5 Common Legal Mistakes Small Business Make

Starting a small business can be a daunting task, but keeping it running smoothly can be even more challenging. While managing the day-to-day operations, it's easy for small business owners to overlook important legal requirements. Unfortunately, overlooking legal requirements can lead to legal trouble, which can be expensive and time-consuming to resolve. Here are the five legal mistakes that small businesses often make:

1. Failing to Incorporate or Form an LLC

When starting a small business, it's important to choose the right legal structure. Choosing the right legal structure can protect your personal assets from business liabilities and provide tax benefits. Sole proprietorships and partnerships are easy to form, but they offer no protection for your personal assets. Incorporating or forming an LLC can provide the necessary protection for your personal assets.

2. Not Having Proper Contracts in Place

Contracts are essential to any business. They set out the terms of the relationship between the business and its customers, suppliers, and employees. Without proper contracts in place, the business is exposed to legal disputes and risks. It's important to have a lawyer review each contract before putting them in use to ensure they are legally binding and protect the interests of the business. Additionally, your business may change over time and you should review contracts each year to ensure they are still a good fit for your business.

3. Failing to Protect Intellectual Property

Intellectual property (IP) includes trademarks, patents, copyrights, and trade secrets. Small businesses often overlook the need to protect their IP, which can be costly in the long run. Without proper protection, others can copy or use your company's name, logo, or product without permission. It's important to register trademarks and patents and to have non-disclosure agreements in place to protect trade secrets.

4. Not Complying with Employment Laws

Employment laws are complex and vary by jurisdiction. Small businesses often fail to comply with employment laws, which can lead to costly legal disputes. Common mistakes include misclassifying employees as independent contractors, failing to pay overtime, and not providing the required benefits. It's important to have an employee handbook and to consult with an employment lawyer to ensure compliance with all applicable employment laws.

5. Ignoring Tax Obligations

Small businesses are required to pay various taxes, including income tax, payroll tax, sales tax, and property tax. Ignoring tax obligations can lead to legal trouble and penalties. It's important to consult with a tax professional to understand tax obligations and to maintain accurate financial records.

Being an entrepreneur is an exciting endeavor and taking risks is often necessary but having a basic legal foundation for your business should not be one of those risks. Running a business without proper consideration of these issues can lead to legal trouble and costly disputes. It is almost always more costly to fix issues than to prepare in advance. By avoiding these common legal mistakes, small businesses can protect themselves and thrive in the long run.