Most entrepreneurs don’t have a team of lawyers following them around to help make every decision. Just as entrepreneurs need to know the basics of accounting and marketing, they also need to understand the basics of business law to avoid the potential failure that follows costly litigation.
As a lawyer and an entrepreneur, I have experienced the struggles of business on both sides. But most entrepreneurs don’t have the legal experience that I do, so they end up feeling lost and uninformed when making big decisions with possible legal ramifications.
You don’t need to go to law school to be a successful entrepreneur -- you just have to learn the essentials so you don’t get caught off guard. Here are three areas of law every entrepreneur should be aware of:
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1. Vicarious liabilityMost business owners understand they’re responsible when employees cause harm to themselves or others while on company property or while using company equipment. But the truth is that employers can be liable for harm caused by an employee anywhere at any time if that employee caused harm within the course and scope of his or her job duties.
For example, you might ask an employee to drop something off at the post office on the way home. If that employee causes an accident en route, even if he or she is driving a personal vehicle, your business could be liable for damages. This is a common situation, but it’s one that could have major consequences for your business.
To avoid finding yourself on the wrong end of a vicarious liability summons, define your employees’ job descriptions clearly and purchase a commercial general liability insurance policy that covers employees at work and in personal vehicles (also known as non-owned auto coverage).
2. Overtime rules
Working long hours for little pay is a part of life at a startup. Most people know that putting in more than 40 hours per week equates to working overtime, but it’s important to remember that certain salaried employees are entitled to overtime pay.
Some employers attempt to dodge overtime entirely by classifying employees as independent contractors. Not only is this illegal, but it’s also easy prey for wage and hour plaintiffs’ attorneys. A few startups are already facing legal woes over this practice, so make sure you classify your employees properly.
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If you have non-exempt employees working overtime, including off-the-clock work, pay them for that time and make sure your payroll administrators are up-to-date on current wage and hour laws. Although it might feel expensive now, doing so will save avoidable litigation costs down the line.
3. Patents, copyrights and trademarksYou might have the perfect product, logo, website photo and company name, but if any of those constitute someone else’s intellectual property, you will have to pay for using them without permission.
Intellectual property law covers patents, which protect inventions; copyrights, which protect artistic creations; and trademarks, which protect brands. Punishments for infringing intellectual property rights range from crippling monetary penalties to injunctions, both of which can be fatal to a young business.
Knowing what constitutes intellectual property helps, but sometimes, it isn’t enough. “Patent trolls,” people who register as many patents as they can and file frivolous lawsuits, are everywhere. Retaining a lawyer can be costly but a good one will save your company thousands in the long run by defending you against baseless litigation, researching and filing patents and trademarks and warning you about potential infringement issues.
You don’t have to go back to school for your J.D., but as an entrepreneur, you do need to be prepared for common legal situations. Extended, expensive litigation can drag down even the most promising startup. Educate yourself on relevant laws so it doesn’t happen to yours.
(The above article is not a substitute for legal advice.)
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