The Small Biz blog recently posted five basic legal mistakes that small businesses make. Its conclusion, that “the cost of legal advice before problems arise is much less expenses than litigation,” is invaluable. It also noted that when small businesses are engaged in litigation, it impacts not only the business’ bottom line, but business owners often suffer emotional distress due to the lawsuit.
I would like to add my thoughts to Small Biz’s piece:
1. Choose the right business entity.
Small Biz correctly noted that the proper choice of business entity, whether it be an S-corporation, C-corporation, limited liability company, or a different or hybrid entity, impacts a business’ taxes and the personal liability of its owners.
While websites such as “Legalzoom.com” offer online forms to incorporate, “starting from $149.00,” like most things in life, you get what you pay for.
Beyond choosing the proper business entity for your business needs, a business must take certain steps to make sure it is not treated as an alter–ego of the owner, exposing the owner to liability.
As alluded to in the Small Biz article, and is stressed here, every business owner’s goal should be to not only protect their business by ensuring it ultimately prevails in the event of litigation, but also to do everything in its power to prevent litigation in the first place.
Regardless of whether a claim against your company is valid, any litigation is costly, emotionally draining and takes your focus and resources away from growing your business.
2. Do the right thing when you hire employees.
All successful business owners know that discriminatory employment practices are illegal and detrimental to the success of their business. Diversity of employees and ideas in any business gives one the greatest chance of long-term success.
The article advises to review employment practices, such as questions you ask applicants and the procedure for terminating employees, and to contact an attorney when in doubt. That is sound advice, and even though the vast majority of businesses, and all successful businesses, do not discriminate in employment, a business’ focus should be in crafting policies and procedures that prevent any lawsuit from being filed. Thus, a brief consultation with an attorney can be extremely helpful.
3. Use of Non-compete Agreements.
The use of non-compete agreements in all industries is on the rise, as discussed in a previous blog post, but Small Biz notes there are “templates online” that can be used. The blog rightfully encourages business owners to have an attorney review or create a unique agreement for employers.
Non-compete agreements can be drafted for less money than a business owner might imagine, and an attorney can tailor it specifically to the business interests that need protection. Most importantly, having the eyes of an attorney who stays abreast of developments in the law in your jurisdiction is vastly superior to relying on a “one size fits all” form created by who knows who, where, or when.
A well-drafted non-compete can greatly dissuade an employer from breaching the non-compete, necessitating litigation. Again, a small investment up front with an attorney can greatly increase your chances of avoiding expensive litigation later.
4. Knowing the regulations that apply to you.
Small Biz recommends checking with trade associations for new regulations. Again, a short consultation with an attorney could allow you to plan preventatively and avoid litigation. A recent example is the lawsuit against local restaurant, Corner Taco, which was alleged to have violated the Americans with Disabilities Act. A simple consultation with an attorney prior to opening could have ensured access to the restaurant for disabled persons while protecting the new restaurant from litigation: this could have been a win-win for Corner Taco. Instead, it garnered bad publicity which is bad for business.
5. Address customer concerns.
Small Biz recommends businesses obtain the right insurance policies for their business, and attempt to correct any problems a customer may have. I would add that a short consultation with an attorney could help a business understand its liability so it can chose the right type of insurance.
Overall, Small Biz’s article offers helpful advice for new, small, and growing businesses. Most small business owners, in our experience, are passionate about their business and have gotten to where they are because of expertise in their given industry. Because of past successes or lack of prior litigation, businesses often believe litigation is unlikely. Also, some businesses
may be hesitant to retain an attorney for concern over legal fees. Many small business owners, who have only worked with large law firms, are surprised at the efficiency and flexibility of financial arrangements that can be had with a personalized, smaller firm.