Running a small business is exciting – but it can also be fraught. With almost 40% of small businesses facing employee-related litigation in the past year, understanding and mitigating lawsuit risks is vital. Here are five common mistakes that might land your small business in court.
- Relying on “handshake” deals.
We all want to believe that everyone is working in good faith. Handshake or verbal agreements with clients, partners, or employees are part of this desire. But the danger to small businesses is that handshake deals can’t clearly communicate all of the complexities of a specific arrangement, leading to potential confusion, miscommunication, or misinterpretation – and opening small businesses up to disputes, unclear expectations, and unintended liability. Written agreements protect both parties by clearly documenting agreed-upon terms regarding the products or services being rendered, payment and delivery terms, liability, termination, ownership, dispute resolution, and compliance.
- Not protecting intellectual property (IP).
Your company’s intellectual property is vital to your continued success. Failure to protect your IP can result in legal action, financial losses, and reputational damage – especially in verticals such as media or technology. If your intellectual property hasn’t been properly registered, you lose the ability to sue and may lose market share to competitors. Legal protections such as copyright registration or patents and trademarks can help protect your IP, especially when supported by measures such as professionally drafted NDAs, Proprietary Information and Invention Assignment Agreements (PIIAAs), stringent documentation, and data controls.
- Not understanding employment laws.
Employment law applies to even the smallest of businesses. But employment laws can be complicated, and owners who are busy trying to build their business can easily overlook employment contracts and handbooks, wages and overtime pay, worker classification and termination laws, all of which can potentially lead to lawsuits. Working with an experienced attorney can help small businesses mitigate employment law risks.
- Using the wrong business structure.
Today, an owner can open a business with the tap of a button. For some business owners, a very simple sole proprietorship can be fine, and they might operate for years without any issues. However, using an improper business structure or failing to create a shareholder agreement can lead to disputes and may even expose personal assets to debts or lawsuits. An attorney can help small business owners appropriately structure a business, stay on top of reporting and filing, and offer guidance to avoid or navigate legal disputes.
- Not staying on top of regulations.
Rules and regulations are constantly changing at the city, state, and federal levels. Employment regulations, reporting, data privacy, and industry-specific regulations are common areas that are frequently subject to change. It’s easy for small businesses to miss crucial updates or changes, which may result in fines, penalties, disputes, or lawsuits. Experienced legal counsel can help keep your business up to date on relevant changes, while also helping you create a plan to stay compliant.
Let Warner PLLC Help You Navigate Small Business Life
Running a small business can be complicated. The attorneys at Warner PLLC are here to help you mitigate risk by guiding you through the most common small business legal pitfalls and helping protect you from potential legal action. For tailored, considered legal support, contact our attorneys today.
