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Keeping Your Small Business Out Of Legal Trouble

Nyall Bakk
Expert Author
Published: 2005-08-05

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Avoiding Common Legal Mistakes

Small business owners make legal mistakes all of the time, which often results in the downfall of a company. Without the proper knowledge, business owners find themselves repeating the same mistakes.


The SBA (Small Business Association) stresses the importance of ending the circle of disastrous legal errors by investing in Continuing Education business courses, or by hiring a business consultant.

There are many web sites that offer legal advice for the small business owner. Here are just a few situations that may arise where you should know your legal rights. In all these situations you may find it necessary to contact an experienced corporate attorney.

Service Agreements ~ Conducting business involves drafting up a Statement of Work or a Written Agreement. Without a contract, it is difficult to enforce the law. Carefully draw up the business terms, draft it in the company~s favor, and provide flexibility and protection.

In each service agreement you should list in detail what your service encompasses. Be very specific and don~t leave anything out. A signed contract is a very important legal document and can stand up in court. Also be sure to add what is considered an extra service and what the charges would be. Make sure that you don~t leave anything out of your service agreement.

At some point you may need to hire or fire employees. Many small business owners are unaware of their rights and their employee~s rights. Even though you may only have one employee it is important that you are well versed in labor standards and other regulations. If you need to terminate one of your employees it is vital that you do it properly.

Sometimes employees will threaten with ~Unlawful Discharge~ suits. It is important that each member knows they are an ~at will employee,~ which means they can be terminated at any time, or for any legitimate reason.

Hiring Independent Contractors ~ To avoid some of the hefty labor taxes, small business owners hire Independent Contractors to take up the slack. IC~s (Independent Contractors) are responsible for claiming their income and expenses and filing with the IRS.

Even though you may have hired an independent contractor the IRS may consider their job to be that of an employee~s. This means things could get complicated for you. Be sure to check what the IRS considers employee~s jobs before hiring an independent contractor.

Sole Proprietorship verses L.L.C. ~ Under many state laws, founding partners are jointly liable for the debts and obligations in general partnerships. Operating a business as the sole proprietorship puts the owner in a vulnerable position.

A better choice would be to start your company as a limited liability corporation. This means your company is a separate entity that must deal with its own legal issues and you are not personally held liable.

No matter what sector your company is in you need to be concerned with intellectual property issues. It is important that you know and understand the term and issues surrounding copyrights, registered trademarks, confidentiality agreements, and invention assignment agreements.

Record Keeping ~ Improper record keeping can cause serious problems. Accurate accounting records are essential if the IRS is the least bit suspicious about the company~s financial records. Invest in a bookkeeper or an accounting program to make it easier to keep account of your daily transactions. Also, organize files to be readily accessible in case of an IRS audit.

You may want to hire a bookkeeper or accountant to deal with accounting issues. If you can~t afford to do so be sure to take a course on business accounting to ensure you have proper records of everything.

In any of the above situations you may find it necessary to contact an experienced corporate attorney. Almost all businesses at some point in time will need the advice or services of a professional. While most attorneys do charge a high fee, there are times when this is necessary.

Without a doubt, a business should run erring on the side of caution. Choosing to operate without the proper knowledge on business laws and business ethics, will lead to disaster. Check with an attorney before pursuing a business and start on the right foot.

If it anytime you feel in over your head, consult with an attorney. Business owners can get themselves into very serious trouble without the proper legal knowledge.

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About the Author:
Nyall Bakk is the chief editor for Advertising WorldWide, Inc, the #1 source on the internet for information about advertising. For more articles on advertising why not visit: http://www.advertisingww.com/articles

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