Have you set up your business in such a way that you can be sure to avoid legal trouble?
Sometimes small businesses avoid hiring a lawyer because they believe it to be too expensive.
But preventing legal disputes from happening at all can be invaluable.
If you’re a new business owner, get a handle on some of these basics and consult with a business lawyer before you run into any legal trouble.
1. Decide on an Appropriate Business Structure
A successful business of any size will benefit if framed in the context of its legal business structure.
Your business structure forms the foundation of all of your business activities, as well as your tax structure.
Save yourself a possible lawsuit by making sure your business structure is in place right from the beginning.
Examples of common business structures include:
- Sole proprietorship: A single person runs the business and holds 100% liability.
- Partnership: Two or more individuals own the company and are liable.
- C-Corporation: The company is its legal entity independent of owners.
- S-Corporation: This has a different tax structure than a C-corp.
- Limited Liability Company (LLC)—An LLC is not taxed as a separate entity.
Choosing the right business structure for your company at the start, and having guidance on this if you decide to scale up, is essential for avoiding legal trouble.
Doing this at the very start will help everyone, including your accountant, stay on track when it comes to taxes. It will also keep the founders in line.
2. Decide How You Will Develop Agreements and Legal Contracts
Verbal agreements and “handshakes” are never a good idea. Even if you believe that you are going into business with a friend and think that “nothing” can go wrong, it’s important to stay practical.
Even the best friendships can break down from business partnerships gone awry.
For this reason, it’s important to have legally binding written contracts in place for your business. You should also establish how these will be developed, drafted, and reviewed through the duration of your business ownership.
Even if you don’t feel you are managing information that is explicitly “valuable,” you still want to have some contracts in place.
Examples include:
- Employment contracts
- Shareholder agreements
- Partnership agreements
- Intellectual property agreements
- Non-disclosure agreements
- Service contracts
- Stock purchase agreements
Without a written contract, a judge or jury will have difficulty determining which version of events to believe in a “your word against theirs” scenario.
Before you find yourself in this position, there are several key business law-related points to consider that will help you avoid legal trouble.
3. Determine the Best Hiring Practices
New business wonders looking to hire employees need to be aware that state and federal laws regarding hiring practices need to be followed.
Here are some examples of mistakes employers can make to do with employment:
- Not paying attention to hiring laws pertaining to discrimination / equal rights
- Not documenting performance issues or employee problems
- Neglecting to put policies in place pertaining to social media use
- Not having proper severance agreements in place
- Misclassifying employees
- Not having a legally binding employment contract in place
- Neglecting hiring practices to do with immigration or hiring foreign workers
- Hiring or firing employees for the wrong reasons or not following appropriate procedures
Employers should get familiar with hiring standards in Title VII of the Civil Rights Act, The US Department of Labor website, state and federal discrimination laws, the EOEC, and the Fair Labor Standards Act.
Hire an HR professional or consult with a business lawyer to make sure you avoid legal trouble to do with employment laws.
4. Decide How You Will Handle Sharing Company Information
Partners, contractors, employees, and everyone else involved in the company need to be clear on how you are sharing and protecting important information.
To this end, you may ask them to sign:
- Non-compete clauses
- Intellectual property agreements
- Confidentiality or non-disclosure agreements
Include these as part of their employment contract or shareholder agreements.
IP agreements are important for any business involved in patents, trademarks, tech, copyright (for instance). Legal trouble can arise, for instance, if employees take that knowledge base to build a competitive business.
Business owners should take appropriate steps to ensure that their intellectual property is registered properly and protected against costly lawsuits.
5. Decide How to Handle Late Payments
Vendor contracts are one of the key items you will be dealing with if you have a business based on selling goods.
Late payments are unfortunately extremely common.
Having a process in place and having this detailed in your vendor contract will help all employees understand the appropriate route for collecting late payments and protect your business from losing money on this process.
Make sure your vendors and customers sign contracts ahead which signals their agreement to pay. Next, have a series of reminder letters ready to send.
Get a Business Lawyer Today
Our legal professionals help you to reduce and mitigate risk in your business. We can help you build your business from the ground up and create a solid foundation to act as a buffer from future legal problems.
We help small, medium, and prominent local and online businesses navigate through legal problems.
Call toll-free 855-976-3783 today or book a consultation online.
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