Top ten legal mistakes that small businesses make

Setting up your business without consulting an attorney is like juggling a million different objects using only two hands without?actually knowing how to juggle. Most entrepreneurs are so caught up with trying out their fresh new ideas that legal matters remain as a mere afterthought to them. So even though their business might prove to be successful with a large customers base, and grow into a burgeoning corporate empire later on, its potentially long life could be cut short because of legal issues that might crop up in the future.

If you have competition and they know your legal shortcomings, they could take you to the cleaners by notifying the authorities and going after your weaknesses.

To utilize the expertise of an attorney near you, it is as simple as typing on Google or any other search engine tags such as ?attorney near me?, and you will be directed to a plethora of websites leading with numerous attorneys situated at a location near to you.

Usually you need good contacts who can recommend a good lawyer, but the internet can even solve this problem area for you. Because of the ease of hiring an expert attorney, someone with a reputation, you really don?t have any excuse to miss out on critical legal information, the lack of which can give others a way to pummel your business into the ground.

Here are a few legal mistakes?that most early small scale businesses, start ups and entrepreneurs make because they missed out on that important free consultation with a corporate attorney.

1) Failing to establish the right legal structure of your company

There are four main factors to consider before choosing the type of entity your business is going to be structured on. These include;

  1. i) The scale of the business
    When you don?t have a lot of capital to funnel into your business, it is preferable to chose less complicated business structures such as sole proprietorship or a partnership. If you manage to get a good partner on board, they will be able to share the burden of entrepreneurial responsibilities and financial headaches with you. Business structures such as limited liability companies (LLCs) and corporations are legal entities that are entirely separate from their founders, and are expensive to maintain – something you should avoid as a new business.
  2. ii) Your level of control over the business
    if you want to control all the nitty gritty details of your business without anyone else butting in and meddling in your affairs, it is best to establish a sole proprietorship. If you prefer sharing your responsibilities, go with a partnership instead.iii) Risks associated with the business
    A risky business can pose problems to your personal liability if it is established as a sole proprietorship. You will want to go with an LLC or corporate business structure instead.
  3. iv) Finances
    You could find it hard to get investors on board if your business is a sole proprietorship. If you don?t have other sources of income to feed into the business, it really won?t take off. In this case a partnership or LLC is a lot more preferable.

If you want to avoid taxes however, sole proprietorship is the way to go, with fewer requirements and taxes imposed on them, you can establish the foundation of your business on your own shoulders and evolve into a corporation when the time is right. Texas is a hot spot for small businesses hoping to avoid taxes. Sometimes taxes there can even drop down to zero if businesses are unable to meet a certain threshold of revenue. This can allow you to focus more on growth than worrying about the internal revenue service (IRS) knocking on your door.

It is highly recommended to seek out an attorney near you?for professional advice if you?re not aware of the legal technicalities and implications of choosing a particular business structure.

2) Not having a shareholder?s agreement

While you?re not legally obligated to draft a shareholder?s agreement, it is an extremely important document for companies that have more than one shareholder. The shareholder?s agreement will help you design the responsibilities, authority, share and decisions that each shareholder is entitled to. It will also help you decide which issues are open to consensus. The shareholder?s agreement will ensure that you prevent as many legal complications between shareholders in the future as possible. Long, arduous and costly litigations can be avoided by drafting this important document by proper consultation with an attorney close to you.

3) Failing to design a standard form contract

A standard form contract is an agreement in writing which establishes legal boundaries between two parties. They are also known as ?take it or leave it? contracts which are non-negotiable by the consumer. It is important to have it drafted by a proper corporate attorney. These drafts are preprinted and can usually be seen as a small print on the product.

4) Failing to protect your business by not getting relevant patents, copyrights and trademarks

If you have designed a new product on the market, the chances of someone replicating your work and selling it as their own increases. They will not only be able to take all the credit away from you, but also lure potential customers away from your business. To protect your invention in the market, your best bet would be to secure a patent, copyright or at the very least, a trademark.

You will definitely need advice from an experienced corporate attorney near you?in order to get the patent, since laws are different depending on the type of invention. If it is a tangible invention, certain rules apply. If it is just an idea, the rules are different.

5) Protect confidential information

One of the biggest mistakes small businesses are guilty of is failing to put up proper security measures on their websites to protect the personal information of their customers and transaction. The result is that their business can be easily broken into, or hacked to steal information pertaining to the customer. Getting lackadaisical with security because you don?t want to spend a few hundred bucks can open you up to costly lawsuits that might sink your business and tarnish your reputation.

6) Failure to file taxes

The IRS can impose hefty penalties to your business if they find out you were lax with reporting your income. If you underreport your income, you could face 75% penalty of the tax deficiency and they can slap you with a 1% penalty per month for income tax when you fail to pay on time.

7) Failure to get proper documentation on employees

It is easy to forego the documents you are legally required from your employees when you are a small business that still doesn?t have a human resources department. You?re too concerned with the daily operations of your business and revenue that things such as documents verifying your employee?s credentials escape your mind. Now federal laws require you to maintain relevant documentation for every single employee, failure to do which can result in hefty penalties, closure of your business and in worst-case scenarios, even spending time behind bars.

8) Non disclosure agreements

You have company trade secrets, information on your clientele and other highly confidential information that you don?t want your employees to leak out whether they?re still employed with you, or if they have been terminated. Failure to get a non disclosure agreement (NDA) means that secrets can easily be released to the world at large and you won?t be able to hold them legally responsible. Take for example Waymo, who sued Uber and its employee Anthony Levandowsky, the founder of Otto – a company behind self-driving autonomous trucks, for ?stealing? thousands of their documents. If Waymo did not already have a NDA in place, they would never have the right to take Otto?s founder to court.


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