5 Tips to Avoid Legal Potholes for Your Small Business

Businesses of all sizes, industry, or stature can be undermined by poor legal arrangements. When people don’t know what’s what, you open you and your business up to the possibility of lawsuits and other legal potholes that may come up at the worst possible moment.

To help guide you and your business in the right direction, we’ve put together five tips for reducing the likelihood of your small business hitting legal potholes.

Tip #1: Avoid loose language.

Before bringing partners onboard – even family and friends – aim to get the details ironed out in writing so everybody knows what’s what.

Avoid ambiguous, loose language; and be sure to address issues such as:

• Each partner’s time, effort, and capital commitment.
• The share of ownership each partner will relinquish if or when more capital comes in.
• How ownership will be redistributed when a partner leaves the business.

Before you sign any agreement, run through a wide variety of scenarios in your mind. For example, consider what might happen if outside forces turn against you, your partner has a change of mind, the business becomes wildly successful, and so forth. Evaluate how well the agreement protects everyone’s interests under those circumstances.

Tip #2: Protect your intellectual property.

The output of your ideas and creativity are your intellectual property. And these days, nearly every business has some intellectual property worth protecting.

Be sure to protect these valuable assets by:

• Applying for a patent, copyright, trademark, etc. when appropriate.
• Set up safeguards to protect your trade secrets that make your business more profitable, better, or faster than your competitors.
• Utilize non-disclosure agreements if there’s any risk or concern about ideas being shared with an outside party.

Tip #3: Sign agreements with every employee.

Regardless of how big or small of a role an employee, contractor, family member, or partner plays in your business – be sure to have the details on paper.

Use employment agreements to layout straightforward expectations. This removes concerns about not knowing the “rules” – and clearly outlines employees’ “at will” working status. Meaning that, per the terms of the agreement, they may be terminated or quit for any reason, at any time.

These agreements also provide the opportunity to define rules around forbidding any form of illegal activities, discrimination, or harassment. All in all, it offers everybody peace of mind so they can go about their daily responsibilities without fear or uncertainty.

Tip #4: Stay out of the courtroom.

Whenever possible, settle disputes outside of the courtroom. Litigation can get very costly, very fast. And it can be an immense distraction for any small business.

Consider adding an arbitration clause in all of your company contracts. And explore every other avenue before you agree to take a matter to the courtroom.

Tip #5: Recognize ignorance isn’t bliss.

Do your homework. Know your rights. Understand the rules. And above all, remember that ignorance isn’t bliss.

Just because you were unaware of a law or legal requirement, doesn’t mean you get a free pass if such rules are broken. Make it a priority to have just as good as a handle – if not a better handle – on your business’s legal considerations as you do on the other core parts of your business like marketing and sales.

Be familiar with:

• Employment law.
• Legal requirements of raising capital for your business entity.
• Basic contract law.
• Federal, state, regional, and county regulations and requirements that apply to your business.
• And if ever in doubt, know how to get in contact with a qualified small business attorney to consult with.

What other tips would you add to the list? Leave a comment below so we can continue to help the small business community steer clear from legal potholes that may be ahead.