7 Legal Mistakes New Business Owners Make

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The laws governing businesses can be complex. It’s no surprise that many new business owners cause themselves lots of legal problems just because they don’t know what they don’t know.

If you want your business to survive in the long term you’ve got to be aware of some of these issues. 

#1) Failing to create a partnership, co-founder, or shareholder agreement. 

Right now, every one of your co-founders is as excited as you are. Everyone is happy and on good terms. So you might not feel like you need a written agreement. You’ve shaken hands on how this is all going to work, and nothing could possibly go wrong.

Yet business partnerships can sour. If they do, you’ll be happy you have an agreement in place.

This agreement should cover what percentage of the company each person owns, what the roles and responsibilities of each person is, what happens if one of the founders leaves the company, the salaries the founders are entitled to, how day-to-day decisions will be made, and when a founder can be removed. 

It should also cover what happens if the business is to be sold.  

#2) Failing to create a T&C and privacy policy. 

T&C agreements govern the circumstances under which you will provide goods or services to your customers. This can be as simple as a contract which says “I will provide X service and you will provide Y payment within Z period of time,” but having it in writing and signed by the customer can protect you if the customer chooses not to pay later, or uses your product or service in ways you never intended.

As for privacy policies, in many cases it’s against the law to skip them. If you are gathering customer data it’s wise to share exactly how that data will be used. This allows consumers to make an informed decision about whether or not they will provide you with that data.

#3) Failing to create standard, necessary contracts.

Vendor agreements. Sales contracts. Warranties. Consulting agreements. Confidentiality agreements.

While the exact nature of the contracts you will need to use on a regular basis will change from company to company and industry to industry, it’s wise to have them all written up, checked, and ready to go.

This  means getting an attorney to write them up for you, not pulling form letters off the Internet. A form contract will miss important details or create terms that are not applicable to your unique situation. 

#4) Failing to handle hiring and employment the right way. 

Hiring employees is complex.

There’s documentation you need to keep on file. Taxes to take care of. Insurance to buy.

Even the way you treat your employees is governed by certain laws. You’ll need to have safeguards in place to ensure you’re in compliance. This could mean purchasing certain PPE, having an employee handbook that’s signed by each employee before work begins, and documenting employee counseling sessions so you can defend yourself against wrongful termination suits.

#5) Failing to understand the tax and license laws governing your business. 

Tax problems can end your business, and so can operating without a license. Make sure you have the proper business license for your industry and are filing taxes correctly for the business structure that you have chosen.

You may need to hire an accountant to make sure your taxes are being handled the right way.

#6) Failing to plan for getting sued.

When you run a business it’s not a matter of if you will be sued. It is usually a matter of when you will be sued.

Make sure you have the proper liability insurance policies in place, and work with an attorney to make sure everything you are doing is above-board. You also need to be ready to prove that you’re doing what you’re supposed to be doing. Your attorney can help you generate that proof.

#7) Failing to involve an attorney from the beginning. 

Every business is a little different, which means you can’t research your way out of legal pitfalls. You need the expertise a business attorney can bring to the table.

Attorneys are more affordable than you think, and can pay for themselves in a very short period of time. 

Contact our office today to make sure your business has all the legal protections it needs to stay in business.

See also: 

What Can Happen if You Misclassify an Employee in New York?

What Makes Incorporation So Necessary? 

Don’t Just Sign on the Bottom Line: Contract Conundrums and Fine Print Pitfalls

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    SCOTT B. RICHMAN, ESQ.

    Mr. Richman is the Managing Member and Founder of Richman Law Firm PLLC. In his role as Managing Member, Mr. Richman oversees the day-to-day operations of the firm and handles the litigation of the most complex legal matters across a vast array of practice areas and disciplines. ​

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