Top 10 Legal Mistakes Small Businesses Make

It’s very easy for a business owner to make mistakes that can expose them to legal ramifications. Below we explore some of the top mistakes made by entrepreneurs.

  1. A Lack of Legal Structure
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Many start-ups operate without being incorporated. At the outset, the reasons for doing so might be understandable. However, in the long haul, this exposes the business owner to liability. For example, an employee may sue the enterprise, a founder may depart from the firm, or the company might need a capital injection from an external investor. Find out how to establish your company in its home state to avoid this pitfall.

  1. Absence of an MOU
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A lack of a Memorandum of Understanding to govern the relationship between shareholders is detrimental to the health of a business. Chaos ensues in the absence of such an agreement. The route out of this mess is to have a lawyer draft a document that governs how disagreements are sorted out between shareholders.

  1. No Human Resources Policy
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The absence of an employee manual to regulate the conduct of employees can be problematic. It opens up the business to the possibility of being slapped with lawsuits from disgruntled employees. A small business does well to formulate human resources policies that resonate with the ethos of the organization. This should be done with the advice of human resource professional and a lawyer.

  1. Libel
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The need to remain visible online raises the possibility that a small business will make libelous statements at one point in time. Seek legal advice from a lawyer on what constitutes free speech and what is libel. This could save you many hours of being entangled in court processes.

  1.  Intellectual Property
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Some companies fail to secure their intellectual property. Intellect property issues touch on patents, copyrights, and trademarks. Seek an attorney to perform an inventory of the firm’s intellectual property and to secure it on your behalf.

  1. Filing too Many Lawsuits
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Business can be an emotional affair. When emotions run high people end up in all sorts of lawsuits with partners and suppliers. This is costly. To avoid many hours spent on commercial litigation, always opt for negotiation as a first option to settling disputes.

  1. Data Security
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A small business should invest in software that protects customer data. Hacking is quite common nowadays and the last thing you want is to deal with is a breach of customer data, which could lead to a firm being sued.

  1. Regulatory Compliance
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Business has to remit payroll as well as sales tax to the IRS. This implies investing in accounting software or an accountant. Failure to remit taxes will result in penalties and possible closure of the business.

  1.  Internet Usage
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The use of the internet at work has to be restricted for a firm to thrive. Using the internet for personal use lowers productivity and exposes the firm’s data to  security risks. Download of illegal torrents by employees can also result in lawsuits and even prosecution. The way to deal with this issue is to restrict access to inappropriate websites and monitor web usage.

  1. Capital Injection
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The taking in of capital from external sources can pose challenges concerning the ownership of a firm. To ensure that the business is not exposed to litigation in future, have a lawyer audit the investors and set out a guideline on how they can structure a share agreement.

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