The Biggest Legal Mistakes Made By Small Businesses
Having a great business idea is only the first step. A new small business must focus on taking the right steps in protecting the company, legally.
One of the last things on an entrepreneur’s mind when they start a company is how to protect that company from future legal peril. Often, many new clients that come to my office have great ideas as to their products and it is those ideas that engulf their time and attention. Sadly, they can forget to put in place the appropriate legal protections around the new business. Overall, make sure that your new business follows the following steps to ensure an effective and successful liftoff and to avoid these common pitfalls:
1. Your business has no structure.
Too many entrepreneurs fail to establish the right structure for their enterprise. This failure can result in not getting credit or getting any investors on board. Also, the company can be susceptible to lawsuits against the business as well as the individuals and founders behind the business. Determine which legal formation is best for you-C corp., S corp., partnership or LLC. Be sure to research whether it is best to incorporate in your home state or in the state of Florida.
2. No shareholder’s agreement.
Let’s say your company gets successful and a larger company swoops in to make a bid to purchase what you have worked hard to create. The problem is that you do not have any shareholders agreement to guide everyone’s actions. Without such an agreement, chaos will take place. The fix is a simple one, have an attorney that states how issues will be decided among shareholders and what will happen in the event a shareholder dies, leaves, or gets divorced.
3. Make sure your personal assets are protected.
While your business is in the launch stage and even after incorporation, the last thing that you need is for a creditor to attach or lien your personal assets. Make sure that you take advantage of the protection provided for by a homestead petition. If you own real estate with your spouse, and your spouse has no part of the business, consider moving the real estate into the name of your spouse prior to any issues with perspective creditors.
4 No human resources guidelines.
You are now up to 20 employees, and now one of your employees is questioning a company policy. The problem is that you do not have an employee manual or handbook that sets forth any such policies and procedures. Not a good place to be in if you are the business/employer but the solution is easy. Find an attorney to prepare a human resources policy that best fits your company. Moreover, keep in mind that all such policies are fluid in nature, so the employment manual or guidebook, created in your first year of operating your business may change by the second or third year as your company grows.
5. Make sure your company has a reputation management program in place.
In today’s era, businesses are regularly disparaged by other vendors, competitors, and customers on a regular basis online. If your company receives a negative social media review, make sure that you have developed a system or program to handle them. Remember, how your company handles negative reviews is just as important, as getting good reviews. Leaving negative reviews unchallenged is probably the biggest social media mistake a company can make, worse than not having any social media presence in fact. If your company is criticized by a customer, act immediately. At the Jurado & Farshchian, P.L., we have handled commercial disparagement cases for many companies doing business in Miami, Florida.
6. Failing to get patent, copyright and trademark protection.
Many small businesses fail to take the necessary steps to ensure their intellectual property rights, until it is too late. If your business is one, that is product development oriented, then make sure you have a working relationship with an experienced intellectual property attorney who will work with you as your company grows.
7. Do not waste lots of money on litigation.
Better to try and negotiate disputes rather than fight them in court. Your company will have enough expenses to deal with at the beginning. Besides, you might as well spend the money in a more constructive way towards lawyers. In fact, you do not need to flush your hard-earned money down the toilet on unnecessary litigation expenses. Also, make sure that any agreements that you have with customers or vendors has an arbitration provision. If a dispute arises, the dispute will be adjudicated in arbitration. Please reference our earlier blogs for more information regarding arbitration, mediation, and the difference between the two methods of dispute resolution.
8. Secure your website data and website against unwarranted attack.
You need your business’s website hacked as much as you need a lawsuit. The last thing your company needs is to lose customer data. Explore the use of website services like SiteLock to ensure your company’s website and data’s safety and security.
9. Personal use of the internet at work.
This issue ties in nicely with item four above regarding human resource guidelines. You must have a set employment policy detailing internet use for your company, especially for companies experiencing growing concerns. Your policies should outline and block inappropriate sites. Also, require that your employees, use their business computers for business purposes only. Subsequently, have your employees sign a policy that permits the business to randomly monitor their activity.
10. Not remitting payroll taxes or sales taxes to government agencies.
Believe it or not, this is a common problem. Not remitting monies to the Florida Department of Revenue or the IRS will get your small business shut down. Spend the money and hire a payroll service to remit employer and employee taxes automatically. By doing so, you will stay out of the crosshairs of the state and federal taxing authorities while simultaneously avoiding any claims made by employees to the government. As a result, you will also avoid the hefty fines and penalties that come with non-compliance.
At the Jurado & Farshchian, P.L., we know what works and does not work for up and coming small businesses. Choosing the best business attorney for your business is not something to be taken lightly. Jurado & Farshchian, P.L. attorneys have helped numerous entrepreneurs avoid business mistakes and thus determine the best business structure for their business needs. We also can continue to provide guidance and counsel throughout the course of your business. Take advantage of our experience and knowledge by calling us at (305) 921-0440 or email me at [email protected].
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