Small businesses face many obstacles as they attempt to find favor in their respective markets. Those obstacles vary in size, scope and type. Generally speaking, at the beginning, small businesses falter in their legal foresight, leaving aside important questions pertaining to the law – questions that may not affect the present state of affairs but that could lead to unanticipated consequences down the line. Some mistakes are more common than others. The following will outline some of those common errors.
Legal Structure
One of the most common mistakes a small business can make is skipping the important question of legal structure. Owners might avoid this question for a number of reasons. They may want to avoid associated legal and accounting costs or they may just be unaware that incorporating is a vital part of starting a business. Whatever the reason, skipping this step can lead to negative consequences in the future. Not having the proper legal structure can get in the way of attracting outside investors, affect the amount of taxes you pay and cause problems if the founder leaves the company.
Limiting Liability
Most of all, not choosing a legal structure for your company could make you personally vulnerable to unnecessary liability as the owner. Having the right structure can help you separate your personal assets from your business liabilities and thus protect you from huge losses should you be subject to a lawsuit. To avoid liability, you can set up your business as an LLC, a corporation or a limited partnership.
Having an Attorney
Relatedly, you might think that hiring an attorney is unnecessary in the beginning stages. This is, most often, not the case. Refusing to retain a lawyer now can lead to unwanted results in the future. An attorney can help you choose the proper legal structure for your company – one that meets the demands of your business. Additionally, a lawyer can help make sure your business is in compliance with state and federal regulations, such as the Americans With Disabilities Act. In short, having an attorney at the beginning can save you money down the line.
Litigation
Of course, having a lawyer does not mean going to court every time a claim is filed against you or every time someone wrongs you. It is a good idea to run a cost-benefit analysis before pursuing litigation. Litigation costs can become substantial, and if you lose the case, you might really regret getting involved in the first place. It’s best to approach litigation with a level head.
Tax Law
It’s not uncommon for small businesses to underestimate tax complications. For this reason, it’s a good idea to hire a professional to handle your finances and specifically your taxes. A tax law attorney can be helpful in this regard, and so can an accountant. To help facilitate the process, it’s also advisable to maintain well-organized records. The better your system, the easier it will be for you and your accountant to file your taxes. This is especially true, as current reform efforts could substantially change the way taxes are handled.
Avoiding Employee Lawsuits
As a small business, it’s really important to be clear with your employees, especially in matters that could lead to costly legal disputes. For instance, if you are concerned about an employee’s performance, it is a good idea to keep a detailed record of his or her performance. This way, if you end up firing this person, you are able to show, in great detail, the reasons for doing so. This can help you avoid costs related to wrongful termination lawsuits.
Similarly, you should probably have clear standards pertaining to discrimination and sexual harassment in the workplace, and if possible, to have someone dedicated to handling these matters. This might mean setting up a human resources department where people can file complaints against other employees or anyone else on the premises. This will help avoid unnecessary lawsuits in the future.
To help avoid legal mistakes, it’s a good idea to hire an attorney who understands the intricacies of small businesses. As mentioned, having an attorney now can help you avoid unnecessary costs in the future.
