Small Business Legal Mistakes to Avoid

If you’re a small business owner who knows little about the legalities involved with running a small business you’re not alone. The Small Business Association recommends that small business owners take one if not several legal classes in order to familiarize themselves with potential legal issues. Not knowing where you stand in certain legal matters can leave you at a serious disadvantage. Get to know your rights so you can make smart business decisions.

There are many resources for legal advice and information available on the Internet. If you think that you need professional legal advice consulting a lawyer is the best course of action. But here are a few common legal issues that you may come across.

Service Agreements – Conducting business involves drafting up a Statement of Work or a Written Agreement. Without a contract, it is difficult to enforce the law. Carefully draw up the business terms, draft it in the company’s favor, and provide flexibility and protection.

Start by listing the ‘scope’ of the service. For instance, cleaning a home would take 2-hours. In those 2-hours, list ‘what’ service and ‘how’ long it will take. Include anything that may be a special request. Excluding a portion of the service could be a costly mistake. Drafting a contract takes time, but it is necessary.

At some point you may need to hire or fire employees. Many small business owners are unaware of their rights and their employee’s rights. Even though you may only have one employee it is important that you are well versed in labor standards and other regulations. If you need to terminate one of your employees it is vital that you do it properly.

In order to avoid unlawful discharge law suits carefully select your employees and read up on the proper procedure for terminating employees. This may be a situation were you should immediately contact a corporate attorney.

Hiring Independent Contractors – To avoid some of the hefty labor taxes, small business owners hire Independent Contractors to take up the slack. IC’s (Independent Contractors) are responsible for claiming their income and expenses and filing with the IRS.

You should know that some jobs are actually considered to be an employee’s job regardless if it is done by an independent contractor or not. The IRS has its own definitions that you should be aware of before hiring any independent contractor. Protect yourself and your business and be fully aware of any legal ramifications before making any business decisions.

When starting your business you need to know how your business is classified. You may be a sole proprietor or perhaps in a partnership. Each of these designations carries its own legal ramifications. For instance as a sole proprietor you are vulnerable to legal action taken against your company.

Start a business as a L.L.C. (Limited Liability Corporation) instead. This will eliminate the risk of loosing personal funds due to allegations in a lawsuit.

Intellectual Property Issues – Even low-tech companies have intellectual proper issues that directly affect the long-term success of the business. Pay close attention to confidentiality and invention assignment agreements, registered trademarks, and copyright notices. Protect the company’s trade secrets adequately.

Record Keeping – Improper record keeping can cause serious problems. Accurate accounting records are essential if the IRS is the least bit suspicious about the company’s financial records. Invest in a bookkeeper or an accounting program to make it easier to keep account of your daily transactions. Also, organize files to be readily accessible in case of an IRS audit.

You may want to hire a bookkeeper or accountant to deal with accounting issues. If you can’t afford to do so be sure to take a course on business accounting to ensure you have proper records of everything.

In any of the above situations you may find it necessary to contact an experienced corporate attorney. Almost all businesses at some point in time will need the advice or services of a professional. While most attorneys do charge a high fee, there are times when this is necessary.

Choose an attorney that you’re comfortable with and can afford. It is important to build a relationship with your attorney so that in times of need he or she will better understand your situation.

If you are at all unsure about any legal matter be sure to consult your attorney. Errors when it comes to your business’ legal issues are sure to lead to disaster.