Maria Arnedo
By: marnedo
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The 5 Worst Legal Mistakes Small Businesses Make

At the beginning of this year, Forbes noted the small business market continues to flourish with improved profits and substantial hiring. You’re perhaps one of those who has a solid idea that could do well within the growing competitive small business marketplace. Before you start, though, are you aware of every potential legal detail you’ll need to attend to?

Keeping up with the legal requirements for starting a business are beyond overwhelming. Even if you think you have proper help, you could overlook numerous things that may catch up with you later.

The problem with business law is a lot of it pertains to protecting you in the future. Not looking ahead to protect your assets and other details could place you in a litigation mess down the road.

You don’t want legal mishaps later, especially during a critical time when you’re growing your small business. Too many legal fees could place you in financial jeopardy, not including the downtime taking care of legal issues.

Here’s the 5 worst legal mistakes small businesses make and what to watch out for before opening doors.

Not Keeping a Simple Business Structure

While you may think it’s impossible to keep even a small business structure simple, it’s essential to at least do your best. Making it too complex only opens up potential legal problems later since you can’t always guess what may occur in another few years.

By keeping your structure simple, you leave things open for more flexibility in the future. Trying to structure for a potential investor doesn’t really help and only wastes time.

Ignoring Creative Asset Ownership Until Later

Make sure you deal with who owns your creative assets before you open your small business, because legal disputes easily happen far into the future. Once your small business becomes a major success, many who work for you may move on and still claim ownership over copyrights, trademarks, or patents.

Delineate in your legal papers who exactly owns what. Be sure to deal with work-for-hire agreements as well when hiring an outsider to come in and create intellectual property for you.

Not Incorporating the Business

You may think it’s not worth incorporation just because you own a small business. Don’t fall into this trap, because you could end up with personal liability issues once you find success.

Work with your attorney to decide whether you should file as a LLC, C, or S corporation. Once you gain incorporation, you’ll be able to open yourself up to outside investors, plus protect yourself legally from customer or former employee lawsuits.

Not Carefully Choosing Your Choice of Jurisdiction

When you incorporate, don’t be careless on which state you decide to do your jurisdiction. It’s usually advisable to incorporate in the state where you’re going to run your business. Some mistakenly think incorporating in other states can save them some tax money.

It takes some careful planning to avoid paying more in taxes than you initially planned. The problem here is too many go online and incorporate their small business through a state drop-down menu.

Work carefully with a legal professional to choose the right state where you’ll incorporate your business.

Not Understanding Copyright Laws

As with intellectual property above, make sure you actually understand the details behind those laws. While you may know everything about patents and trademarks, you may get confused on copyright laws in particular.

At stake here is scoping out copyrighted material you use regularly in your business and finding who owns the rights. Use of copyrighted material online is still a serious issue that easily brings violations. Don’t assume just giving credit to someone is enough since their content may require actual permission before being used.


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