Running a small business is no small feat. While owners focus on growing their companies and delivering exceptional services or products, it’s easy to overlook the legal intricacies involved in running a business. Unfortunately, even minor missteps can lead to significant legal and financial repercussions. Below, we explore some common legal mistakes small business owners make—and, more importantly, how to avoid them.
1. Skipping Proper Business Formation
The Mistake:
Many small business owners start operating without formally choosing a business entity, such as a sole proprietorship, LLC, or corporation. This can expose personal assets to liability and result in higher taxes.
How to Avoid It:
Work with a business attorney to determine the best structure for your company. An LLC, for example, offers liability protection and is relatively simple to set up. If you’re planning for rapid growth or seeking outside investors, a corporation may be the better choice.
2. Neglecting Written Contracts
The Mistake:
Relying on verbal agreements or handshake deals can lead to misunderstandings or disputes. Without a clear contract, it’s difficult to enforce terms or prove agreements.
How to Avoid It:
Always use written contracts for agreements with vendors, clients, and employees. A business attorney can help draft clear and enforceable contracts that protect your interests.
3. Overlooking Employment Laws
The Mistake:
Small businesses often misclassify workers as independent contractors instead of employees to save on taxes or skip providing benefits. This can result in significant fines.
How to Avoid It:
Familiarize yourself with state and federal labor laws. Ensure all workers are correctly classified and maintain accurate employee records. Consulting with an attorney can help ensure compliance.
4. Failing to Protect Intellectual Property
The Mistake:
Using a logo, slogan, or product design without securing trademarks or copyrights can lead to legal disputes. Similarly, failing to research existing trademarks can result in costly rebranding.
How to Avoid It:
File for trademarks and copyrights to protect your intellectual property (IP). Conduct a thorough search before launching a brand to avoid infringing on another’s IP.
5. Ignoring Tax Obligations
The Mistake:
Failing to pay necessary taxes, like payroll or sales taxes, or incorrectly filing returns can result in hefty penalties and interest.
How to Avoid It:
Work with a CPA or tax professional to ensure you’re compliant with all tax regulations. Keep accurate financial records and meet filing deadlines.
6. Skimping on Liability Insurance
The Mistake:
Many small business owners assume their personal assets are protected by their business structure, but without liability insurance, lawsuits can still jeopardize their company.
How to Avoid It:
Invest in liability insurance tailored to your business needs. General liability, professional liability, and cyber liability insurance are common options.
7. Mismanaging Customer Data Privacy
The Mistake:
Failing to comply with data privacy laws, such as the GDPR or CCPA, can result in fines and a loss of customer trust.
How to Avoid It:
Understand your legal obligations for handling customer data. Create a clear privacy policy and implement strong cybersecurity measures.
8. Ignoring Local Permits and Regulations
The Mistake:
Operating without the necessary permits or licenses can lead to fines or even forced closure.
How to Avoid It:
Research the specific permits required in your industry and location. Renew them as needed to stay compliant.
9. Failing to Plan for Legal Disputes
The Mistake:
Disputes with customers, vendors, or partners can escalate quickly without a plan in place to address them.
How to Avoid It:
Include dispute resolution clauses in your contracts. Mediation or arbitration can often resolve issues more efficiently and affordably than litigation.
10. Not Consulting a Business Attorney
The Mistake:
Many small business owners assume they can handle legal matters themselves, only to discover costly mistakes later.
How to Avoid It:
Proactively consult with a business attorney. They can provide guidance on compliance, contracts, and risk management to protect your business from costly legal issues.
Final Thoughts
Legal pitfalls can disrupt even the most successful small businesses. By addressing these common mistakes early, you can focus on growing your company without worrying about unnecessary legal risks. Seeking advice from a qualified business attorney is an investment in your company’s long-term success and peace of mind.
Need help navigating the legal complexities of running a business? Contact a trusted business law attorney today to safeguard your venture.
Ben Winter, P.A. focuses its practice in the areas of real estate law, Social Security Disability and Workers Compensation in St Petersburg, Florida. For more information, go to our web site www.benwinterlaw.com or call (727) 822-0100.