Top 5 legal mistakes small business owners should avoid

Small businesses are growing and are one of the highest contributors to people's lives. Running an exciting business with a dream to make it a multi-million company is an exciting journey. It's the dream of every entrepreneur who is looking for opportunities to grow in the business world. But, it also comes with a range of legal challenges.

Many entrepreneurs usually overlook all the legal aspects that create huge legal issues in the future. This can be the reason why most of the businesses get shut down in a couple of years.

This discussion is designed to cover the top 5 legal mistakes which small business owners should avoid, along with the steps to ensure legal compliance in business operations. So, no matter whether you’ve just started or already running a business, these tips will be highly helpful for every individual to make you a legal professional.

Formalization of business structure properly

Many small business owners start their business without paying much attention to the formal structure of their business. They also ignore the legal structure to choose, which has a huge impact on taxes, liability and merger and acquisition.

Businesses that have a formal structure work as a sole proprietor instead of a limited liability company. You need to understand that in a sole proprietorship, there is no separation between personal and business assets. Whereas, LLCs are categorized as a separate legal entities.

Hiring a corporate lawyer or a legal professional who specializes in business formation will be the best way to tackle the problem of business structure formation.

Protecting intellectual property

Many business owners make this mistake by failing to protect their intellectual property. Remember, your brand and ideas make your business unique and give people a reason to choose your product and/or services. Protecting the identity of your business and its idea is your responsibility.

Small business owners make the mistake of not registering trademarks, patents, and copyrights of the idea and existence of their business. Without legal protection, your competitors can legally use your business goodwill and ideas more creatively without any restrictions. This will impact the brand and lead to loss in future time.

Ignoring employee and contractor agreements

Every business that failed to achieve success has made the common mistake of ignoring employees’’ and contractors’ agreements. This is one of the most common legal pitfalls for small business owners. They hire employees or independent contractors without written contracts outlining their role responsibilities and compensation.

Ignoring the agreements with employees and contractors raises misunderstandings regarding work, accountabilities and payment. This leads to legal battles and potential claims which affect business badly.

To tackle this issue, we suggest you take the help of legal programs to make you educated about how you can make proper agreements with your contractors and identify the key points to remember while making contracts with employees and contractors.

Overlooking regulatory compliance

Many business owners make this mistake by failing to conduct proper research and comply with the regulations that apply to their business, such as labour laws, tax laws and other industry-based requirements. This may lead to penalties, fines and, in some cases, closure of your business.

You can tackle this issue by identifying all the regulations that apply to your business and making yourself aware of the tax laws, environmental laws, and industry standards.

Inadequate contracts with vendors and/or customer

Many business owners rely on verbal agreements and/or unofficial written contracts with their customers, vendors, or partners. This is a big blunder which businesses do that affects their business. This is because verbal agreements are difficult to prove in court. So, if any contract which is verbal or poorly written gets breached then you can't raise compensation from them legally.

We suggest you always work with a lawyer to draft clear and enforceable contracts for your business. Make sure that the contract contains all the essential terms like payment details, delivery timelines, and others.

Common legal pitfalls for entrepreneurs

Small business owners (especially beginners) face various legal pitfalls in running their businesses. Merging with any business attains lots of legal formalities and there are high chances that entrepreneurs face legal pitfalls in this area. Hiring a dedicated lawyer with speciality in merger acquisition, private equity, and venture capital law will be one of the solutions for your business.

Along with this, they’ll also face issues in equity distribution and failure to follow employment laws. A dedicated lawyer will help them to tackle all these pitfalls and protect your business from type of legal issues.

Steps to ensure legal compliance in business operations

We have discussed all the problems which you may face running your small business. It's time to discuss what are the steps which every business owner ensures to maintain legal compliance in business operations:-

● Consultation with a legal lawyer is one of the foremost steps which will help you to be ready for any kind of legal issue.

● Along with this, make sure that you’re reviewing your business practices regularly. This will ensure you stay up-to-date with the latest legal requirements.

● Make sure to document everything accurately. Documenting contracts, agreements, employee files and communications will protect your business from any kind of legal disputes.

● Make sure that your staff is aware of the legal requirements related to their role. Training employees on compliance will protect your business from internal issues you may face from the side of employees and contractors.

● Lastly, always consider using legal software to help manage all the contracts, property filings and regulatory compliance. It will help you to stay organized and avoid missing important deadlines.

Conclusion

Running a small business is a great start for every entrepreneur to start his career. Keeping all the things discussed above will protect your business from any kind of legal issues. Legal knowledge will strengthen your business and increase the growing frequency. Always consult an experienced lawyer to guide you through the key decisions while dealing with complex issues in your day-to-day workings. Make yourself more knowledgeable about the legality of business and run your business in a growing manner.