If you’re in the process of forming a small business this year or already tending to one that is growing, then you’re most likely exposing your business to unnecessary risks by making one of the following common legal mistakes. Keep reading to see how you can best avoid any of these pitfalls.
- Operating as a sole proprietor. It’s fairly common for an individual running a business as one person – the owner – to operate as a sole proprietorship. The problem with operating as a sole proprietorship is that it leaves you accountable for any debts or legal actions that the business might acquire. Your best bet would probably be to incorporate your business as an LLC or corporation to avoid these types of issues. We can help you determine which entity is right for your business.
- Multiple owners without a formal agreement. The Social Network, a movie based on the beginnings of Facebook, showed the complications of starting a business with many founders and no founder’s agreement. There is always a potential for conflict when there is more than one person involved in the starting of a business. However, having a founder’s agreement decreases the chances of conflict from arising; it’ll create a basis for how the company will function as a partnership with roles and responsibilities outlined along with the proper protocol in dealing with problems.
- Using free legal documents. You might be tempted to use the many free legal documents available online or “share” with friends, but be weary of using those since they won’t be tailored to specifically suit your business. It is important to have language that reflects your intentions and protects your ownership in all your legal documents.
- Intellectual property is not protected. Filing the proper patent, copyright and trademark applications helps in protecting your intellectual property from your competitors. Without this protection, you could subject your business to irreparable harm and you will be left with no legal recourse.
- No contracts. Formal written agreements between you and your employees, even if they are family members, are necessary whether your business relies on contract employees or full-time paid employees. This helps in creating a mutual understanding of the business relationship between you and your associates. Agreements with vendors and clients are also necessary to make it clear how you work with them.
If you’re a small or mid-size business owner, call us today to schedule your comprehensive LIFT (legal, insurance, financial and tax) Foundation Audit. Normally, this session is $1,250, but if you mention this article and we still have room on our calendar this month, we will waive that fee.