Top 5 Legal Pitfalls Encountered by Small Business Entrepreneurs

Running a small business is a very difficult task as entrepreneurs need to proceed with care and precaution at every point. This is because even the smallest bit of negligence can pose the danger of facing litigations, which often have very crippling effects on the business.

There are a few legal formalities that need to be completed by every entrepreneur and a few laws that need to be abided by them in order to protect themselves and their businesses. Getting help from an experienced and reputed business litigation attorney to handle such matters is always advised.

Here are 5 common areas where legal pitfalls are commonly encountered by small business entrepreneurs:

  • Lack of Business Structure

Every business, whether small or big, must have a formal structure. This structure is beneficial not only for corporations but also for sole proprietors, limited liability companies and partnerships. This structure must be created to protect the business’s assets and your personal assets.

Business structures help to separate both these assets. This helps in case your business runs into any legal problems or tax troubles.

However, most small businesses lack business structures, which is why in case they face any legal pitfalls, both- their business assets, as well as their personal assets, go under threat. If you have carefully navigated through your personal contracts or guaranteeing loans, only then you can remain safe from business litigation.

  • Licensing

Business licensing is a very common aspect where most small business entrepreneurs face legal troubles. This is because it is necessary for you to make sure that your business is in accordance with the government’s requirements for licensing. If it is not, then you might be charged with a lot of fees.

It is important for every business to be licensed. The cost of licensing, however, may differ with respect to the place from where your business operates. You can take help from legal advisers to get a better insight into this process.

  • Working without contracts

It is very important to create contracts between the business and all the other entities related to it, i.e., the partners, employees, clients, etc. The contract must contain agreements and guidelines that are to be enforced.  

Also, different entities must be presented with a properly structured and developed contract. Most small businesses run with the mindset of ‘one-size-fits-all’ which is a terrible approach. While it may seem time saving and easy, it can cause many unwanted legal pitfalls to take place for your business.

Therefore, consulting a business litigation attorney is the best way of securing a safer and better future for your business.

  • Patent and Copyright Issues

Small businesses often face patenting issues, especially when they are providing successful, cutting-edge services in the tech industry. Companies often wait for a patent for years in hopes of getting easy money from copyright and patent lawsuits when another company violates them.

Apart from that, trademarking your business name is also very important. When naming or renaming the business or launching new products, it is wise to research thoroughly. Infringement of someone’s trademark can cost heavily to small businesses.

  • Employment Law

Employee disputes are very common in small businesses. This is because of the lack of ‘employment terms’ in the company. Therefore, when employee disputes take place, or an employee is terminated, businesses often find themselves facing legal actions against them.

Therefore, avoid such circumstances before they occur, it is best to spell out every term and condition in a proper employee manual and document all disciplinary actions in it. To do this in an efficient and legally correct way, you can consult an attorney.

Litigations are very serious matters that must be avoided by small businesses. These above mentioned 5 legal pitfalls are very common and therefore attention to detail must be paid when launching a small business.