Getting the right professional will allow you to focus on your business with greater certainty.
Business owners are passionate about what they do, but not all are legal experts. Here are some tips for businesses that could help you avoid some of the most common business compliance pitfalls faced by entrepreneurs.
1. Waiting to Hire a Lawyer
You might need a legal resource. This is someone you should find when starting up, not when you're threatened with a lawsuit. Build a long-term relationship with a good lawyer who specializes in legal advice for businesses. Getting the right professional will allow you to focus on your business with greater surety.
2. Not Revisiting Your Legal Business Structure
Your business structure can have huge legal implications for you, especially in the case of a lawsuit. It may make sense for you to start as a sole proprietorship, but this could expose you and your assets to personal liability. Revisit the issue as you grow. If your business remains a sole proprietorship, you could end up exposing yourself to risks you never intended. Incorporating or forming an LLC can help protect your personal assets, no matter how small your business is. Check with a legal and tax professional to determine what makes sense for you.
3. Printing Out Generic Contracts
Written and signed contracts are a necessity and may help protect you in the event of a legal action or dispute. There are many examples of contracts available over the internet, but these are general templates and may not capture the specific risks of a particular transaction. When developing contracts, engage your lawyer in the process to make sure that you are properly protected. Pre-made online contracts, and those developed by friends or family, may not provide the protection you need and may give you a false sense of security.
4. Neglecting Copyrights and Trademarks
Not getting protection for intellectual property could allow a competitor to steal your valuable work. Ensure your business name and logo are also adequately protected. An attorney knowledgeable in the area of intellectual property and trade secrets should be able to guide you through this process. Also consider non-disclosure and non-compete agreements for employees to prevent them starting up a near-identical company and taking your customers. Many states impose limitations on the scope and terms of these agreements, so talk to a knowledgeable attorney to make sure these agreements are enforceable.
5. Being Too Lenient About Employee Status
Failing to properly classify employees and independent contractors can lead to business compliance issues. For employees, taxes must be deducted from payroll. Contractors are responsible for submitting their own tax returns. The IRS, as well as other federal and state agencies, offer criteria to help businesses determine whether individuals providing services are contractors or employees. Considerations include how the worker is paid, whether there's a written contract and how integral the role is to the business. Most agencies, including the IRS, examine whether a business controls what the worker does and how they perform their job.
6. Underestimating Tax Laws
Tax laws are complicated and can vary widely by jurisdiction. In addition to soliciting the services of a lawyer, it's best practice to employ an accountant or business adviser with experience and knowledge of tax law in the jurisdiction in which you operate.
Hiring an attorney may cost you, but it will be money well spent. If you don't have someone on your team already, reach out to your social and professional communities for recommendations or check with your local bar association.
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