When you start a small business, it can either be the beginning of a dream or the beginning of your worst nightmare. To avoid the worst, one of the areas you must adequately address as a business owner is your legal vulnerability. When you own a business, the risks of the business can impact your business assets as well as your personal assets, unless you take the appropriate legal steps to mitigate your risk.
These are some of the legal areas where many businesses make big mistakes and fail to properly manage their risk…
Not Organizing their Business as the Appropriate Business Entity
When you open your doors for business, unless you have established the business under its own legal entity, you are sole proprietor. A sole proprietor business ownership leaves you with a great deal of exposure to risk. In fact, in such a scenario your personal assets are not protected from claims made against your business. The same is true of a partnership, with one important difference; a partnership leaves you liable for the actions of your business partner. There are a number of legal entities that will protect your personal assets, and insulate you personally against actions of other owners of the business. Some of these legal entities include an S Corporation, Limited Liability Corporation (LLC), Limited Partnership, Professional Corporation, etc. The rules and protections afforded by each of these legal entities vary and depending on the legal entity chosen, these rules and protections can have far reaching consequences.
Not Following the Rules for the Legal Business Entity
After you choose your legal entity, be sure to follow all of the requirements for that entity. You may invalidate the protection of your legal entity unless you follow the guidelines for meetings, reporting and record keeping.
Relying on Your Business Entity to Provide All of Your Asset Protection
If you have customers on your premises, you need liability insurance. When you have the appropriate liability insurance, you still must make sure to avoid claims of negligence by making sure your business property is as safe as possible. This includes proper maintenance, safety features and signage. If you are negligent in maintaining a safe business premises it can cause your insurance to become invalid when an accident happens.
Not Protecting Your Intellectual Property
Many businesses have patents, copyrights, trademarks, proprietary processes and other intellectual business property. You must protect your intellectual property. If you fail to protect it, you can lose that valuable business asset to competitors. This is particularly important for those involved in online businesses, such as the creation of a specific online service.
Not Having Formal Employment Agreements
Your employees have access to critical business information and can make or break your business. Your employees know your processes and you rely on them to perform your business functions. Even if they do not use your business information inappropriately, the loss of a key employee can cause a set-back for your business. Make sure you create employment contracts that outline your employee’s commitment to your business and your commitment to your employees. Formalizing your employment agreement also prevents misunderstandings and keeps the business relationship with your employees healthy.
Failing to Seek Reliable Legal Counsel
To make sure everything runs smoothly and avoid any legal pitfall, you need the services of a Business Attorney to determine the appropriate legal entity and the rules and regulations for that entity, determining the insurance coverage you need to adequately protect you, contracts and procedures to protect intellectual property and to create formal employment agreements. Don’t take any decision that you could regret in the future; contact McFarlin LLP’ Small Business Attorneys today to get the best advice and start your small business on the right foot. You can give us a call (888) 728 0044, or email us. We look forward to serving all of your small business legal needs. We operate within the states of California, Utah & Nevada. See our Contact Us page for details.