It’s 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.

 

1.  Not Registering the Business As A Separate Entity From Yourself:

 

Many entrepreneurs don’t 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, Partnership, etc.  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 assets.

 

2.  Not Having A Partnership Agreement In Place:

 

You’re 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 that situation.  Many startups fall apart because they fail to establish a partnership agreement.  A partnership agreement enables your busienss to survive when the partners don’t want to live up to their agreement.

 

3.  Using Free Contracts Found Online:

 

Be careful when using free online contracts.  Contracts should be carefully worded for your specific situation.  In the legal arena words have meaning.  Usnig the wrong words can have negative legal consequences.  When drafting a contract get the document legally reviewed before signing. 

 

4.  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 don’t 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 sell.  Some 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.

 

5.  Failure to Obtain a Business License:

 

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  commercial activity.  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 license.

 

6.  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.  We’ve 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 to work. 

 

7.  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 you’re 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 dissolves.

 

8.  Not Reading A Contract:

 

Anxious that you have an agreement to do business with someone that will advance your business you sign away without reading  the contract.  We’ve 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 signing it. 

 

9.  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 don’t need legal advice on everything but agreements, contracts, intellectual property protection and legal defense are necessary legal service that entrepreneurs should obtain.

 

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.