Regardless of what type of business you run, or if you’ve just got something going on the side, there are some things to consider that will help you avoid issues and problems. As a business owner, it’s important to avoid disputes and litigation, they are time consuming, potentially damaging to your reputation, distract from operations, and are expensive.
Most businesses tend to overlook or ignore legal considerations when they are starting out and continue doing so during the lifespan of the business. This is risky, for one thing you’re exposing your business (and possibly yourself) to risks you could avoid; and for another your potential liability may be compounding in terms of cost should something go wrong and likelihood an issue arises; and the cost of addressing potential issues is probably cheaper than you realize. You should think about how to avoid legal problems in business, being proactive can save a lot of time, energy and money.
It is important to keep your business legally sound and secure. Here are some tips to help you avoid some common small business pitfalls.
Regardless of whether you’re operating solo or with partners, set up a formal business entity. Don’t fall into being a sole proprietor or a general partnership, the personal liability that comes with those setups is too much of a risk that can easily be avoided. Business incorporation or LLC formation is a better route to take. Setting up an LLC is pretty simple in most states, and cost effective when you consider that you can protect your personal assets by doing so. Even if a corporation is a better setup for your business, it protects your personal assets and limits your liability, so the additional costs and administrative tasks to keep it in good standing are easily worth it. Once you’ve got the proper entity set up make sure you put the correct organizational agreement in place.
Contracts for Everything. While verbal agreements may be binding in your jurisdiction, that doesn’t mean they should be used. Verbal agreements simply aren’t going to protect you in the business world. A good rule of thumb is that every relationship you are in should have a written agreement to go along with it. That means both internal relationships (employees, independent contracts and interns for example) or external relationships (vendors, suppliers, service providers, clients and customers for example). It’s common for small businesses to think that they don’t need to be so formal and written agreements aren’t necessary; that mindset will change the first time you run into a dispute or issue over how a relationship is working out. Nobody is saying you need a 20 page document to memorialize all your working interactions, but covering your bases will be worth it, and save you some hassles down the road. More than half of small businesses get sued each year, and a big chunk of those lawsuits are for contract issues. With the average contract lawsuit costing $91,000 it’s worth taking steps to prevent that from happening to your business.
Read every agreement, or have someone read and summarize them for you. At some point we’ve all just accepted the terms and conditions that go along with using a website, software or SAAS service. As a general consumer of these products, it’s understandable, some of them are long, and they’re all boring, legal nonsense. If you’re running a business though, it becomes important to make sure you know what you’re signing up for. Whether it's a contract with a service provider, a manufacturing order or a software license, countless legal cases and disputes could have been avoided simply by each side understanding what they were signing and what their responsibilities were. It may seem unnecessary, or too time consuming, but it will save you from disputes, misunderstandings and prevent you from agreeing to terms that aren’t in your best interest. Ignorance of what you’ve already agreed to isn’t going to be a defense you can rely on if something goes wrong.
Don’t overlook your intellectual property, it’s a valuable asset. Every business has intellectual property; it’s your trademarks, copyrights, trade secrets or patents. You may not have all of those, but you’ve certainly got some trade secrets that are important to your business. Many businesses undervalue and ignore the value of their IP. Your material goods and inventory can likely be replaced, but your ideas, plans, strategies and other information can’t be easily replaced if it’s stolen or lost. Make sure to take the necessary steps to protect your intellectual property. Have employees, contractors and anyone else who works closely with you or has access to information sign a confidentiality agreement. If you’ve got people working on creating intellectual property, make it clear in an agreement that the work product belongs to the company, you don’t want to run into any issues about ownership. Not protecting intellectual property can be an expensive mistake.
However you operate, business law applies to your company. It used to be that if you were operating as a strictly online business, you didn't have a lot of concerns that a brick and mortar business faced. Businesses operating on the internet were basically in the wild west, but those days are long gone. Whether you operate a physical location or only have an online presence, you have some laws that you’ll have to comply with, and failure to do so can be costly. Internet compliance laws exist and are used to regulate improper business conduct online. Specifically, don’t neglect compliance with the Americans with Disabilities Act (ADA). Court precedent has made it pretty clear that publicly accessible websites, which means most business websites, and software programs are required to be accessible by those with disabilities.
Create the proper employee documentation and get employees to sign off on it. Employees represent one of the biggest risks for business owners, it’s probably a toss up between that and contract issues. The easiest way to avoid issues with employees is to provide them with as much direction as possible and as many resources as possible from the beginning and along the way as things change. Make sure to have them sign an employment agreement, even if they are an at-will employee. What are your policies, procedures and expectations on how employees should act, dress and behave? The more you leave those types of decisions to employees, the more likely you’re going to have some issues come up. Policies and a handbook are important risk management steps that shouldn’t be taken lightly regardless of how small or big your company is.
Hiring a business attorney can help you manage risks you may not even be aware of. An attorney can help you with creating, forming and protecting your business. The vast amount of issues that businesses run into can be avoided from the onset. Don’t think about using a lawyer once you’re already in trouble, if you run a business you should use a lawyer to keep you out of trouble, manage the risks as the business moves forward and provide strategic advice. You’re too late if you’ve waited until you have an issue, dispute or situation on your hands. A business lawyer isn’t someone who should just review and draft a contract for you, it’s someone you should develop a strategic partnership with and rely on for advice regarding the day to day operations of the company. Not hiring a business attorney is probably more expensive than hiring one.
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