Itís easy for small business owners to make legal mistakes.
Unfortunately, making such mistakes can be costly to
the bottom line.
Entrepreneurs are not legal experts.
But ignorance of the law is no excuse.
Many entrepreneurs are not aware of the steps they
can take to avoid getting into legal limbo.
The top 10 items outlined below can help
entrepreneurs avoid legal pitfalls.
Not Registering the Business As A Separate Entity
Many entrepreneurs donít realize that legal protections that
comes with incorporating their businesses.
Being a SoleProprietor does not offer you the same
legal protection as a corporation, S-corporation, LLC,
As a sole Proprietor your personal assets are exposed
to legal confiscation if someone wins a judgement in court
against your business.
When you incorporate (i.e. registering your business
as a legal entity with the state) your personal assets are
not exposed to legal confiscation if someone wins a
judgement in court against your business.
Register your business and protect your personal
Not Having A Partnership Agreement In Place:
Youíre most likely to start a business with people you
know and trust.
As partners you share equally in the profits of the
business, but when someone fails to carry their share of the
load and demands equal compensation how do you deal with
Many startups fall apart because they fail to establish a
A partnership agreement enables your busienss to
survive when the partners donít want to live up to their
Using Free Contracts Found Online:
Be careful when using free online contracts.
Contracts should be carefully worded for your
In the legal arena words have meaning.
Usnig the wrong words can have negative legal
When drafting a contract get the document legally reviewed
Failure to Legally Protect Intellectual Property:
Entrepreneurs often fail to protect their great ideas and
then are surprised when someone else take their ideas and
start a competing business.
You could be robbed of your great idea if you donít
take the steps to legally protect it.
Your company name and logo should be trademarked, as
well as the names of the individual products you create and
ideas that have a unique design or utility can be protected
with a patent.
Documents can be corpyrighted.
If you have to discuss your ideas with potential
investors or partners you can use non-disclosure agreements.
Failure to Obtain a Business
Many small businesses find them selves in legal limbo or end
up having to close or move their business because they fail
to obtain the required local business license.
A business license is issued by the local city, or
town which authorizes you to conduct a specific type of
business in a specific part of their territory.
Cities and towns are zone for specific activities.
Some areas are zoned for residential living or
The specific commercial activity is also zoned.
For example, industrial manufacturing may be
designated for a specific area in the city.
You have to ensure that the area in which you want to
operate is zoned for the specific activity you wish to
engage in. Find
out what the location is zoned for then obtain the business
Not Verifying the Legal Status of Your Workers:
Not verifying the legal status of their employees is a major
mistake that is made by many small businesses.
Weíve all heard of businesses being raided by ICE
(Immigration & Customs Enforcement).
The legal consequences is enormous for any small
business that gets a visit from ICE.
Employers are required to utilize the E-Verify system
to verify the legal status of their employees.
Only those who are in the U.S. legally are entitled
Failure to use Contracts:
Often entrepreneurs develop an ongoing relationship with
clients or vendors then find themselves in limbo when those
individuals no long want to do business with them.
If youíre going to have an ongoing relationship with
a client or vendor establish a contract with them.
A contract gives you the legal protection to seek
redress when your business relationship unexpectedly
Not Reading A Contract:
Anxious that you have an agreement to do business with
someone that will advance your business you sign away
Weíve all done that at some time or other.
As an entrepreneur this is a big mistake.
You should read the contract before signing it.
If necessary get the document legally reviewed before
Failure to Hire Legal Services:
Small businesses have limited resources and hece the
tendency is to put off seeking legal advice.
Entrepreneurs should recognize that legal services is
a requirment and plan their budgets accordingly.
You donít need legal advice on everything but
agreements, contracts, intellectual property protection and
legal defense are necessary legal service that entrepreneurs
10. Failure to Avoid Costly Litigation:
Too often small businesses end up in court because they fail
to weight the consequences of litigation.
Litigation is expensive, time consuming and can take
an emotional toll on all involved, not to mention the
reputation of the business.
Even though you belive that all the facts are on your
side and you have a slam dunk case, you may want to take a
step back and assess the cost of going to court.