Legal Issues for Small Businesses - By: Vlad Ehrsam, Posted on: 2006-10-20

Small business owners make legal mistakes all of the time, which often results in the downfall of a company. Without the proper knowledge, business owners find themselves repeating the same mistakes. The SBA (Small Business Association) stresses the importance of ending the circle of disastrous legal errors by investing in Continuing Education business courses, or by hiring a business consultant.

In today’s world of technology, several resources offer up-to-date material on business procedures that directly affect the legitimacy of a company. The following are a list of common mistakes and ‘how-to’ avoid repeating them.

For most business transactions you want to create and sign a contract. Contracts or service agreements allows you to define what your services or products entail. Service agreements are an important way that you can protect yourself and your business. Don’t overlook this important aspect of small businesses.

Your service agreement should definitively state exactly what you’re agreeing to do and the specifics of that. It should detail the definition and scope of your service. You should also define what is not included in your service and if any extra charges may be applicable. Don’t leave anything out.

At some point you may need to hire or fire employees. Many small business owners are unaware of their rights and their employee’s rights. Even though you may only have one employee it is important that you are well versed in labor standards and other regulations. If you need to terminate one of your employees it is vital that you do it properly.

Sometimes employees will threaten with “Unlawful Discharge” suits. It is important that each member knows they are an “at will employee,” which means they can be terminated at any time, or for any legitimate reason.

Hiring Independent Contractors – To avoid some of the hefty labor taxes, small business owners hire Independent Contractors to take up the slack. IC’s (Independent Contractors) are responsible for claiming their income and expenses and filing with the IRS.

Use extreme caution assigning tasks to the company’s IC’s. Some projects can change the status of an IC to an Employee in the IRS’s eyes. If you’re uncertain as to what jobs classify as IC or Non IC status, visit your local state website or www.sba.gov for more information.

When starting your business you need to know how your business is classified. You may be a sole proprietor or perhaps in a partnership. Each of these designations carries its own legal ramifications. For instance as a sole proprietor you are vulnerable to legal action taken against your company.

A better choice would be to start your company as a limited liability corporation. This means your company is a separate entity that must deal with its own legal issues and you are not personally held liable.

No matter what sector your company is in you need to be concerned with intellectual property issues. It is important that you know and understand the term and issues surrounding copyrights, registered trademarks, confidentiality agreements, and invention assignment agreements.

If you don’t want problems with the IRS, good record keeping and accounting is essential. You can cause serious problems for yourself and your company if you don’t keep records of all business transactions.

Experienced Corporate Attorney – No matter what entity a business operates under, a growing business will face issues that require the service of an experienced attorney. Unfortunately, cost is a huge issue for most small business owners. Corporate attorneys do charge a much larger sum for their services.

Do your research and compare fees. The long term relationship you build with your corporate attorney will have its value. All businesses should make an investment in a “good” corporate attorney.

Be sure to find an attorney that you’re comfortable with since you may need his or her services in the years to come. It may be wise to meet with several attorneys before you choose one.

If it anytime you feel in over your head, consult with an attorney. Business owners can get themselves into very serious trouble without the proper legal knowledge.

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Vlad Ehrsam is the chief writer for, and editor of Full Info on Business, visit there today for the latest Business advice, and while you're there sign up for the free newsletter.
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