have contracts reviewed or tweaked by an expert, to ensure they are really protecting one’s interests.
Misclassifying Workers
Confusing employees with independent contractors.
Whether intentional or accidental, misclassification may lead to substantial fines and back taxes on audit. It is important to know the difference between an employee and an independent contractor because of the legal requirements for compliance.
Failing to comply with the labor laws.Failure to abide by the labour laws.
The failure to meet wage, overtime, or workplace safety standards, even if the classification is done correctly, can result in a legal liability for a business. Knowing the appropriate labor laws, which may differ depending on area, will prevent expensive lawsuits.
The Intellectual Property Protection topic is not included in this plan.The Intellectual Property Protection topic is not part of this plan.
Not registering trademarks and copyrights
Not safeguarding a business name, logo, or original content can be detrimental for a business because it could be infringed on or even lose the rights to their own branding. It is important to register relevant trademarks or copyrights early to ensure that there is a clear legal ownership.
It is prohibited to use unlicensed and unauthorized content or materials prepared by another person.
Unlicensed and unlicensed unintentionally use of images, music or other materials may lead to legal conflicts or fines. This risk is minimized if all the materials used in the marketing or product are properly licensed.
Failure to comply with licensing and regulatory requirements.Ignoring Licensing and Regulatory Requirements.
This product is not intended for use without a license.Not intended for use without a license.
Specific licenses or permits might be required in certain industries or areas of operation for business to operate legally. If they are not acquired, the failure to do so can lead to fines or closure of the premises, regardless of whether it was a mistake.
Neglecting Industry-Specific Regulations
Some businesses, like healthcare, food service or finance, may need extra regulatory needs in addition to business licensing. It is important to remain up-to-date with those commitments to avoid compliance problems.
Mismanaging Business and Personal Finances
Combining personal and business finances is not recommended.Don’t combine personal and business finances.
Even when set up correctly, some business structures can suffer when business and personal finances are intertwined. Separate means financial and legal record-keeping is much easier and personal assets are protected.
Inadequate Record-Keeping
When disputes arise, audits or tax returns are conducted, it’s easy to see how poor documentation of contracts, financial transactions and employee records can cause a lot of problems. Organized record keeping systems help to avoid these problems.
When to Involve a Legal Professional
Knowing when to call for professional help is crucial when it comes to your home improvement projects.
Some business issues, such as contract preparation, dispute resolution, or business organization, may be better done on their own, but there are others where legal advice can be valuable. Hiring legal representation when necessary can be much more costly to avoid later on.
Building an ongoing relationship with an attorney.Creating an on-going relationship with an attorney.
Having a relationship with a business attorney means you have someone who can be reached out to before you need legal services, for guidance as your business expands and new legal issues arise.
Final Thoughts
Common legal pitfalls can only be avoided if you plan ahead and not deal with problems as they arise. Small business owners who take the time to sort out business structure, contracts, worker classification, and compliance with regulations can greatly minimize legal hazards and create a more solid basis for long-term growth.
The purpose of this article is to provide general information only and is not a substitute for legal advice. For advice specific to your business, speak to a licensed attorney.
