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Small Business Legal Mistakes to Avoid
by: Nyall Bakk
If you~re a small business owner who knows little
about the legalities involved with running a small
business you~re not alone. The Small Business
Association recommends that small business
owners take one if not several legal classes in order
to familiarize themselves with potential legal issues.
Not knowing where you stand in certain legal
matters can leave you at a serious disadvantage.
Get to know your rights so you can make smart
business decisions.
In today~s world of technology, several resources offer
up-to-date material on business procedures that directly
affect the legitimacy of a company. The following are a
list of common mistakes and ~how-to~ avoid repeating them.
Contracts or service agreements are a must for any
small business. It is difficult to uphold a verbal
agreement in court and therefore a well written
service agreement can protect you and your
business. The service agreement should clearly
define all policies and agreements. It should
provide protection for your company and its
interests.
In each service agreement you should list in detail
what your service encompasses. Be very specific
and don~t leave anything out. A signed contract is a
very important legal document and can stand up in
court. Also be sure to add what is considered an
extra service and what the charges would be. Make
sure that you don~t leave anything out of your
service agreement.
As a small business you may or may not have
several employees working for you. The
termination of an employee is a touchy subject but
may be necessary at some point in time. You
should be clear on employee termination laws and
regulations.
In order to avoid unlawful discharge law suits
carefully select your employees and read up on the
proper procedure for terminating employees. This
may be a situation were you should immediately
contact a corporate attorney.
Since labor taxes can be so high many small
business owners choose to hire independent
contractors. Independent contractors are required
by the IRS to claim and file themselves. You may
think this makes things much easier on you.
Even though you may have hired an independent
contractor the IRS may consider their job to be that
of an employee~s. This means things could get
complicated for you. Be sure to check what the IRS
considers employee~s jobs before hiring an
independent contractor.
Sole Proprietorship verses L.L.C. ~ Under many state laws,
founding partners are jointly liable for the debts and
obligations in general partnerships. Operating a business
as the sole proprietorship puts the owner in a vulnerable
position.
A better choice would be to start a business as a
limited liability corporation. This means that if
your business is sued, any personal finances and
funds can be excluded from the ruling.
Intellectual Property Issues ~ Even low-tech companies have
intellectual proper issues that directly affect the
long-term success of the business. Pay close attention to
confidentiality and invention assignment agreements,
registered trademarks, and copyright notices. Protect the
company~s trade secrets adequately.
Record Keeping ~ Improper record keeping can cause serious
problems. Accurate accounting records are essential if the
IRS is the least bit suspicious about the company~s
financial records. Invest in a bookkeeper or an accounting
program to make it easier to keep account of your daily
transactions. Also, organize files to be readily accessible
in case of an IRS audit.
If you can~t afford to hire an accountant there are
many bookkeeping software packages that can
make things easier on you. Be sure to keep all of
your paper documents as well since they may be
necessary should you be audited.
In any of the above situations you may find it
necessary to contact an experienced corporate
attorney. Almost all businesses at some point in
time will need the advice or services of a
professional. While most attorneys do charge a
high fee, there are times when this is necessary.
Be sure to find an attorney that you~re comfortable
with since you may need his or her services in the
years to come. It may be wise to meet with several
attorneys before you choose one.
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