Avoid These Common Legal Mistakes to Protect Your Small Business: A Guide for Small Business Owners

As a small business owner, you have your hands full dealing with day-to-day operations and trying to grow your business. With so many tasks and responsibilities, it’s easy to overlook some legal aspects that are crucial for your business’s protection… Which can lead to some common legal mistakes that might just break your bank.

In this article, our experts at Thompson Law discuss common legal mistakes small business owners make and how you can avoid them.

1. Failing to Incorporate Your Business

Many small business owners operate their businesses as sole proprietors, which means they are the only owners and are personally liable for any business-related debts or lawsuits. Failing to incorporate your business as a separate legal entity is a common mistake that can put your personal assets at risk. Instead, consider incorporating your business as a Limited Liability Company (LLC) or a corporation, which limits your personal liability and protects your assets.

2. Not Understanding Employment Laws

As a small business owner, you are responsible for complying with federal and state employment laws. This means understanding minimum wage requirements, overtime pay, discrimination laws, and employee benefits, among other things. Failure to comply with these laws can lead to costly lawsuits and fines. Make sure you consult an employment attorney or do your research to ensure you are abiding by all relevant employment laws.

3. Ignoring Intellectual Property Protection

Intellectual property is an essential asset for many small businesses. Failing to protect your intellectual property can create the opportunity for others to exploit it, resulting in lost profits and competitive disadvantages. Registering copyrights, trademarks, and patents can help protect your intellectual property from infringement and unauthorized use.

4. Signing a Contract Without Legal Review

Small business owners often find themselves signing contracts without a full understanding of the terms and conditions. This can lead to disputes, unsuccessful partnerships, and loss of money. It’s crucial to have a legal professional review any contracts before signing them to make sure all terms are clear and favorable for your business.

5. Failure to Document Business Transactions

Documentation is key in legal matters. Failure to document business transactions can lead to disputes, inconsistencies, and legal issues down the road. Make sure you have proper documentation for all financial transactions, contracts, and other important business decisions.

6. Inadequate Business Insurance Coverage is Another One of many Critical Common Legal Mistakes

Small businesses are susceptible to various threats, including lawsuits, natural disasters, theft, and cyber-attacks. It’s crucial to have adequate insurance coverage to protect your business from these threats. Consult with an insurance agent to ensure you have the necessary coverage for your specific business needs.

7. One of the Most Common Legal Mistakes – Not Having an Employee Handbook

An employee handbook is a crucial document that outlines company policies, procedures, and expectations for your employees. Not having one can lead to confusion and misunderstandings. Having a well-written, comprehensive employee handbook can help protect your business from legal disputes with employees and ensure everyone is on the same page.

8. Mixing Personal and Business Finances

Mixing personal and business finances is a common mistake many small business owners make. This can lead to confusion, inaccurate financial records, and legal disputes. Open a separate business bank account and credit card to keep personal and business finances separate.

9. Failure to Comply with Tax Laws

Small businesses are responsible for paying various taxes, including income tax, payroll tax, and sales tax. Failure to comply with tax laws can result in penalties, fines, and legal issues. Consult with a tax professional to ensure you are complying with all relevant tax laws and regulations.

In conclusion, small business owners face many legal challenges and pitfalls that can be avoided with proper planning and legal guidance. By understanding and avoiding these common legal mistakes, you can protect your business and ensure its long-term success.