The most common pitfalls to which small businesses fall victim are legal mistakes, most of which are born of ignorance. If you don’t know what the law says about a particular subject, then how can you hope to follow it? Small businesses rarely have corporate lawyers at their disposal, and since they cannot afford constant legal attention, they should watch out for common small business legal mistakes that could get them into trouble or – worse – bring an end to the venture.
Small Business Legal Mistake #1: Failing to Write It Down
Gentlemen’s agreements may be facilitated by a handshake, and oral agreements might be binding, but in this litigious society that we have created for ourselves, it is always better to get it in writing.
Small business agreements should always be made with pen and paper, complete with a John Hancock from both parties. Whether it be with an employee, a vendor or a customer, written agreements are far more enforceable than anything else. Draw up contracts for every little thing, and you’ll always be protected.
Small Business Legal Mistake #2: Faulty Employment Agreements
According to recent statistics, more than 40% of the small claims cases in 2004 were from disgruntled employees who decided to file lawsuits on their previous employers. Make sure that when you hire an employee, their duties are carefully defined in writing. An employee handbook which states the rules and job descriptions for each classification of employee is essential, and the handbook should be provided to everyone, with a signed copy kept in your files.
Be proactive against discrimination, sexual harassment, drug use, alcohol abuse and other illegal activities for your small business.
Small Business Legal Mistake #3: Failing to Seek Counsel When Necessary
As soon as the words law suit are voiced, you should be on the phone with an experienced corporate attorney. It is much better to have the situation handled by an attorney from the beginning than to bring one in at the end of the game. He or she can often stop litigation before it even begins, and will know the proper steps to ensure your safety from law suits.
Small Business Legal Mistake #4: Inadequate Records
Paper trails are essential for small businesses, and you should file every scrap of paperwork that comes across your desk. Having an up-to-date and all-inclusive filing system should be a priority, as should backing up all computer files and frequently checking over your books. If everything is written down and backed up, you’ll have the evidence necessary to protect yourself from litigation.
Small Business Legal Mistake #5: Jumping into Litigation
As I said before, we live in a litigious world, and it seems that everyone has sued someone at some point in their lives. But as a small business, you should avoid litigation wherever possible, which means vigilance when it comes to all of the above. If at all possible, stay out of the courtroom for the following reasons:
– The fact that you’ve been to court will be a matter of public record, and potential customers will find out;
– It’s expensive and time-consuming;
– Courts rarely favor small businesses; and
– There are other options (settlement, mediation, arbitration).
If you stay away from the above, legal problems shouldn’t be much of an issue for your small business.