7 Common Legal Mistakes You Should Avoid in Your Business

Starting and running a business can be challenging. Business owners have to manage employees, ensure excellent customer service, work on marketing, and more. Among all the chaos, business owners tend to neglect the legal aspects of their business, which ends up hurting them in the long run.

Here are seven common business legal mistakes you will want to avoid:

Mistake #1: Not Creating a Business Entity

One of the most common small business legal mistakes is business owners starting out with a sole proprietorship. This might be okay if you’re a freelancer. But for any other type of business, not creating an entity can hurt you. One of the main reasons you need to create an entity is to separate your business liabilities from your personal assets.

If something goes wrong and a customer sues, your personal assets will not be protected. On the other hand, if you established an LLC, only the assets of the LLC are liable for the lawsuit. In addition, there are many tax benefits that come with establishing a business entity, so you’ll want to form one to save money.

Mistake #2: Not Protecting Your Intellectual Property

Whether you have a trademark, a logo, or a patent, you need to make it a priority to protect your intellectual property. This is one of the common business legal mistakes that can really hurt you later on. You’ll want to work with a small business lawyer that specializes in areas like filing patents and registering trademarks. Don’t go to a business lawyer that does not have any experience in these areas.

Many business owners also tend to neglect their content, whether it’s on their website, in ads, or marketing promotions. This is among the most common legal mistakes small business owners make. You want to make sure you copyright your content so that competitors don’t lift it from you and start using the material for themselves. It can get really bad if competitors take your work and copyright it before you get around to doing so.

Mistake #3: Not Creating a Comprehensive Employee Contract

Every business has to hire employees to grow. However, you need to make sure that you have a comprehensive employee contract developed. First of all, you need to set the right kind of rules and expectations for employees. Will the employees be hired “at-will” (meaning that you can fire them at any moment without legal ramifications)? What kind of performance do you expect from employees? What other rules do you need to set for employees?

Second, you also need to be compliant with state and federal regulations. For instance, most businesses will need to have workers’ compensation liability insurance. If it’s found that your business does not have coverage, you will be fined by the state and will also be held liable for damages if an employee gets hurt. Finally, you need to protect your data, trade secrets, and insider information. You may need to draft up non-compete, non-solicitation, and non-disclosure agreements.

Mistake #4: Not Having Proper Legal Contracts

Whether you’re dealing with clients or business partners, you need to have the right legal contracts. The legal contracts should be written in a way that protects your business and is in favor of it. They also need to clarify the relationships, roles, and responsibilities between parties so that you have a case if things go south.

Getting all the essential contracts isn’t that difficult. There are many companies that sell industry-specific legal templates for a low, flat fee. Out of all the legal mistakes entrepreneurs make, this is one that can easily be avoided. However, you will still need to work with a professional business lawyer if you’re dealing with more complex relationships like business partnerships.

Mistake #5: Not Understanding Health and Safety Laws

When looking at the legal considerations of operating a business, you cannot overlook health and safety laws. You have to ensure that your employees are working in an environment that doesn’t endanger them. Every city and state will have different laws, so you’ll need to look into the laws for where you are based.

There are also different laws depending on the industry you’re in. Going through a risk assessment, working with an insurer, and consulting with a business attorney will help you make sense of everything. From there, you can take proper measures so that you protect your business from penalties and liabilities.

Mistake #6: Not Having a Terms of Use Agreement and Privacy Policy for Your Site

Your website will need a terms of use agreement and privacy policy. If, for example, you sell your customers’ information but do not have a privacy policy explaining this, you can expect to be penalized. The terms of use agreement will also set the terms and conditions for how your site will be used. For example, if somebody uses your platform to break the law, this will limit your liability.

Mistake #7: Not Setting Up the Financials Properly

If you’re offering stock options to your employees, do you have the proper legal structure to do so? Do you have a clear legal outline of how employees will be compensated? Are you taking legal deductions when you file your taxes? Are you following the laws regarding payroll? There will be a lot of legal matters concerning the financial side of your company. It can get really complicated, so you want to consult with both business tax and business legal professionals to help you with the process.