Starting a small business can be both an exciting and daunting experience.
From coming up with a unique idea to executing it, there are many factors to consider.
However, one aspect that is often overlooked by small business owners is the legal aspect.
As a business lawyer who has worked with various small businesses, I have seen firsthand the importance of having proper legal guidance from the start.
Unfortunately, I watched my own dad’s business get sued for $90,000, so I know firsthand that legal issues can quickly become a major headache and financial burden for small business owners.
53% of small businesses get sued every year. Over 75% of small business owners are concerned that they will be targeted for a lawsuit.
However, with the right knowledge and preparation, you can avoid these kinds of situations and protect your business.
In this article, we will share 23 legal tips for small business owners that can help you navigate through the legal complexities of starting and running a successful business.
Whether you are just starting your entrepreneurial journey or have been in business for years, these tips will help you navigate the legal aspects of your business with confidence.
So let’s dive in and learn how to protect your business, yourself, and your assets.
Table of Contents
Legal Tip #1: Know Your Business Legal Requirements
The first legal tip for any small business owner is to know your business legal requirements including any local laws, business licenses, and so forth.
You should know the requirements to start a business such as how to legally start a business.
For example, if you are starting an online business then you must comply with website legal requirements and have these three legal pages posted on your website:
- A Website disclaimer to limit your legal liability for the content you publish. These are statements that limit your liability for the information and services provided on your website. For example, a medical disclaimer states that the information on your site is not intended to be used as medical advice and should not substitute for professional medical treatment.
- A Terms and Conditions to avoid legal disputes with your readers, customers, and clients. These are essentially the “rules” that govern the use of your website. They outline what visitors can and cannot do while using your site, as well as any limitations or disclaimers that apply to your content. Having clear and comprehensive terms and conditions can protect you from potential legal disputes with visitors and customers.
If you don’t have these proper legal pages on your website, you can grab our legal bundle (written by a lawyer) to get started.
A common mistake business owners make is not using the right legal documents and then facing legal challenges.
Legal Tip #2: Form a business entity to protect your assets
Forming the right business structure is crucial for the success of your small business.
This decision will impact your taxes, personal liability, and ability to raise capital.
Also, when you form an LLC with the Secretary of State, you can apply for an EIN number for your company’s name instead of using your own social security number.
Having a separate entity for your business can help protect your personal assets from potential legal liabilities and lawsuits.
Need help filing your LLC, book our 1 hour LLC formation service here with an actual attorney.
This is the easiest way to ensure your LLC paperwork is filed correctly.
Legal Tip #3: Don’t enter into verbal agreements
As a general rule, make sure to use proper legal contracts and put everything in writing.
A written contract can save you lots of headache down the road.
Remember as an owner of a small business, everything you do is a reflection of your company.
It’s important to have all agreements in writing, whether it’s with vendors, clients or employees.
My dad made this legal mistake of entering into a verbal agreement with one of his independent contractors instead of a clear contract in writing. This resulted in a $90,000 costly legal battle.
He could have easily avoided that legal action and nightmare by using a proper contract (like this one) written by a business attorney.
Having proper contracts in place help avoid misunderstandings and protect your business from potential legal disputes.
Legal Tip #4: Engage an Attorney Early On
A business law attorney can help you navigate complex legal issues, ensure compliance with regulations, and protect your business from potential legal risks.
For each business and sector, these things look slightly different, and things could come into play that you hadn’t even considered.
So, while it is possible to research and find answers for yourself, actually engaging with somebody who can do that for you, and will have more knowledge than you, can prevent any catastrophes right at the start of your business and relieve a massive amount of pressure.
Establishing a strong legal foundation can save you time and money in the long run.
So, while it may seem like an investment you aren’t sure about right now, it is worth setting aside money for it for your long-term benefits.
Legal Tip #5: Create a Separate Business Bank Account
Even if you operate your small business as sole proprietorship, it is important to separate your personal and business finances.
You should open a separate bank account for your business.
Opening a separate business bank account will make managing your finances easier and provide clear records for tax purposes.
Having separate bank accounts is a legal requirement for LLCs and corporations.
Also if your business ever gets audited by Internal Revenue Service (IRS), having separate business bank account and records will make the audit process smoother.
