By Kimberly M. Hanlon
It’s a dangerous world out there. As a new business, you can make rookie mistakes that can lead you to an expensive courtroom. Then, when you grow and become as successful as you plan, you’ll have assets that make you more vulnerable to a lawsuit.
The time to reach out to a lawyer is before you are ever in trouble. Use your lawyer as a trusted business advisor so you have someone who understands your business and can help you avoid the land mines that await you. Put in place a foundation that will allow you to grow with all the right protection measures in place.
Here is What Every Small Business Should Know about business law:
1) It’s better to protect than defend. And it certainly is cheaper. Each of the following represents the most common chinks is your liability armor. Disregard them at your peril.
• Keep your business and personal banking separate.
• Keep a corporate record book that shows major company decisions, even if it’s a one-person company.
• Hold an annual meeting. If you are a corporation, it is required by law. An LLC isn’t required to, but should. Best practices.
• Renew your business entity ever year. It’s easy to do online with the Secretary of State’s office.
2) Relationships need agreements. You really should have agreements for all your key relationships: clients, suppliers, vendors, etc. For clients, it could be a sales agreement or service contract. For those who work for you, you can avoid disagreements and misunderstandings if terms are spelled out. For my clients, I create highly customizable contracts they can use over and over because it fits their business.
The last thing you want to defend (or enforce) is an oral contract, which is where things get really expensive. Put it in writing.
3) Independent contractor protection. Many small business owners rely on independent contractors these days. Beyond issuing a form 1099 to them each year, you need to make sure they qualify as an independent contractor and to have an iron clad independent contractor agreement in place. Misclassifying an employee as an independent contractor will earn heavy penalties from the state and IRS.
Plus, if an independent contractor who was misclassified comes back and sues you, you could face triple damages. It is a trap for the unwary. Play defense from the beginning.
4) Policies and procedures. Unless you plan on doing everything yourself, you will need policies and procedures to guide your workers. With a concrete plan in place you have a way of telling others how your company greets customers, how it follows up with inquiries or what the decision making process is. It ensures that everyone is on the same page. It also means when you want to sell the company, the buyer will actually have something to step into with a plan to follow. It’s a valuable tool for creating an asset that is saleable. Buyers don’t ever want to hear you say, “It’s all in my head.”
For my clients who need help, I draw on my experience as a business owner and lawyer to help set up their policies and procedures. I’ve been through it all before on a personal level.
Call To Action
Visit the small business legal services pages at www.khanlonlaw.com for free download guides to choosing a business entity, hiring and firing, independent contractors, establishing business agreements, trademarks, business succession planning, and more. Listen to Kimberly’s podcasts atwww.thesmallbusinessbuzz.com. For a free legal consultation, call (612) 206-3701.