Essential Legal Tips Every Small Business Owner Should Know

Small business owners wear many hats, juggling marketing and finances with customer engagement and logistics. With so many areas demanding focus, it’s easy to let legal compliance slip to the wayside, however, this can sometimes lead to devastating results.

A small business owner benefits significantly from paying attention to the legal side of running a business — or hiring a small business law attorney to do so on their behalf!

Let’s explore why small businesses need a lawyer and the essential legal tips every small business owner should know.

Why Do Small Businesses Need A Lawyer?

Legal knowledge is essential for remaining compliant and making intelligent business decisions. An experienced small business lawyer can help both aspects by offering the following benefits.

• Guidance in strategic business formation
• Assistance with drafting, reviewing, and editing contracts
• Maintaining compliance with local laws and regulations
• Assisting with dispute resolution and reducing liability
• Guidance on succession planning
• Offering insight on registration, licensing, and permit matters
• Avoiding risks with tax liabilities and costly legal issues
• Providing legal advice for business growth and succession planning

Seven Legal Tips For Small Business Owners

Understanding basic legalities is in your best interest as a small business owner to position your company for success. Consider the following legal tips as a starting point.

1. Choose The Right Legal Structure

The legal structure of a business directly impacts the amount of tax the company pays, the personal liability that the owner takes on, and the amount of paperwork needed to remain compliant and operative.

The most common legal structures are as follows, each offering its advantages and disadvantages.

• Sole proprietorship – the most straightforward business entity that is easy to set up, low cost, offers eligibility for tax deduction, and an easy exit strategy.
• Partnership – owned by two or more individuals, you can start a general partnership or a limited partnership, both of which are easy to form, have special taxation, and offer the potential for growth.
• Limited liability company – a hybrid structure that limits personal liabilities while offering the flexibility and tax benefits of a partnership.
• Corporation – the business and its legal rights are separate from its owners, and it is easier to maintain continuity and raise capital.

Choosing the best structure for your business can be determined by asking a few key questions, such as who will manage it, whether personal liability is a potential issue, and what formalities you want to manage.

An experienced attorney will help you tackle these questions critically and guide you toward the best business structure for your company.

2. Pay Attention To Accurate Record Keeping

No matter how small the business, accurate and well-organized records are important for legal protection and compliance. Consider filing all documentation safely and securely, with a digital copy to back it up.

For example, contracts, financial transactions, licenses, and permits are all key documentation that helps mitigate risks and channel growth.

A lawyer offers insight into which documentation is important while assisting in drafting clear and articulate contracts. Airtight documentation prevents disputes and provides clarity during misunderstandings.

3. Strictly Follow Local Laws And Regulations

Business law differs from state to state, and it is essential to stay updated and compliant with current laws and regulations within your state.

For example, Florida contractors must be licensed by the Florida Department of Business and Professional Regulation, and the licensing requirements include a state license, local permits, and continuing education. In contrast, contractors in California are licensed through the California Contractors State License Board and must pass a specific exam to receive their state license. There are nuances in the requirements for local permits, with a focus on different areas of the profession.

The business structure and type of business will determine where you must register your business — with the city, county, or state — and which permits or licenses are needed to operate within the law.

These registration processes and permit renewals can become complicated, and that’s where an expert’s knowledge and experience are helpful. An experienced attorney will help you remain compliant and organized, thereby reducing the risk of expensive mistakes.

4. Get Everything In Writing

Every business opportunity matters as a small business owner, which can lead to gentlemen’s agreements and handshakes. However, these agreements lack formal documentation and present a severe risk of misunderstandings, invalid terms, disputes, and legal challenges.

A written contract that offers legal protection and clarity can avoid all of these problems. Business agreements should be documented in writing to set clear expectations and outline the details. The contract also offers legal enforceability, minimizes risks, and presents a professional and consistent image.

In addition, documenting verbal agreements helps with record-keeping and reference while avoiding miscommunication later on. From a legal perspective, some industries require written contracts to comply with local and federal regulations.

5. Protect Intellectual Property

The details matter in small businesses, and protecting intellectual property enhances business value while maintaining competitive advantage.

Intellectual property, such as trademarks, patents, copyrights, and trade secrets, is a valuable business asset that contributes to revenue generation and brand reputation.

Hiring an attorney to help secure patents, register trademarks, and copyright creative works makes it easier to safeguard innovations and ensure the sustainable growth of the business. An attorney can also assist with confidentiality agreements to ensure that employees and collaborators are bound to confidentiality.

6. Understand Employment Law

Small business owners must understand local and federal employment law and remain compliant with regulations and requirements. Certain guidelines exist for all areas of business, from recruitment and contracts to payroll and health and safety.

Whether you’re working with freelance workers or full-time employees, you need to be aware of relevant employment laws. Upholding employment law ensures legal compliance and fair treatment of employees, helping to create a positive working environment and avoiding costly legal fees and reputational damage.

There are a few practical ways to stay abreast with legal requirements. For example, you can participate in an employment law forum or hire a business attorney to keep you updated (and ensure that you remain compliant).

7. Separate Business From Personal

Recent business research reports that 50% of businesses start at home and that 78% of startups use their own money to launch their businesses. It’s important to protect yourself from liability when investing in personal finances to grow your business.

Separating business from personal finances offers additional benefits to separating legal protection and financial clarity. For example, it presents a professional and credible business image with clients, suppliers, and investors. It also streamlines operational efficiency, boosts personal financial stability, and simplifies tax audits.