Small Business Legal Planning: Ten Biggest Mistakes

Website design By BotEap.comSmall business owners and managers often fail to adequately address legal issues. This failure can come from being busy with other matters, being unaware of or insensitivity to legal concerns, or a reluctance to spend the money to hire a lawyer. Unfortunately, such businesses may end up incurring substantial expenses or liabilities that could have been avoided with good legal planning.

Website design By BotEap.comHere are ten key legal mistakes that small businesses often make:

Website design By BotEap.com1. Lack of preparation of corporate minutes.

Website design By BotEap.comTo preserve the shield that protects shareholders from personal liability for corporate debts, a corporation must observe formalities such as preparing periodic minutes of the Board of Directors and shareholders. Lack of records can also jeopardize the validity of various corporate tax deductions, particularly in the areas of officer compensation and benefits.

Website design By BotEap.com2. Not updating invoice and purchase order forms.

Website design By BotEap.comThe lack of proper legal provisions in these forms could place the business in a weak legal position in the event of a payment or other dispute with a customer.

Website design By BotEap.com3. Lack of Confidentiality Agreements with Employees and Contractors.

Website design By BotEap.comMuch of the value of many start-ups lies in their intellectual property. Strong confidentiality agreements are essential to protect that property.

Website design By BotEap.com4. Lack of Current Purchase-Sale Agreement.

Website design By BotEap.comAlmost any business with more than one owner must have a buy-sell agreement. A buy-sell agreement defines what happens upon the death, retirement, or termination of employment of one of the owners, or when an owner wishes to sell the owner’s interest in the business. The absence of a buy-sell agreement can have unintended consequences or a legal quagmire in such circumstances.

Website design By BotEap.com5. Lack of updated Employee Manual.

Website design By BotEap.comAn employee handbook establishes the rules and policies of the workplace and the procedures related to the employment relationship. The lack of a satisfactory manual increases the risk of misunderstandings or legal violations, which can result in costly employee disputes, lawsuits, and government sanctions. Also, a manual must be updated frequently to deal with changes in the law.

Website design By BotEap.com6. Lack of Documentation of Transactions between the Corporation and the Owners.

Website design By BotEap.comShareholders often enter into transactions with their corporations, such as leases of real or personal property or loans to or from the corporation. The lack of satisfactory documentation of these transactions (as well as the negligence in the preparation of periodic minutes) can weaken the corporate liability shield or have adverse tax consequences.

Website design By BotEap.com7. Lack of Updating of Corporate Articles and Bylaws.

Website design By BotEap.comArticles and statutes must be reviewed and amended from time to time to take account of legal changes. Otherwise, the corporation could find itself in violation of corporate laws or subject to cumbersome and outdated corporate procedures.

Website design By BotEap.com8. Lack of stock options or other stock plans.

Website design By BotEap.comThe absence of well-designed equity incentive plans can make it difficult for a company to attract, motivate, and retain employees. A poorly written plan could also result in unexpected liabilities or expenses for the corporation.

Website design By BotEap.com9. Inadequate estate planning.

Website design By BotEap.comWith a closed business, estate planning by the owners must be done alongside general business planning. Lack of proper estate planning documents can result in costly probate proceedings or unnecessary estate taxes.

Website design By BotEap.com10 Breach of website legal review.

Website design By BotEap.comDepending on the nature of its business, a company must include appropriate terms and conditions, copyright notices, legal disclaimers, and a privacy policy on its website.