Owning your own small business is an adventurous challenge. Some small businesses will prosper, steadily growing over the years and blossoming into large, wildly successful companies. Others will stumble and ultimately fail due to a myriad of reasons. Here are 5 common legal mistakes made by small business owners:
- Failing to Understand Human Resources Complexities
Hiring employees is exciting and indicative of a growing, successful company. However, hiring the wrong employees or failing to adhere to employment laws can stifle growth or cause the company to bleed money. Having a comprehensive legal strategy is critical for a small business and that strategy must account for employment law matters. Small business owners need legal counsel who is competent with overtime laws, disciplinary procedures, discrimination matters, payroll issues, drafting employment handbooks and policies, etc. Having investigators from the Department of Labor’s Wage and Hour Division knocking on your door or an employee filing an employment discrimination lawsuit are major financial stressors for small businesses. Preventative legal planning can help alleviate these issues from cropping up.
- No Business Succession Planning
Many small business owners ignore succession planning for their business. Who will take over the company when the owner retires? Will the company sell? Will the company fold? Will your child take over the business? Does your child want to take over the business? Owners need to consider these issues and address them accordingly years in advance of their retirement. There are numerous succession planning tools available to business owners. It is never to early to plan for your business’ future.
- Handling Legal Matters on Your Own
This is a terrible mistake. A small business owner is not a trained attorney. “You don’t know what you don’t know” is an axiom which applies to those who choose to play the role of an attorney. Many business attorneys spend their time untangling problems caused by small business owners trying to save a few dollars by self-addressing legal issues. Oftentimes the legal costs incurred straightening out mistakes greatly surpasses the amount of legal fees which would have been incurred through preventative planning. Small business owners are also wise to stay away from using Google as their legal counsel. If you feel ill you might search your symptoms on Google, but you will see your physician to actually be treated. The same applies to attorneys. That employment contract you find on the internet might actually be based on California law and not your home state’s law. Hiring legal counsel can ensure your business’ interests are best (and correctly) protected.
- Failing to Obtain Written Contracts
Many small business owners feel that obtaining an agreement in writing is unnecessary and cumbersome. Yet, that supplier you have a handshake deal with may one day burn you and you will be left empty-handed with no or little recourse. Oral agreements are very difficult to prove in court. Taking the time to properly draft a written contract protects the business and will prevent lengthy, time-consuming, and costly litigation down the road.
- Sloppy Records
Many small business owners haphazardly keep records or completely fail to keep records. This is very common and unfortunate. Do you know how many shares you own and how many shares your fellow shareholder own? Knowing such major details is critical if the business one day sells. Who gets what percentage of the sale proceeds? Without accurate records, you and your business partner may incur significant legal fees duking it out in court for years. Likewise, failing to take and keep board meeting minutes may also result in legal troubles down the road. How many people voted for “x”? Was there a majority or supermajority in favor of “x” decision? Failing to have accurate records from board/member meetings is problematic if decisions from said meetings are later challenged.
Small business owners would be prudent to have trusted legal counsel in their corner from day 1 of establishing their business. Hiring the right attorney will save them time, stress, and money down the road.
This article is for information purposes only and is not intended to constitute legal advice.