Small Business Legal Issues

Small Business Legal Issues - H&K Insurance When starting a business there are a million things to learn on and it can understandably be overwhelming. This list comes from a study of common legal mistakes made by new business owners and how to avoid them.

  1. Get the help of a legal attorney to write clear contracts. Oral agreements simply won’t cut it once you become a real business owner. As you’ll quickly learn from reading this article, clearly defined contracts are your best defense against a long list of liability issues facing small businesses.
  2. Create the appropriate legal structure for the business. Research incorporation and which legal structure is best suited to your business (LLC, C or S corporation) to prevent personal liability. Small business owners may not see the need to incorporate, but could be hurt down the line when they want outside investors, founders leave, or former employees/customers sue. Do research to see which state (such as Delaware, Nevada and Wyoming) offer the best applicable benefits to your business.
  3. Create a shareholder’s agreement. When founders of a business leave or it’s sold, chaos can ensue without the appropriate legal documents to guide the transition. Determine what will happen to a shareholders stake and how agreements will be reached if a shareholder leaves, dies or gets divorced. It also helps to clearly define the rights and responsibilities of partners in your business to determine what they will contribute and what to do in a case of deficit.
  4. Avoid lawsuits whenever possible. Litigation costs an enormous amount of time and money and should be avoided.  Resort to mediation whenever possible. Research the costs and benefits of adding an arbitration clause to your contracts which will set up an out-of-court proceeding in which a neutral third party called an arbitrator hears evidence and makes a binding decision. Avoid lawsuits from customers by keeping in touch with them through a myriad of online tools. Know what customers are saying about you before customer dissatisfaction can swell into a class action suit. If there is a potential issue with a product, quickly get ahead of it to warn customers.
    The biggest threat of lawsuits comes from former employees. Lawsuits for alleged hiring discrimination can be very tricky. Make your hiring practices clear and be ready to defend how you choose your candidates for employment. Avoid a wrongful termination suit by drafting an employee contract with the help of a legal attorney that will allow you to fire them with flexibility and protect you. Once an employee is terminated, make them sign a contract that specifies the terms of dismissal so they won’t come back to haunt you. That brings us to the next point.
  5. Provide a good working environment with clearly defined employee expectations. Consult with a human resources professional to create an employee manual to distribute around the office. Meet regularly with your employees. Make sure proper channels are available to report violations such a discrimination and harassment. Not only can litigation waste company resources directly, it’s highly damaging to your business’s reputation.
  6. Guard intellectual property. In the first place, make sure your business’s property is being protected. Trademark important logos. Copyright written information. Protect your trade secrets. This even means having your employees contractually agree not to share certain information that could hurt your business. If your company is developing new products, make sure to research your competitors products. In some cases, companies sit on a patent for as long as possible and wait to catch violators, which will cost you.
  7. Protect customer information. If you collect customer information on your site, you need to have a privacy policy. It’s important to safeguard your site from hackers with the proper software.
  8. Collect sales and payroll taxes. Use a payroll service to automate the process and protect yourself. Errors with paying state and/or federal taxes can lead to your business being shut down.

As with all issues of liability, it’s important to protect yourself and your business from the uncontrollable factors with insurance coverage. Important insurances types for small business owners include product liability insurance, data breach coverage, and employment practices liability insurance. Learn more about it the insurance you need here. Please contact H&K Insurance for help understanding what coverage your growing business needs to be protected.