7 Legal Mistakes that Small Business Owners Should Avoid

Developing good business habits early on will eliminate costly mistakes that threaten the long-term health of your business. Avoiding these common legal missteps will safeguard your business from financial setbacks, lawsuits, and unscrupulous business practices.

#1 — Ignoring Key Details

Do not skip legal details that are critical to your success. Stay on top of administrative filings, business license renewals, and tax reporting, for example, to keep your business running efficiently from year to year.


#2 — Having the Wrong Business Structure

Not having the proper legal structure for your business can leave you vulnerable to personal liability in the event that you are sued. Make sure you do your homework to understand the differences between a C corporation, S corporation, or LLC. Seek the advice of an attorney or tax professional to help you determine the best fit for your business.

#3 — Mixing Business and Personal Finances

While it might be convenient to switch between your personal finance and business accounts, doing so can place you at risk of personal liability should your business be sued for any reason. Protect yourself by keeping your business transactions clean and always separate from your personal accounts.

#4 — Not Protecting Intellectual Property

Doing business implies that your creative ideas and materials remain under your control and are not misused or misrepresented by others as their own. Make sure you have appropriate patents, trademarks and copyrights for all of your work.

#5 — Not Having Clear Hiring Agreements

Knowing the difference between an employee and an independent contractor and categorizing them appropriately will save you conflicts and potential lawsuits in the future. Have standard new hire agreements in place that address such issues as confidentiality and intellectual property to protect your rights after the business relationship has ended.

#6 — Not Getting Verbal Agreements in Writing

With the stress of multiple office demands, do not forget to put all verbal agreements with contractors, business partners, vendors and employees in writing. Most contracts are neither disputed nor presented in court, hence saving you time, money and worry in the long run.

#7 — Not Seeking Legal Advice

Finally, while it might be tempting to delay discussing your business with an attorney until a crisis arises, it is important that you seek legal advice “throughout the life of your business”. This will help you to stay abreast of new legal considerations that might impact your business and prepare you to take appropriate steps as your business needs change over time.


Avoiding these costly mistakes will provide a solid foundation for your business so that you can give more attention to your customers, clients, and employees.

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