You can even use separate business credit cards to keep track of your expenses instead of mixing them with your personal credit cards.
Legal Tip #6: Ensure Adequate Commercial Insurance
Ensure that your commercial insurance policy is in place and covers the activities you intend to engage in.
There are different types of insurance out there. Pick the liability insurance that works best to protect your business assets.
An LLC might not provide enough protection.
The only way to be certain that you’re protected is to be adequately insured.
I recommend at least $1,000,000 in coverage.
As a personal injury lawyer, I don’t want to garnish your retirement account or record a judgment against your house.
Legal Tip #7: Invest in Sound Contract Drafting
My top legal advice for small-business owners is to always have appropriately-drafted contracts in place.
Whether you’re dealing with clients, suppliers, or employees, a well-constructed contract can safeguard your business by providing clear expectations and obligations for all parties involved.
It also prepares a business to handle disputes if they arise, potentially saving time, stress, and financial resources.
Not having proper contracts can put your business at unnecessary legal risk, so investing in legal counsel is essential to ensure your contracts are sound and protective.
Legal Tip #8: Stay Up-to-Date with Employment and Labor Laws
As a small business owner, it’s essential to understand employment laws and regulations.
This includes knowing the difference between independent contractors and employees, adhering to minimum wage and overtime laws, and complying with anti-discrimination laws.
Employment laws are constantly evolving, and it’s crucial for small business owners to stay up-to-date with any changes.
Consult with a lawyer or sign up for legal updates to ensure that your business is compliant with all employment laws.
When it comes to employment law, you need to know your legal obligation and follow certain rules to ensure your business operations are running legally.
For example, if you have employees then make sure to have a proper employee handbook in place that clearly outlines your business policies.
Need help reviewing or creating your Employee handbook? Book our contract drafting service here.
Pro Tip: You should make your website compliant with accessibility laws as well.
Legal Tip #9: Understand and Mitigate Business Risks
The best legal tip I can offer for small business owners is to take the time to understand risk and exposure at the early stages, consider your risk tolerance, and then take the appropriate business and legal steps to reduce risk.
As a business owner, you can never eliminate risk.
However, by structurally correctly a legal entity, following best practices, and using appropriately-tailored legal document sets, you can make informed decisions and decide how to best mitigate risk in your own business.
Legal Tip #10: Protect Your Company’s Intellectual Property
One of my best legal tips for small business owners is to protect your intellectual property.
There’s very little your business can do when another company takes your logo, branding, or company name if you haven’t enabled a patent, copyright, or trademark.
Laws within these areas can protect your company in areas such as branding and intellectual property (IP). IP is generally at a higher risk for technology and e-commerce companies.
Business law attorneys understand the intricacies of intellectual property, trademark office and copyright laws and can aid you within these areas that are integral to the success of your business.
Consult with a lawyer to determine the best way to protect your intellectual property including trade secrets from infringement or theft.
Pro Tip: Protect your business secrets and confidential information with this confidentiality agreement template.
Legal Tip #11: Avoid Trademarked Business Names
Find out if any other businesses have the same business name as the one you have in mind, and whether this business name is trademarked.
If you do not look into this, you could run into some legal troubles down the road when the other business finds out you are using their trademarked business name.
It’s best to consult with a trademark attorney to make sure you run a proper trademark search in these legal matters.
Legal Tip #12: Promote a Safe, Supportive Workplace
If you’re a budding entrepreneur, dodging legal headaches over employee injuries should be high on your to-do list.
Why? Because a lawsuit can derail both your reputation and your bottom line.
The fix is surprisingly simple: make your workplace safe and supportive.
This isn’t just about doing the right thing; it’s about a smart, preventive business strategy that can save you from costly and stressful legal battles.
Tip 13: Know Advertising and Marketing Regulations
As a business owner, it’s important to adhere to advertising and marketing regulations.
Check out this blog post to learn more about disclosures and disclaimers you need under the Federal Trade Commission rules.
Tip 14: Have a Written Partnership Agreement
If you have partners in your business, it’s essential to have a written partnership agreement in place.
This document will outline each partner’s rights and responsibilities, prevent disputes, and provide guidance for resolving conflicts.
I know so many business partners who have made the mistake of not using a partnership agreement and later regretted it!
