Legal Questions Small Businesses Should Ask

As a small business owner, it's important to know what legal questions you should ask (or use a lawyer to ask them for you) in order to make sure you're protecting your business. It helps limit liability, avoid lawsuits, grow your business and keep your company out of trouble. You want to make sure you're in compliance with laws and regulations as well. It's worthwhile to regularly (at least once a year) think about these questions and how you're company would answer them. 

  1. Are all state filings up to date? 

    Typically, LLC's and corporations are required to make regular filings with the state or states they are organized and operating in. The requirements vary by state and whether you're an LLC, corporation or some other type of registered entity. If you're not up to date on these filings you run the risk of late fees, penalties and, depending on how late you may be, having your registration canceled completely. This could open you up to some serious liability. While you're at it, it's good to make sure all your information on file with the state is up to date - addresses, registered agent info, officers and directors, etc. It's always surprising to see how many company's simply fail to comply with this requirement; don't let your business be one of them. 

  2. Is your business structure still appropriate, or have there been any major company changes?  

    Maybe you started out as an LLC but now you need to convert into a corporation; or maybe you've been operating as a sole proprietor (this is never really an appropriate business structure these days) and it's time to start up a more formal entity. Whatever the case may be, it's worth thinking through whether your setup is still appropriate, especially if you're operating with business partners. Did you remove or replace some officers or directors; or maybe you switched from member-managed to manager-managed. If so, all of those changes should be properly documented, recorded and filed with the company records. You may have to put resolutions and consents in place, or hold a vote to make some of these changes, so it's important to understand when they need to be made and that the proper process is followed. 

  3. Do you have a handle on your intellectual property? 

    Every single business has some intellectual property. It's a important asset to your company and you need to be able to recognize it, protect it and register it if needed. Trademarks, copyrights, patents and trade secrets may come into play depending on what type of business you operate. If you're not able to identify your intellectual property it limits your ability to protect it, and that opens you up to risk - losing your intellectual property. If you've got registered intellectual property, are you on top of any filing requirements or renewals that may be coming up. Are you monitoring your IP in the market, making sure no other person or company is infringing on it, and if they are taking the proper steps to have them cease and desist their use. Are you certain you aren't infringing on someone else's IP, and how will you handle a situation where you may be? 

  4. Have you reviewed your contracts? 

    Often, businesses will put together some sort of contract to get started, maybe it's pulled from online resources, or something they got from a business associate. While this may be a short term fix, it's not a strategy that will work long term, and it open up a company to a significant amount of risk that could be avoided. Small businesses should do a regular review and update of the contracts they use in the course of operating the company; laws change, best practices change and simply working with clients will provide insights into how to better protect from issues that may come up. Not to be overlooked in terms of contract reviewing is making sure you have a handle on when your contracts are set to terminate and what, if any, the renewal terms are. A common (completely avoidable) issues that numerous small businesses run into is not knowing when contracts are up, or expire. You don't want to get caught in a situation where a contract you want out of automatically renews because you didn't provide the required notice to terminate; or lose a valuable customer because the contract simply ends and you forgot to reach out and sell them on continued service. 

  5. Are you using Independent Contractors, and if so are you sure you have classified them properly?

    Many small businesses want to use independent contractors as workers as opposed to employees. It's debatable whether or not this is a more beneficial route to go and could easily be the subject of it's own blog. However, one thing you need to be clear on is how to properly classify workers; they are either independent contractors or employees. The implications of getting that wrong may be significant (fines, lawsuits, penalties, back pay, and more). One of the most common mistakes made by small businesses is misclassification, for a variety of reasons. It doesn't matter that you want the worker to be an independent contractor, and that they want to be an independent contractor. It doesn't matter that you have them sign an independent contractor agreement. It doesn't matter that they aren't working "full-time" and only do some side work as it comes up. What matters is whether you can evaluate the role, responsibilities and job description and then properly apply the appropriate test (there are several) needed to classify the worker as a contractor or employee. Deciding that everyone who works for you will be an independent contractor because you think it's cheaper and will allow you to avoid issues that comes with employees is a dangerous road to go down. 

  6. Do you have proper insurance? 

    Assess your business risks and obtain appropriate insurance coverage to protect your company from potential liabilities. Common types of insurance for small businesses include general liability, professional liability, and workers' compensation insurance.
  7. Is your business entity properly aligned with your tax strategy? 

    Most small business owners want to make sure they are set up in a way that provides them the most tax benefits available. For example, if you're an LLC you numerous options available to you in terms of a tax classification, you can be taxed as a pass through entity, an S-corp or even a corporation. Your business should absolutely be set up in the way that is most beneficial to you from a tax perspective, but you'll need to make sure your company documents (operating agreement/bylaws) are in sync with those decisions. For example, if your operating agreement says you're taxed as a partnership, but you're filing as an S-corp, your operating in contravention to your governing documents and that opens up potential liability you could otherwise avoid.  

Remember, these tips and questions simply highlight general issues, but specific legal requirements can vary depending on your location and industry. It's essential to consult with legal professionals who can provide advice tailored to your business's unique circumstances.

Have questions or concerns about how to properly protect your business? Contact us for a free consultation. 


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