Legal mistakes cost business owners in more ways than one. Along with the financial consequences of these legal mistakes, there are also reputational risks and branding implications to consider.
Here are some of the most common legal blunders that can derail your business’s branding, as well as how to avoid them.
1. Failure to Create an Appropriate Legal Framework
Many new business owners work as sole proprietors, putting their personal assets at risk. Establishing a business entity, such as an LLC or corporation, offers liability protection and potential tax benefits.
Business owners should contact a legal or financial professional to determine the best structure for their purposes.
In this article, we discuss choosing an LLC as your business structure.
2. Not Registering Intellectual Property
Not registering a business’s intellectual property is a mistake that can undermine a brand’s competitive advantage. Logos, taglines, and distinctive items that are not trademarked or copyrighted can be copied by competitors.
Business owners should seek trademark protection and undertake searches to guarantee that their brand aspects do not infringe on existing intellectual property.
Conversely, businesses must be equally careful not to infringe upon others’ intellectual property rights. Using copyrighted images, slogans, or designs without permission can result in costly lawsuits, reputational damage, and the need for rebranding.
Performing exhaustive trademark searches and copyright checks before launching marketing materials, products, or branding elements can prevent unintentional infringement.
For more on this topic, visit this article next: Acquiring and Protecting Intellectual Property Rights.
3. Relying on Verbal Agreements
Counting on verbal agreements to hold up is another common mistake many businesses make. Unfortunately, verbal promises are tough to enforce in court and often result in misunderstandings and ambiguity.
Failure to write thorough contracts for employees, clients, and partners is a danger that can jeopardize a profitable business. A well-drafted contract clearly defines roles, responsibilities, and obligations, lowering the likelihood of disagreements.
Contracts should be customized for each business connection and vetted by legal advice.
4. Employee Misclassification
Employee misclassification is another legal error that can lead to substantial fines. Misclassifying employees as independent contractors to avoid payroll taxes and benefits is not worth the risk.
Businesses must follow specific criteria for distinguishing between employees and contractors.
For example, the level of “control” you have over a worker can be indicative of whether they are an employee or contractor.
As we explain in this article:
“Generally, if you control the individual’s actions, that person will likely be considered an employee of your business. If the individual does not have an independent company exclusive to yours, that suggests an employee.
If you supervise the individual’s work, this is another factor to consider for an employee. And importantly, supplying the individual with tools, materials, and a workspace will also be considered in determining an employee relationship with your business.
However, if an individual is retained for a specific project, for a limited time, or is paid per project, such factors indicate a contractor relationship.”
5. Lack of Comprehensive Employee Contracts
Some business owners also fail to provide thorough employee contracts that cover all necessary legal bases. When these contracts are vague and lack important details, it leads to disagreements over job tasks, compensation, and expectations.
Employee contracts should include confidentiality, non-compete clauses, and non-solicitation agreements to safeguard the business’s interests.
6. Noncompliance with Employment and Safety Laws
Businesses incur additional risks if they fail to maintain health and safety compliance. Unsafe working conditions can result in workplace injuries and costly lawsuits.
For businesses operating in industries such as construction or any fields that entail physical labor, ensuring a safe workplace is more complicated and even more important. Preventative measures, such as safety training and regular inspections, can help reduce liability.
Similarly, if a business fails to comply with employment law, its brand reputation is bound to suffer in turn. Things like refusing overtime compensation or failing to provide adequate breaks (even if unintentional) can result in employee lawsuits.
When word of these lawsuits spreads, it quickly damages the reputation you’ve worked so hard to build for your business.
Businesses should establish an HR department and engage with employment lawyers to guarantee they comply with all labor laws, particularly when managing remote or overseas employees.
7. Wrongful Termination Claims
Wrongful termination cases can be expensive and time-consuming. Terminating employees without adequate documentation or legitimate cause may result in legal action.
Business owners should follow established protocols, present explicit reasons for termination, and provide appropriate notice when necessary.
Consulting an employment lawyer before firing an employee can help avoid legal problems.
Don’t miss this article next: Business Reputation: Your Hidden Asset & Legal Shield.
8. Discrimination Lawsuits
Discrimination lawsuits pose additional risks to businesses. Claims based on race, gender, and other protected categories can harm a brand’s reputation.
To limit the possibility of discrimination claims, firms should prioritize diversity, use fair hiring methods, and document why they choose or reject job prospects.
9. Not Adhering to Financial Regulations
Businesses that fail to comply with financial regulations risk substantial legal consequences.
For example, neglecting to withhold taxes or mismanaging employee stock options can lead to audits or fines. Again, a business’s intention is often irrelevant if they are found guilty of these legal mistakes.
Collaborate with legal and financial professionals to build strong financial compliance systems.
10. Lack of Website Terms of Use and Privacy Policy
Failure to protect client data is another major error; unfortunately, it’s also an all-too-common one.
Businesses that collect client information must follow privacy rules, and businesses risk being fined or sued if they don’t have a privacy policy in place.
A website’s privacy policy explains how data is collected, utilized, and kept. Similarly, terms of service on a website assist firms in avoiding liability for user actions.
Business owners frequently overlook the relevance of website terms of service and privacy policies. Terms of service protect enterprises against user wrongdoing, whereas privacy rules assure compliance with data protection requirements.
Companies collecting customer data must have a clear privacy policy on their website to avoid regulatory fines and lawsuits.
Final Thoughts: Get Help with Avoiding These Costly Legal Mistakes
Legal errors might thwart a business’ branding initiatives. Business owners should focus on employment law compliance, suitable contracts, human resources, and intellectual property protection.
A successful business stresses risk management and collaborates with legal professionals to safeguard its brand’s integrity. Taking preventative measures now can save you money in the long run.
Contact the Contiguglia Law Firm to speak with a business lawyer in Denver. Andrew Contiguglia offers business risk management services to help your business avoid these mistakes that can sacrifice your business’s brand identity.
