Watch your step! Many small business owners may not know about the most common legal risks that could trip them up if they’re not planning ahead. With so many potential pitfalls and legal obstacles, not to mention the high cost of legal services, how can you be sure you stay open for business? The good news is that you can take simple measures to protect your business from legal liability, as long as you know what to look for.
Here are the three top legal issues that small businesses commonly slip up on and how they can be avoided.
1. Failing to incorporate.
When you incorporate your business, you create a new legal entity separate from yourself that conducts business, generates incomes, and assumes tax and legal liabilities. By incorporating your business, you shield yourself from personal liability. This means that your personal assets are not at risk if your business is sued. You should incorporate your business before you engage in any transactions on behalf of your business.
There are many types of business entity to choose from, including: sole proprietorship, partnership, C corporation, S corporation, LLC, and non-profit. Each corporate structure has different implications for legal liability, expenses and procedures, fundraising, and taxation. Be sure to consider your present and future needs when choosing your business structure.
2. Not protecting intellectual property.
There are four types of intellectual property (aka IP) — trademarks, patents, trade secrets, and copyrights.
A trademark is a symbol that distinguishes and identifies a business’ product. You can acquire trademark rights through consistent use of a mark even if you do not register that trademark. However, in enforcing your trademark rights it is helpful to have registered the mark with the U.S. Patent Office.
Copyrights protect written works and apply automatically without registration. To assert your copyright, mark your written works with a copyright symbol. To enforce your copyright, submit copyright notices and cease and desist notices to infringers.
Trade secrets are a form of intellectual property that can be protected with non disclosure agreements.
Patents must be applied for, and although the process may take several years, you can generally use the “patent pending” notation to signal to others that the invention is in patent application process. It’s also smart to include provisions in employment agreements that detail who owns patents developed with company resources.
If you fail to assert your rights to your intellectual property, you may inadvertently surrender your claim to essential components of your business’ success.
3. Not getting it in writing.
Skipping written documents is rarely beneficial, although it’s common. The act of writing a contract and having all of the parties agree to its terms encourages everyone to understand the agreement, and take it away with them for their records. If there is ever a disagreement about an undocumented agreement at a later time, there’s simply no way to “go back in time” to establish who is in the right. Unsurprisingly, it is also very difficult to uphold a verbal agreement in court.
Common agreements that you should always document include employee agreements, partnership agreements, vendor contracts, corporate bylaws and meeting minutes. You can visit Rocket Lawyer for many common business legal documents. Remember, written agreements protect everyone. Although it might take a few minutes of your time up-front, it can save you thousands of dollars in legal expenses and losses at a later date if a dispute arises despite your best efforts.