Essential Legal Tips For Small Business Owners

Many small business owners run what is known as a "lifestyle" organization, where they take advantage of their experience or expertise to run a thriving operation. Yet, it is important to protect such a business and make sure that it can run without issue from a legal point of view, and many owners don't take enough care here. As it is always better to be safe rather than sorry, it's time to take a closer look at your business now and consider some of these essential legal tips.

Make Sure You Have Chosen the Right Business Entity

Some people may initially set up in business as a sole proprietor or in partnership with somebody else. As time goes on, it may be a good idea to form a different business entity, such as a corporation or limited liability company. Each entity has specific requirements in terms of tax and reporting, but it's crucial to ensure that the chosen entity protects the owner when needed. For example, with a sole proprietorship, the owner's personal assets can be seized to satisfy liabilities in the event of a dispute.

Protect All Your Intellectual Property (IP)

As all your hard work in business begins to bear fruit, you should protect the intellectual property you've developed along the way. This can include your trading name and logo, and other elements that set your operation apart from others. You may have developed a specific way of manufacturing a product or providing a service, and you may want to seek copyright protection, registered trademarks, and patents. Don't assume that other people or companies will always "do the right thing," and it may be difficult to pursue them if they do choose to piggyback on your success in this way.

Be Careful with Independent Contractor Agreements

When you engage a third party as an independent contractor to do work on your behalf, you must protect your organization. You may want to insist that the independent contractor agrees to some of the same terms that you have agreed to in contracts with your client. Also, you may want to insist that they carry the same level of liability insurance as you do in the event of an incident they may be involved in. Protect your interests by requiring that contractors sign a non-compete agreement.

Remember, you cannot control what an independent contractor does by specifying their working conditions, hours, and other details. Many companies get into trouble with the IRS here, and the tax authority may determine that the independent contractor is, in fact, your employee. If they make such a judgment and it is retroactive, you could be on the hook for thousands of dollars in unpaid taxes.

If You Go into Business with Partners, Make It Formal

You may have decided to set up a business venture with an old friend or long-term acquaintance and have decided to go ahead without entering into a formal agreement. You may be used to agreeing on things with a handshake and think that you've known each other long enough to settle any disagreements. Yet, it is always best to create a formal agreement that will define each owner's duties, responsibilities, and rights in the event of such a dispute. Disagreements do happen and are often out of the blue, and you should avoid any complications or legal expenditure associated with uncertainty.

Always Use NDAs

You always want to protect your ideas, trade secrets, strategies, and other confidential information in any highly competitive industry. Yet you may need to discuss some of this information with other businesses or individuals before you both agree to work together. In this case, always insist that the other party completes a nondisclosure agreement. Be prepared to sign a mutual NDA in some circumstances as well.

Use Contracts that Will Stand Up in Court

Many new business owners are reluctant to put agreements down in writing, as they may feel that this is too formal or "not their style." Yet sometimes, issues or disputes can arise. And, without a contract, they may be difficult to resolve. If you did need to go to court, don’t expect to be too successful without any form of agreement in writing.

Also, be careful if you decide to use a stock agreement that you may have downloaded from the internet. These may be acceptable in essence, but they may not cover you correctly. It is always best to get a lawyer to draft or at least look over a contract before the parties put pen to paper.

Plan for Your Exit

Accidents or illnesses can appear out of the blue. And, even though most people do not like to consider the implications, a day may come when you are no longer fit to run your business. Even worse, you could die suddenly and leave the business in limbo. Consequently, it’s far better to create an estate plan that will make the right provisions for the business in these situations. You may have somebody else in mind who could take over so that the business remains in good hands. Also, you should consider drafting a plan for the sale of the business. This could include methods of valuation, what happens to the IP, etc. Always work with an experienced lawyer to draw up these documents.

Make Sure You Are Up-to-Date with Tax Laws

Laws dealing with taxation rarely remain untouched for long as politicians seek new ways to raise funds. It can be hard to keep on top of tax laws and especially if you trade across borders or internationally. VAT and sales tax, in particular, can be a minefield. For example, many of these laws have recently changed with regard to the provision of digital services. If you provide such services internationally, are you accounting for VAT and reporting this correctly? If not, and the system catches up, you could owe a sizeable amount in arrears.

Being Cautious

You have put a lot of effort into your small business. Don't throw everything away through a legal problem of some kind. Ensure that you take note of these tips. And, if in doubt, always ask for expert help.