Top Ten Legal Issues for Small Business Owners

Do you remember falling asleep as a kid to the sound of David Letterman or Johnny Carson in the background?

If I managed to sneak back out to the living room, the cut-off for returning back to my bed was the end of David Letterman’s Top Ten List.

My all time favorite?

Top Ten Things You Don’t Want to Hear from Your Mom: (10) I don’t have a favorite child, but I do have a least favorite. (9) I always had you pegged for prison. (8) Why are you so mean to Regis? (7) Could you make my Mother’s Day gift out to “cash”? (6) I’m not angry with they way you turned out, I’m just disappointed. (5) Get off my property or I’ll call the cops. (4) You were so much cuter when we dressed you as a girl. (3) I’m doing this Top Ten List for the paycheck. (2) Don’t marry the first girl you live with for 23 years. (1) Why can’t you have a show at ten o’clock?

Readers, ain’t No. 10 the truth? Luckily for my kids, the one who is the least favorite changes every day.

In the spirit of the Top Ten List, and in honor of National Small Business Week, today I am going to talk about the top ten legal issues for small business owners.

Yes, lawyers are not a fraction as funny as David Letterman. And yes, lawyer lists are usually scary. With that said, here we go.

10. Choosing the wrong business structure

I could have also called this one “not bothering to choose a business structure.” If you do nothing, your business is classified as a “sole proprietorship.” If your business is sued, you are personally liable and responsible for losses. Take the time to talk with a lawyer and register your business as a limited liability company (LLC) or another business entity to create a legal separation between the business and your personal assets. For more information, check out How to Not Lose Your Pants in Your Home-Based Business.

9. Copyrights, patents, and trademarks

Developing a new product? Creating clever names and slogans? Do the research and make sure your million dollar idea isn’t someone else’s million dollar idea too. Work with an IP attorney to protect your intellectual property. Finally, make sure you have your employees sign confidentiality, non-disclosure, and assignment of inventions agreements.

8. Taxes

Screwing up your taxes can result in fines, even imprisonment. And ruin your business. Speak with a tax attorney and accountant.

7. Employee contracts

Even if all of your workers are contractors and/or at-will employees, you need to have contracts in place with them. The contracts should address payment, termination, and rights and responsibilities of the worker, as well as confidentiality and ownership of intellectual property.

6. Discrimination and harassment

Discrimination claims (sexual, ethnic, age, or otherwise) can ruin your business. Know what the rules are and make sure you follow them. Did you know the Age Discrimination in Employment Act forbids employment discrimination against anyone at least 40 years old? I bet you would have guessed 65. This and other labor laws can be pretty complicated and non-intuitive. If you are unsure, be sure to consult with a labor and employment attorney.

In the #MeToo era, you and your employees need to know exactly where the line is and what behavior constitutes crossing the line. There’s no excuse.

5. Employee termination

Firing an employee? It’s an awkward conversation to be sure. To avoid a lawsuit, make sure you are not violating any of the following laws:

  • Wrongful termination: Firing someone for an illegal reason.
  • At-will employment: Exceptions to at-will employment laws.
  • Last paycheck: Send the last paycheck when and how your state mandates.
  • COBRA Insurance: Give your employee COBRA insurance information.
  • Unemployment Insurance: Offer unemployment insurance to employees who qualify.

Unsure? Consult with a labor and employment attorney.

4. Misclassification

Just because you call a worker an “independent contractor” rather than an “employee” does not make it so. The IRS and the Department of Labor take this issue very seriously. Before you classify one of your workers as an independent contractor, be sure to read the Department of Labor’s guidelines and to contact a labor and employment attorney if you are still unsure.

3. Co-owner agreement

More than one cook in the proverbial kitchen? If your business has more than one owner, you need to have a written agreement. I don’t care if she’s your best friend from high school and wouldn’t hurt a fly. Even the best of relationships can turn sour, especially when money is involved. Consult with a business lawyer and get an agreement in place before any issues arise.

2. Disgruntled customers

The cross that every business owner must bear.

Address complaints promptly and always post a thoughtful response to bad online reviews.

Use disclaimers with all of your products and services to limit your responsibility.

1. Litigiousness

This is the one issue that is 100% in your control. Don’t be too quick to sue someone. Litigation can be expensive, really expensive. Trust me, I’m married to a litigator. Always see if there is a way to negotiate and settle a dispute before you sue.

Least funny list of all time, but hopefully helpful to you small business owners. Happy Small Business Week!

What is your favorite Letterman Top Ten List? Leave a comment or send me an e-mail.

Disclaimer: This website is made available for educational purposes only as well as to give general information and a general understanding of the law, not to provide specific legal advice. By using this website you understand that there is no attorney client relationship between you and the publisher. The website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

Copyright © 2018 by Siobhán Fitzpatrick Kratovil. All Rights Reserved.

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