Legal Tip #15: Prioritize Meticulous Contract Management
My best legal advice for small-business owners is to prioritize meticulous contract management.
Clear, comprehensive contracts serve as the backbone of any business transaction, outlining terms, responsibilities, and legal protections.
Small businesses often underestimate the power of a well-drafted contract until disputes arise.
By investing in precise contracts tailored to specific transactions, businesses can preemptively address potential issues, clarify expectations, and protect themselves legally.
Understanding the significance of robust contracts as preventive legal tools can save businesses substantial time, money, and stress in the long run.
-Michael Edwards, Partner, Michael Edwards Solicitors
Legal Tip 16: Be Aware of Tax Obligations
Taxes can be a complicated matter for small business owners.
So one of my legal tips for small business owners is to understand your tax obligations, including income tax, getting an employer identification number (EIN), sales tax, and payroll taxes.
It’s a good idea to consult with a lawyer or an accountant to ensure that you are meeting all your tax requirements as a new business owner.
Legal Tip #17: Consult a Tax Attorney
My best legal tip for small-business owners is to consult with a tax attorney.
They can provide expert advice on tax planning, compliance, and help navigate complex tax laws. This can save businesses from costly mistakes and ensure they are maximizing their tax benefits.
Legal Tip #18: Use Comprehensive Contracts for Business Dealings
One of my best legal tips for small business owners is to prioritize comprehensive contracts and agreements in all business dealings.
Crafting clear, detailed, and legally binding contracts tailored to your specific business transactions is crucial for several reasons.
First, well-drafted contracts serve as a roadmap, outlining the rights, obligations, and expectations of all parties involved.
This clarity helps prevent misunderstandings and disputes that often lead to costly litigation.
When disputes arise, having a detailed contract can significantly simplify the resolution process, as parties can refer to the written agreement to resolve disagreements.
Contracts provide legal protection.
They specify the terms and conditions under which your business operates, protecting your interests and assets. This protection is vital in various situations, such as when dealing with customers, vendors, employees, clients, or partners.
–Mike Schmidt, Civil Trial Law Specialist, Personal Injury Trial Law Specialist by the Texas Board of Legal Specialization, and Civil Trial Specialist by the National Board of Trial Advocacy., Schmidt & Clark
Legal Tip 19: Understand Contracts Before Signing
One of my important legal tips for small business owners is to understand contracts.
Before signing any contracts, make sure you fully understand all the terms and conditions.
Contract law can be complex, and it’s always a good idea to have a lawyer review any contracts before signing them.
This will help protect your business from any potential legal disputes in the future.
Consult with a lawyer here to review the contract and ensure that your business’s interests are protected.
Legal Tip #20: Comply with Industry Regulations
Depending on your business’s industry, there may be specific regulations that you need to comply with.
For example, if you run a food business, you must follow health and safety regulations.
Depending on the type of business you have, you may have additional legal requirements to meet.
Consult with a lawyer to ensure that your business is meeting all the necessary requirements.
Legal Tip 21: Have an Exit Strategy
As a small business owner, it’s crucial to have an exit strategy in place.
This could include selling your business, passing it on to a family member, or closing it down.
The sale of your business could be your long term retirement plan. So it’s important to have a well thought out exit strategy in place.
Legal Tip 22: Keep Accurate Financial Records
Having accurate financial records is crucial for the success of your business.
Not only does it help you make informed decisions, but it also ensures that you are complying with tax laws and regulations.
Use software tools like this one to ensure you have clear and up-to-date records.
Check out more helpful business tools here.
Legal Tip 23: Always Seek Legal Advice
When in doubt, seek legal advice.
It’s better to consult with a lawyer before making any significant business decisions or entering into contracts.
A lawyer can provide you with valuable guidance and help you avoid costly legal mistakes.
Check out all the different legal services you may need in your business.
Related Video: Watch this video to learn how to avoid 13 costly legal mistakes small business owners make!
What’s One Piece of Legal Advice that Would be Most Helpful in Starting a New Business?
During my weekly business consults with online entrepreneurs, I’m often asked to give one piece of legal advice that would be helpful in starting a new business.
While it’s difficult to narrow down my wealth of legal knowledge into just one piece of advice, I have found that there is one key element that can make or break a new business: having a solid legal foundation.
