To provide small business owners with valuable legal advice, we asked a group of founders, directors, and legal professionals for their top tips. From prioritizing accurate records and legal counsel to protecting assets before going to market, here are the twelve insightful tips they shared.
Prioritize Accurate Records and Legal Counsel
As a lawyer, I would say that for legal protection and compliance, keeping accurate and well-organized records is essential. Contracts, agreements, financial transactions, licenses, permits, and other essential business-related documents should be tracked.
Clear and well-drafted contracts with customers, suppliers, employees, and business partners can help prevent disputes and provide clarity in the event of disagreements. Ensure that your company adheres to all applicable laws and regulations, including tax requirements, employment laws, and industry-specific regulations.
Consult an attorney when necessary, particularly during significant business transactions or when facing legal obstacles. A competent attorney can provide guidance, protect your interests, and assist you in navigating complex legal matters.
Small business owners can mitigate risks, foster a stable business environment, and prioritize growth and success by prioritizing appropriate documentation and legal counsel.
Understand Local Laws and Review Regulations
As a business lawyer, one of the most important legal tips I can give to small-business owners is to make sure you thoroughly research and understand your local laws and regulations.
It is essential for you to be aware of the specific rules in your area that impact how you run your business, such as taxes, licensing requirements, zoning restrictions, and labor laws.
Keeping up with these changes can help ensure that your business remains compliant and that you avoid potential legal issues. It is important to have an experienced business lawyer review any contracts or agreements before signing them.
This will help ensure that the terms of the contract are in your best interest and that you are not agreeing to anything that could put your business at risk.
Ensure Written Agreements in Business
Whether you are working with freelancers, independent contractors, or big companies, ensure that you have written agreements. This is what we strictly adhere to in our business.
When everything is in writing, you have clear references and can avoid costly disputes. Our memories can fail us—what you remember you agreed on can differ from what your vendor or partner remembers.
Maintain Business and Owner Separation
Many small-business owners form a new legal entity to operate their businesses. Although business is never without risk, exposure to third parties is limited by separating the business from the owner(s). Maintaining this protection requires actually keeping the parties separate by adhering to these five principles:
1) Observe corporate formalities (for example, hold meetings and document certain actions by resolution).
2) Operate the LLC as a separate financial unit (for example, never commingle funds, maintain separate bank accounts, and maintain a separate accounting instance).
3) Avoid making any representations that would lead an outsider to believe that the business is being conducted as a sole proprietorship or partnership.
4) Capitalize the new entity with sufficient cash to meet obligations as they come due (and document loans!).
5) Enter contracts and transact other business in the correct legal name or a registered “doing business as” name tied to the new entity.
Choose the Right Legal Form
When beginning a small business, selecting the right legal form is critical. Each structure, such as a sole proprietorship, partnership, limited liability company (LLC), or corporation, has advantages and disadvantages in terms of responsibility, taxes, and management.
Consult with a business attorney to determine which structure best fits your company’s goals and conditions. Consider personal liability protection, tax ramifications, and administrative complexity.
Draft Updated Contracts for Remote Employees
When managing 1099-employees, as many remote employees today are, always draft updated, relevant contracts for the work or services you need to be done. In marketing, for example, the market changes fast and often.
Sometimes, we need flexibility from the contractors we work with. By writing contracts aligned with our needs and detailing the work we need to do, we can manage our remote employees’ expectations and pay more successfully and reduce the likelihood of misunderstandings.
These contracts focus on the general scope of work, work duration, privacy concerns, and payment agreements between employer and contractor. Ultimately, these agreements protect both parties and leave a paper trail for both groups to work from when resolving issues or negotiating terms.
Without them, liability and compliance issues can become muddier, and contractors are not guaranteed the same job security a signed contract allows.
Consult Both a Lawyer and CPA
A lot of my legal questions are related to financial matters. That’s why I always like to run the same questions by my lawyer and my CPA. They often have slightly different perspectives that I find useful.
The lawyer might say something is totally fine legally, but my CPA might suggest a somewhat different approach that has some sort of advantage to my business. I really prefer asking two experts the same questions, so that I can get a couple of informed perspectives that can materially benefit my business.
Remember the Crucial Importance of Contracts
One lesson I’ve learned through personal experience managing our tiny-home business is that contracts truly matter. There was an instance where a supplier failed to deliver crucial building materials on time, causing us a significant delay.
Without a legally-binding agreement, our options to recoup the lost time and resources were limited. From that day forward, we made sure to have detailed, signed contracts with all our suppliers and clients.
It’s an extra layer of protection that can save you from unexpected hassles. For small-business owners like us, every minute and dollar counts, so always take contracts seriously.
Rizwan, Business Manager, Great Lakes Tiny Homes
Be Prepared for Possible Lawsuits
Some small businesses could be at risk of possible lawsuits for the work they do and should do what they can to keep themselves safe at all times.
Even if you offer a service, there’s still a chance of potentially being part of a lawsuit, so it’s crucial to understand the risks, be prepared to make the right decisions when situations pop up, and not do something in the process to risk anything.
As they say, “Anyone can sue anyone,” and small businesses are not safe either. Understand the risks and be prepared for a lawsuit when you put yourself out there and run your own business.
Consider Business Liability Insurance
A friend of mine owned a small butchery, and while one of his employees was mopping the floor, a customer slipped and fell. This customer got his lawyers involved, but fortunately, my friend had business liability insurance, and the insurance company paid for all damages.
Business liability insurance protects you in case someone gets injured while visiting your business. So if you have a physical store, getting business liability insurance is highly recommended.
Delegate Legal Responsibilities to Professionals
Small-business owners are already swamped with challenges, from limited resources to a list of tasks and responsibilities that only seem to get longer. In this scenario, handling the paperwork that is an inevitable part of running a business proves even more difficult.
The best way out is to hire the services of a professional and hand over the entire legal responsibility of the business. This way, business owners will find more time to concentrate on their core tasks.
They can now depend on the services of a legal professional with more experience and expertise than them.
Protect Assets Before Going to Market
As a marketer who has spent countless hours working with clients’ brands and attorneys, it can be said that investing in protecting your assets before you go to market with your business or product is one of the wisest investments you can make.
It can cost tens, if not hundreds, of thousands of dollars to manage a rebranding project that is required because of a copyright or trademark infringement lawsuit. Even if you’re in the right, that doesn’t mean you won’t be in court to defend your mark, and that still costs time and money.
Doing the homework upfront is crucial. Your marketing team should be familiar with trademark requirements and copyright protection, and they should be able to discuss your activities with your intellectual property attorney to ensure that your assets are covered and protected.