Small Business Legal Advice: 10 Basics for Business Owners

We’re pretty comfortable with the laws that govern our day-to-day lives—don’t speed, don’t steal, don’t assault anyone—they’re intuitive and we don’t think much about them. But business law is different. For one, most of us don’t grow up knowing how to put it into practice and adhere to it. It’s also more complicated and less intuitive than the laws we deal with every day. That’s why it’s important to get small business legal advice from someone who is qualified: a business lawyer.

 

Business law seriously affects how your business runs, from contract law to employment law to tax law to workplace safety law and more. There’s a reason lawyers spend 3 years in school to understand what’s going on! The good news is that you don’t have to become a lawyer. You just need to be aware of potential issues and then work with your lawyers to make sure you’re on the right side of the law.

 

If you’re seeking small business legal advice, here are a few of the biggest legal issues small business owners need to know about.

1. A Binding Contract Requires a Meeting of the Minds

The basic tenet of contract law is an important one to know when you’re running your own business. The fundamental premise of all contracts is that there cannot be a binding contract unless there has been a “meeting of the minds.”

 

In plain English, this means that both parties should share a core understanding of the contract terms and agree to be bound by those terms. Problems arise in contract interpretation and performance when there is an ambiguous interpretation of the contract terms.

 

Be clear about what you’re signing, as well as what you’re agreeing to. And while form contracts pulled from online can help give you a starting point, you’re going to want the help of an attorney (on both sides) to make sure everyone understands each other and the duties involved in the contract.

 

Making sure you both understand and agree to contract terms can help avoid disagreements and costly litigation down the road.

2. The Validity of Written Contracts vs. Oral Contracts

You may be surprised to know that oral contracts are legally enforceable—technically. Of course, it’s often nearly impossible to determine who agreed to what when the only evidence is your word. But just because it isn’t written down, doesn’t necessarily mean it’s not a valid contract.

 

There are, however, certain types of contracts that must be written to be valid. These include contracts for 1) real estate sales 2) sale of goods of more than $500 and 3) contracts that cannot be performed in less than one year. Most attorneys would agree that it’s always best to err on the side of a written contract to avoid confusion down the road.

3. Protection of Your Intellectual Property Is Important

Without a patent, copyright, or trademark, you have little to no recourse if any company “steals” your logo, branding, or business name. Tech companies and e-commerce companies are especially vulnerable to intellectual property issues.

 

Laws about patents, copyrights, and trademarks protect your businesses’ intellectual property, unique creative output, and branding efforts. Small business attorneys advise that protecting your intellectual property is easier than disputing unfair usage after the fact.

 

Intellectual property law is inherently complicated. If you’re interested in protecting your company’s intellectual property, consult with a specialized attorney who knows the field, beyond general small business legal advice. A qualified intellectual property attorney can help you assess whether or not your business has IP assets that warrant formal IP protections.

 

Visit the United States Patent and Trademark Office (USPTO) website to locate attorneys, as well as resource centers near you.

4. Privacy Policies Are Crucial to Protect Customers

One issue which is an especially hot legal topic in recent years is that of customer privacy. It is important that all businesses set up a formal privacy policy to protect their customers’ data and demographic information. Note this is different from cybersecurity (we’ll cover that later).

 

In this instance, we’re referring to email addresses, home addresses, demographics, and other sensitive information. Some companies share or sell this data to other companies. If your company shares this information with others, you are legally obligated to formally disclose this fact to your customers via a clear privacy policy.

5. Your Small Business Should Adequately Safeguard Data

One huge legal issue which has made the news recently is the issue of cybercrime and corporate data breaches. Even huge multinational corporations have fallen prey to data breaches, and the legal and PR fallout has been severe.

 

No matter the size of your company or number of customers, your small business has a legal obligation to safeguard the personal cyber info of both customers and staff. Current antivirus measures and security software can help protect this valuable information from theft.

 

It’s also important to back up your paper files in the event of theft, fire, or another disaster. Business experts recommend backing up all critical files and storing back-ups offsite from your place of business for safe-keeping.

6. Consider a Trust for Legal Protection

The majority of small business owners operate as the default business structure: sole proprietorship. More advanced legal business structures require additional steps to set up.

 

The advantage of running a small business as a sole proprietorship is that, unlike more advanced legal business structures such as corporations, it requires no special filings or paperwork to start up and begin running a business. The disadvantage of running a sole proprietorship is that if your business is sued, then the litigant could go after not just your business assets, but your personal assets as well. This could include your home, your car, and your bank accounts.

 

Some business experts recommend that sole proprietors explore setting up a trust to own the business. This trust would protect the business owner from personal liability in the event of a business lawsuit.

 

What is a trust? A trust is simply a legal entity that can file its own tax returns, as well as own property and other assets. If a trust is established for the business, then in the event of the lawsuit, that trust will protect the owner’s personal assets from judgment.

7. Always Keep Personal Funds and Business Funds Separate

If setting up a trust is not feasible or desirable, it’s still crucially important to separate yourself and your personal information from your small business. Your small business should have a separate bank account, credit cards, etc.

 

Your business funds and your personal funds should always be kept clearly distinct and separate to avoid the appearance of commingling. Any commingling can open you up to legal issues. The same goes for using business funds to pay for personal expenses.

8. Your Small Business Should Maintain Comprehensive Insurance

Any business, regardless of size, should maintain adequate insurance to protect itself in the event of an accident, natural disaster, data breach, or any number of possible claims. Dealing with property and general liability claims can result in lost time, expense, and frustration. All small businesses should maintain adequate insurance to prevent such problems. Depending on the size and nature of the business, specialized insurance policies may be advisable to provide additional cover.

 

For more on the detailed insurance needs of small business owners, visit our resource How Small Businesses Can Manage Risk and Prevent Loss.

9. It’s Usually Better to Negotiate Versus Litigate

Lawsuits are expensive, time-consuming, and stressful, and in the end, you may not be happy with the outcome. Even if you think you are the wronged party, a judge may not agree with you. Taking a case to court should almost always be the last resort.

 

Most business attorneys will advise trying to negotiate a settlement agreement rather than litigating a business dispute in court. Alternative dispute methods such as mediation and arbitration can save business owners significant sums of money, as well as valuable hours. They may also offer a way to salvage something out of a business relationship if you so desire, where a court battle is likely to cause irreparable damage.

10. Your Choice of Legal Business Structure Is Important

Small businesses can be structured a number of different ways. We already discussed sole proprietorship in point number 6, but to recap: the default option of business structures are a sole proprietorship. The downside is that there’s no separation between the business and the business owner.

 

The more advanced business structures, such as LLC or corporations, exist as their own entities to protect personal assets. In the eyes of the law, there is a corporate shield that exists to protect you personally from business debts.

Keep the Law on Your Side

When you’re starting or running a small business, it’s important to know the basics of business law that can impact your company. Remember, lack of knowledge is not a defense to an illegal act or regulatory infraction. That’s why it’s important to seek out small business legal advice from someone who is qualified to give it. To help you locate an attorney, visit the interactive American Bar Association Lawyer Referral Directory.

 

It’s best to always consult with an attorney to provide insight on any legal issues before you commit to a course of action, but this guide can at least give you a sense of some major issues to watch out for.

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