Whether you are starting your first business or you have owned a company for years, there are five common legal mistakes that many entrepreneurs make. Fortunately, these missteps are usually simple to avoid if you educate yourself and plan ahead.
It is important to accept the fact that you will make a mistake….or several along the way. We are all human and therefore it is inevitable. With this in mind, how you respond to your mistakes is crucial. Don’t let one minor set-back knock you down. With determination and hard work, you can overcome almost any obstacle. Consider the following:
- Many entrepreneurs start their business without forming a legal business entity. As a result, the owner typically remains personally liable for business debts. This places your personal assets (including your home) into jeopardy. Thus, no matter how small your business is, you should register your entity and follow the applicable formation formalities.
- It is important to plan for the future of your business. In other words, what happens if you pass away? What if one of your partners leaves the business to start a competing business? It is imperative to have a signed buy-sell agreement and/or exit strategy in place. It is easier to create this type of plan when the business is first getting started and everyone is getting along, so don’t postpone doing it.
- Relying on verbal agreements is extremely dangerous. All of your “deals” should be put into writing. Although oral contracts may be upheld in court, you can avoid a significant amount of heartache, time and money by putting all of your agreements in writing.
- Never mix your business and personal finances. Even if you are the sole owner of your entity, maintain separate bank accounts, credit cards, debts and other financial matters. Failure to keep your business and personal finances separate can subject you to the risk of the court deciding not to treat you as separate entities. This means that you could be held personally liable for all of your business’s debts and obligations.
- Don’t make the mistake of thinking you can “do it all” without help. There are numerous resources available to small business owners, so take advantage of them. You should also confer with a business attorney to obtain the advice and guidance you need. Taking preventative and cautious action now can help prevent costly litigation in the future.
If you are interested in learning more about protecting your business and yourself, contact the legal team at The Swenson Law Firm for assistance.