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Legal Issues for Small Businesses
From the initial start up to dealing with employees, there are many legal issues for a small business owner to consider. Frequently small business owners see legal fees to review documents or provide advice as an unnecessary expense. All too often legal issues are ignored until they become legal problems. The maxim of an ounce of prevention being better than a pound of cure rings true here.
This is a brief overview of some of the areas where a little money spent on legal fees can prevent big problems (and bigger legal fees).
To incorporate or not to incorporate
If you do not mind putting your personal assets on the line for your business, you do not need to incorporate. However, most people would not want to risk the loss of their house should they be lose a lawsuit down the road. Incorporation protects your personal assets from judgment creditors. You could incur a judgment against your business if an employee is in a car accident while on business and the other driver sues your business. Or if you make an error in your particular field which result in someone being hurt.
It will not protect those assets from business creditors if you pledge them as collateral or personally guarantee a business loan. Some banks or suppliers may require a personal guarantee for extending credit. You will need to use your best judgment as to whether the benefit of having the loan outweighs the risks.
But I trust my partner
Of course you do – now. But the relationship may change over the years. Resentments or misunderstandings may arise. Having the relationship defined in writing protects both of you and can provide procedures for splitting up in case the relationship become terminal.
Getting it in writing is just too much trouble
Failing to get it in writing is more trouble. Memories fade, sometimes conveniently. Differences develop over what was said and what was meant. A good contract anticipates problems and provides procedures for resolving them or avoiding them. You should have written contract for all space or equipment leases, employment of key people or independent contractors, and sales of products or services. If you are presented with a contract by someone else, take a few minutes and a few dollars to have your attorney review it. It is probably written to favor the other side, sometimes unreasonably so. Your attorney can point out the pros and cons and advise you whether to ask for changes or sign it. Additionally, some fields, such as home improvement, have specific requirements for contracts which are set by state law. Failure to abide by these laws could cost you the entire price of the job and then some.
I deserve to be paid
Yes, but there are laws governing how you can go about getting paid for your work. The Fair Debt Collection Practices Act and mechanic’s lien act, as two examples, have specific procedures and time frames that must be followed and certain practices that are forbidden by law. Ignore these issues and YOU will pay. An attorney familiar with your business can tell you what you need to do and what you cannot do.
But I am just operating out of my house
Have an attorney check into the local zoning laws to see if you really can operate your type of business out of your home. And if you are thinking of leasing or buying property, have an attorney check the zoning on the particular site to be sure the type of business you plan is permitted – not all businesses are allowed in commercial areas.
I am just hiring relatives
You still have legal obligations to them under various state and federal labor laws. For example, you have to provide worker’s compensation insurance for all employees. And just because you have hired someone as an independent contractor, does not mean the Worker’s Compensation Board will see things your way if that person is injured. If there is ANYONE, (including your kids) other than you working, it is best to have the insurance, just in case.
You have obligations to provide reasonable accommodations for disabilities under the Americans with Disabilities Act (ADA). If your nephew develops carpel tunnel entering data for your business, you may have to provide voice recognition software.
Just because your sister-in-law works for you does not mean you can leave your Playboy calendar posted. The Equal Employment Opportunity Commission will be asking questions. Nor can you refuse to employ qualified persons of color or ethnicity.
You have an obligation to provide a safe workplace under the Occupational Safety and Health Act. Inspectors from OSHA may visit you from time to time to check up on you.
These various federal agencies carry big sticks. It is better to have your house in order so as to avoid problems with them. Your attorney can advise you on these issues and thus protect you from costly mistakes.
These are just some of the legal issues that can come up when you are starting or running a small business. If you have a relationship with an attorney now, he or she may do much of the minor review work at little or no charge. It certainly does not hurt to ask and it COULD save you substantial money down the road.
This is a brief overview of some of the areas where a little money spent on legal fees can prevent big problems (and bigger legal fees).
To incorporate or not to incorporate
If you do not mind putting your personal assets on the line for your business, you do not need to incorporate. However, most people would not want to risk the loss of their house should they be lose a lawsuit down the road. Incorporation protects your personal assets from judgment creditors. You could incur a judgment against your business if an employee is in a car accident while on business and the other driver sues your business. Or if you make an error in your particular field which result in someone being hurt.
It will not protect those assets from business creditors if you pledge them as collateral or personally guarantee a business loan. Some banks or suppliers may require a personal guarantee for extending credit. You will need to use your best judgment as to whether the benefit of having the loan outweighs the risks.
But I trust my partner
Of course you do – now. But the relationship may change over the years. Resentments or misunderstandings may arise. Having the relationship defined in writing protects both of you and can provide procedures for splitting up in case the relationship become terminal.
Getting it in writing is just too much trouble
Failing to get it in writing is more trouble. Memories fade, sometimes conveniently. Differences develop over what was said and what was meant. A good contract anticipates problems and provides procedures for resolving them or avoiding them. You should have written contract for all space or equipment leases, employment of key people or independent contractors, and sales of products or services. If you are presented with a contract by someone else, take a few minutes and a few dollars to have your attorney review it. It is probably written to favor the other side, sometimes unreasonably so. Your attorney can point out the pros and cons and advise you whether to ask for changes or sign it. Additionally, some fields, such as home improvement, have specific requirements for contracts which are set by state law. Failure to abide by these laws could cost you the entire price of the job and then some.
I deserve to be paid
Yes, but there are laws governing how you can go about getting paid for your work. The Fair Debt Collection Practices Act and mechanic’s lien act, as two examples, have specific procedures and time frames that must be followed and certain practices that are forbidden by law. Ignore these issues and YOU will pay. An attorney familiar with your business can tell you what you need to do and what you cannot do.
But I am just operating out of my house
Have an attorney check into the local zoning laws to see if you really can operate your type of business out of your home. And if you are thinking of leasing or buying property, have an attorney check the zoning on the particular site to be sure the type of business you plan is permitted – not all businesses are allowed in commercial areas.
I am just hiring relatives
You still have legal obligations to them under various state and federal labor laws. For example, you have to provide worker’s compensation insurance for all employees. And just because you have hired someone as an independent contractor, does not mean the Worker’s Compensation Board will see things your way if that person is injured. If there is ANYONE, (including your kids) other than you working, it is best to have the insurance, just in case.
You have obligations to provide reasonable accommodations for disabilities under the Americans with Disabilities Act (ADA). If your nephew develops carpel tunnel entering data for your business, you may have to provide voice recognition software.
Just because your sister-in-law works for you does not mean you can leave your Playboy calendar posted. The Equal Employment Opportunity Commission will be asking questions. Nor can you refuse to employ qualified persons of color or ethnicity.
You have an obligation to provide a safe workplace under the Occupational Safety and Health Act. Inspectors from OSHA may visit you from time to time to check up on you.
These various federal agencies carry big sticks. It is better to have your house in order so as to avoid problems with them. Your attorney can advise you on these issues and thus protect you from costly mistakes.
These are just some of the legal issues that can come up when you are starting or running a small business. If you have a relationship with an attorney now, he or she may do much of the minor review work at little or no charge. It certainly does not hurt to ask and it COULD save you substantial money down the road.