Small business owners and managers often do not adequately address legal issues. This failure may be because you are preoccupied with other matters, are unaware of or fail to address legal concerns, or are unwilling to pay the money to hire an attorney. Unfortunately, such companies can end up incurring significant costs or liabilities that could have been avoided with good legal planning.
Below are ten key legal mistakes that small businesses often make:
1. Failure to keep company logs.
In order to protect shareholders from personal liability for corporate debts, a company must comply with formalities such as the preparation of regular minutes of the board of directors and shareholders. The lack of records can also jeopardize the validity of various corporate income tax deductions, particularly in the areas of executive compensation and benefits.
2. Missing update of order and invoice forms.
The lack of adequate legal provisions in these forms could leave the company in a weak legal position in the event of a payment or other dispute with a customer.
3. Lack of confidentiality agreements with employees and contractors.
Much of the value of many startups resides in their intellectual property. Solid non-disclosure agreements are essential to protect this property.
4. Lack of current purchase-sale agreement.
Almost every business with more than one owner should have a purchase-sale agreement. A purchase-sale agreement defines what happens when one of the owners dies, retires or is terminated, or when an owner wishes to sell their interest in the company. The lack of a purchase-sale agreement in such circumstances can lead to unintended consequences or a legal quagmire.
5. Missing current employee handbook.
An employee handbook establishes workplace rules, policies and procedures related to employment. The lack of a satisfactory manual increases the risk of misunderstandings or violations of the law, which can lead to costly employee disputes, lawsuits, and regulatory penalties. In addition, a manual must be updated frequently to cope with changes in the law.
6. Failure to document transactions between companies and owners.
Shareholders often enter into transactions with their companies, such as B. Leasing real estate or personal property or loans to or from the Company. Failure to satisfactorily document these transactions (as well as failure to keep regular records) may weaken corporate liability protections or result in adverse tax consequences.
7. Failure to update the company’s articles of incorporation and bylaws.
The Articles of Incorporation and Bylaws must be reviewed and amended from time to time to reflect legal changes. Otherwise, the company could violate corporate laws or be subject to cumbersome and outdated corporate procedures.
8th. Lack of stock option or other equity plans.
The lack of well-designed stock incentive plans can make it harder for a company to attract, motivate, and retain employees. A poorly designed plan could also result in unexpected liabilities or costs for the company.
9. Inadequate estate planning.
In a tightly controlled company, estate planning must be done by the owners in conjunction with overall corporate planning. The lack of proper estate planning documents can result in costly probate procedures or unnecessary estate taxes.
10 Failure to conduct a legal review of the site.