10 Legal Mistakes Small Businesses Make

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It is estimated that eight out of every ten new businesses fail within the first year and a half. Some industries have higher rates of failure but the simple fact remains that small businesses fail at an alarming rate. While the odds of success may seem low, it can be argued that many of these businesses fail for entirely preventable reasons. There are seven major, legal mistakes that small businesses make that can lead to collapse, and many of these issues begin long before the company starts to fold.

Failure to Incorporate – Incorporating your business, whether as an LLC or corporation or a partnership, is a crucial step to protecting your assets and separating them from the company. If you, as the business owner choose to list yourself as a sole proprietor you legally become one with the business, meaning your personal assets could be at risk if something goes array with the business.

Failing to Hire and Attorney – Those who are new to entrepreneurship often believe legal mistakes will only arise as the business gets bigger, so they often put off hiring an attorney until they feel it is necessary. This is a massive mistake. Businesses both large and small can run into legal issues that require the help of an attorney. It is best to have an attorney available even when your business is small. Not only does this protect you against arising issues, but it can also help to ensure the business is set up correctly from the start. 

Badmouthing – Business owners are expected to behave in a fashion that is both ethical and moral, but for many, the pull to disparage competition is just too much to resist. When a business is trying to get a foothold in a competitive industry it might seem like a promising idea to point out what other businesses in the industry do wrong, but such behavior is not only ethically problematic but can lead to legal mistakes. Libel is a grave concern and can cause a legal battle that can zap all available funds. It is best to speak with an attorney to get a better sense of what it can and can not be said, but to be safe it is best not to badmouth another company.

Failure to obtain Patents, Copyrights, and Trademarks – Intellectual property is the most significant asset a small business has, but thousands of businesses fail to get the protection for their intellectual property that they need. Without patents, trademarks, and copyrights, depending on the top of product or service offered, there is nothing legally preventing another company from stealing and using that intellectual property.

Loose Data Securities – Data breaches have been highlighted in the news for years, and even the nation’s most prominent companies and conglomerates have been hit by security breaches in recent years. It is imperative for a small business to protect their customer data through proper cybersecurity strategies. The more data you store, the more secure your servers must be. A failure to protect customer data could cause legal issues for a small business.

Lost Productivity – Both large and small companies run into issues with lost productivity from their workforce, but for a small business just starting out, the ramifications can be enormous. Allowing employees to use the internet for personal use is difficult to avoid, but small businesses often fail to set up firewalls and blocking that prevents employees from accessing content that could be a threat to the company’s security and a danger to other employees. Small business owners should employ employment law and IT strategies to block inappropriate content and to ensure all computers are kept up to date with antivirus and anti-malware software.

Failing to Adhere to Tax Laws – Businesses, regardless of their size, must adhere to tax laws and regulations. Small business owners often forget this crucial step and fail to file quarterly taxes or to submit necessary tax documents. This can lead to substantial fines and audits. A business should employ an accountant who can maintain the books and ensure all tax documentation is filed correctly. Avoiding legal mistakes with taxes is important to a business' success. 

Failure in the business arena is common. The statistics look dire, but you, as a business owner, can set yourself up for success by avoiding these legal pitfalls that plague many small businesses. Whether you are planning to start a media company, or you want to open a bakery, avoiding these legal pitfalls can set the foundation for success. Let the Lynch Law Firm in Austin get you set up to succeed, from the beginning.


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