There are a number of legal issues small businesses need to address. Not handling these issues can be very expensive to you!
1. Set up Your Business in a Separate Entity
Treat your business as a separate and professional entity. By forming a separate entity, you protect your personal assets since you will not be responsible for the debts and obligations of your company.
What is the best entity for your business? The type of entity you use influences how you borrow money, how you will be taxed and how you structure the sale of your business.
Create an ownership structure before you enter into any agreements. Determine who owns the business and articulate each person’s responsibilities. Verify that the necessary organizational documents are in place.
Make sure your company has enough capital to pay the company’s foreseeable debts and expenses.
2. Create and Maintain Proper Records
Business records include business decisions, paying payroll and taxes, maintaining your company’s bookkeeping, complying with federal and state labor, safety and wage requirements, and acquiring and maintaining licenses or permits.
It is imperative that you keep your business and personal finances separate.
3. Investors in Your Business
If people or companies are investing in your business, you must comply with the appropriate disclosures required by securities laws. Otherwise, investors can sue for treble damages if they lose money investing in your business.
4. Implement a Buy Sell Agreement
A buy-sell agreement provides for the orderly acquisition of an ownership interest in the event an owner leaves the business. Common trigger events include death, disability, termination of employment, divorce, retirement, bankruptcy or the owners no longer get along and want to split up. A buy-sell agreement addresses how the business will be valued when this event happens and how the payout will be structured.
5. Review Non-Compete Agreements
Review all non-compete agreements your employees, independent contractors and you have signed. Non-compete agreements are enforceable in Texas if they are reasonable.
6. Use Employee and Independent Contractor Agreements
Create employee and independent contractor agreements with clear terms so former employees and independent contractors cannot leave and start their own businesses competing against you. Be sure employees and independent contractors know that the trade secrets concerning your business, such as pricing, client lists, data, know-how, product specifications, business plans and marketing plans, are confidential.
Adopt an employee handbook informing employees of the company’s policies and expectations. A handbook helps you manage employment matters and can protect your company from potential employee lawsuits.
7. Protect Your Company’s Intellectual Property
Intellectual property includes any work that is the result of creativity, including inventions, discoveries, know-how, or processes. Be sure employees and independent contractors assign new technologies or processes to your company. Properly register your trademarks and license software to others.
Many times the profitable verticals of a business evolve. Ownership of intellectual property in a relatively insignificant area may be critical for future success.
8. Use Written Contracts
Insist on written customer and supplier agreements spelling out each party’s obligations. Verbal agreements are virtually impossible to enforce. Your contracts must be clear and address potential issues. If you want to be paid, be sure you have strong customer agreements that address how issues concerning your products or services will be resolved.
Document any modifications or extensions to your contracts in writing.
9. Utilize NDA’s
Before you explore working with another business or individual, require that the other party sign a non-disclosure agreement, which protects your business’s confidential information, strategies, know-how and proprietary information.
10. Avoid Litigation When Possible
Litigation often results from poor planning, documentation and execution. Document all transactions with third parties and especially document any disputes. Often times, litigation is the result of signing a bad contract or not fully understanding what you have signed. Litigation is very expensive and distracting. Seek legal advice before making important business decisions.
11. Get Legal Advice!
Wrong decisions or inadequate legal documents can cost you! Small business owners often have past experience interacting with other professionals and have seen the work they have done for another company. In an effort to save money, they try to draft documents themselves. Many times, it will be significantly more expensive for an attorney to go back and fix these documents.
Legal issues not addressed at the start can result in expensive litigation later. Attorneys can save you significant time, aggravation and money by providing the right advice at the right time. In addition, hiring an attorney will put you at a significant advantage if you are ever sued.