Nine Common Legal Mistakes Small Business Owners Make
Entrepreneurs are passionate, busy people. They are focused on many things, probably the most important being marketing their products or services and spreading their brands.
In the haste to get the businesses off the ground, they focus on everything but the legal considerations of operating a business. And these are the very things that can bring them down. Don’t let this happen to you.
I’m a lawyer and have my own experiences about the legal oversights businesses often make that set them up for failure but I wanted to hear from other lawyers what common legal mistakes they’ve seen businesses make, so I reached out to them to ask. Here are the 9 legal mistakes you should avoid, as shared by 9 veteran lawyers.
1. Not using an attorney
“A lot of solopreneurs and partnerships mistakenly believe that they do not have the same legal obligations that bigger enterprises have. They believe that legal issues will only arise as they scale, and they can always bring in an attorney later one. This is a huge mistake and one that can cost you your company, if not buckets of money. Get a lawyer before you launch, and let him/her get you set up correctly from the beginning.” - Ramzy Ladah, CEO of Ladah Law.
2. Failing to set up the right business structure
“There are sole proprietorships, LLCs, S corporations, partnerships, and corporations. Choosing the right one means understanding the benefits and drawbacks of each. For example, if you set yourself up as a sole proprietor, you must understand that you and your business are considered “one” in the legal system. All of your personal assets are at risk if your business should be sued.” - Nathan Dineen, CEO of DUI Defense WI.
3. Not having terms and conditions policies to which customers agree to be bound
“When you access company websites, especially those that provide services of some sort, you will generally see a “Terms and Conditions” agreement. In this agreement, are all of the specifics for use of your products or services and customer obligations in that use. If you do not have this policy in writing and published and a “check box” for a customer to select before a purchase, then you have left yourself wide open to a inclusion in a lawsuit if that customer becomes a defendant.” - Jim Butler, CEO of The Houston DWI Lawyer.
5. Failure to follow business tax laws
“Is your business subject to sales/VAT taxes? When must you file your business income tax returns? Do you need to make quarterly payments? Tax law is complicated no matter where our business is located. You need to obtain the services of a good business accountant or, at the very least, have accounting software that keeps your records and files your taxes when required.” - Cha'Ron Ballard-Gayle, CEO of Carson Firm.
6. Inappropriate/incomplete contracts with outside vendors
“When you use the services or purchase raw materials from someone outside of our business, you need iron-clad contracts. When you are either an owner or a tenant of your premises, you need legal documents that establish the “rules” for occupancy. Never enter into an agreement with an “outsider” without a legally-binding agreement. A good attorney can draft those contract templates for you – don’t rely on free Internet sites.” - Tina Gehres, CEO of Gehres Law.
7. Failure to get the proper documentation on employees
“Federal laws require that you have copies of certain documents on file for every employee. If you fail to do this and are caught, you can actually face the shutting down of your business, and, in some instances, jail time.” - Rick Harris, CEO of Richard Harris Law.
8. Failure to get nondisclosure and non-compete agreements
“You have proprietary information that belongs to your company – customer lists or special “formulas,” for example. Anyone who works for you and who has access to this valuable information must be legally bound by these agreements. Take Kentucky Fried Chicken as an example. The recipe is a highly-guarded secret. Anyone with access to this recipe must sign a non-disclosure agreement which legally binds them never to reveal that recipe. The same goes for customer/client lists or setting up a competing business. Insurance companies, for example, usually make their employed agents sign a non-compete which prevents them from leaving and stealing clients.” - Greg Stokes, CEO of Stokes injury Lawyers.
9. Not getting copyrights, patents, and trademarks
You will have no leg to stand on if another party “steals” you name, copies your product or intellectual property verbatim, unless you have protected these things. There is a difference in laws regarding physical products, code, and ideas, and you need to know which protection to use for each thing. Technology companies are particularly vulnerable today. Know the law and protect your stuff.” - Jeremy Litster, CEO of Litster Frost.