This may sound like a daunting task, but it’s absolutely essential for the success of your business.
For example, here are the three legal pages you should post on your website BEFORE starting an online business.
Fortunately, I have easy to use done-for-you legal templates that you can instantly download to make your website compliant in less than 15 minutes.
Here are 100’s of 5-star reviews of our legal templates as well.
Having these legal components in place will provide credibility to your business, protect you from potential legal issues, and build trust with your audience.
In addition to these, you should also consider forming a business entity such as an LLC to protect your personal assets.
What Matters Most to Small Business Owners?
Small business owners have a lot on their plate when it comes to running a successful venture.
But what matters most to these hard-working entrepreneurs?
Here are 5 key things to keep in mind:
- Cash flow: For small businesses, cash flow is crucial for keeping the lights on and the business running smoothly. Without a steady cash flow, it can be difficult to cover expenses and invest in growth opportunities.
- Customer satisfaction: Satisfied customers are the key to success for any business. For small businesses, building strong relationships with customers is essential for repeat business and positive word-of-mouth marketing.
- Innovation: Small businesses often face competition from larger companies, so staying innovative and offering unique products or services can help them stand out in the market.
- Work-life balance: While running a business can be all-consuming, many small business owners also prioritize maintaining a healthy work-life balance. They understand the importance of taking breaks and spending time with loved ones to avoid burnout and maintain overall well-being.
- Supportive community: Small business owners often rely on their local community for support and networking opportunities. Building relationships with other small business owners can provide valuable resources, advice, and a sense of camaraderie.
While there are many factors that contribute to the success of a new business, having a strong legal foundation and prioritizing key aspects such as cash flow, customer satisfaction, innovation, work-life balance, and a supportive community can greatly benefit small business owners in their journey.
So, if you’re starting a new business or looking to improve your current one, make sure to keep these important factors in mind.
How do you manage a small business successfully?
Check out this post to learn the 25 top financial tips for small business owners.
What Advice Would you Give on Hiring a Business Attorney?
Hiring a business attorney is an important step for ensuring legal success of your small business.
When it comes to legal matters, experience is key. Obviously, you want to work with an attorney that has experience with an online business, has worked with entrepreneurs and has a good understanding of the legal challenges that come with running a small business.
For example, there are several Federal Trade Commission (FTC) rules, state and federal law regulations when it comes to running your business legally.
You need to understand how to legally market and sell your products online.
With our legal templates and services, you get all that legal knowledge instantly so that you can avoid breaking any rules or paying penalties later.
What are Legal Issues in Business?
You could face legal issues in any area of your business such as issues with your employee, independent contractor, legal dispute with your customer over your product or service.
Some other legal issues in business you could face could be related to privacy violations, data breaches, product liability, tax and government violations, infringement of your intellectual property, and more!
That’s why it’s essential to have a strong legal foundation in place to protect their business from these potential issues.
How Do I Protect my Business from Lawsuits?
One of the important legal tips for small business owners is to protect their business from lawsuits.
Here are some ways you can do that:
- Use proper legal pages and contracts: This includes having clear terms and conditions, privacy policies, and disclaimers on your website or in contracts with customers and suppliers. These documents outline the rights and responsibilities of both parties and can help protect your business in case of a dispute.
- Stay compliant with laws and regulations: Make sure you are aware of and following all relevant laws and regulations related to your industry. This can include employment laws, tax codes, zoning ordinances, and more.
- Keep accurate records: Good record-keeping can be crucial in the event of a lawsuit. Make sure you have proper documentation for all business transactions, including contracts, LLC Operating agreement, and financial records.
- Purchase liability insurance: Liability insurance can provide protection in case of a lawsuit related to property damage or bodily injury. It’s important to research and purchase the right type and amount of coverage for your business.
Final Thoughts – Legal Tips for Small Business Owners
As a small business owner, understanding the legal aspects of running a business is vital for its success.
Now you know how to legally start a business online and some of the key small business legal requirements.
Sign up for our FREE legal guide from a lawyer to learn more!
By following these 23 legal tips for small business owners above, you can protect your small business and avoid any legal complications.
Remember to always consult with a lawyer for personalized legal advice that suits your specific business needs. So, don’t underestimate the importance of proper legal guidance and take the necessary steps to ensure your business’s success.
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