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You’re starting (or have recently started) a business and you’re wondering if you’re doing all of those pesky legal things right. After all, you aren’t a lawyer or CPA or any of those things — you’ve got a gift you can share with others and you want to do that. But you don’t want to risk getting in deep water with the government while you do so.
That’s why we rounded up 7 of the most common legal issues new businesses face, and exactly what you need to do to avoid them.
The first thing you want to make sure you avoid is not choosing your business structure and getting all of the legal documents squared away with the setup. According to the Small Business Administration, the most common business structures among small businesses in the US are:
Sole Proprietorships are the easiest and cheapest way to set up your business, but they also run the highest risk to your personal assets. For the vast majority of our clients, we suggest you set up an LLC to protect yourself. It’s a little more work, but well worth it in the long run.
Want to avoid issues with not having your business structured correctly formed? Join Lawless to Flawless™ and formally legalize your business in 7 days or less!
How to Get an EIN for Your Business
Deciding Between an LLC and a Corporation
Deciding Whether an LLC or DBA is Right for Your Business
Top 6 Mistakes to Avoid When Starting an LLC
7 Signs It’s Time to Form an LLC
How to Know if You Need an LLC for Your Business
Once you’ve got your business structure set up, you’ll want to determine what licenses and permits you need based on your state, city, and county. Unfortunately, 40% of small businesses are not fully compliant with all necessary licensing and permitting requirements, which means they may be at risk of fines or legal issues due to incomplete compliance. (The range of fines is $100 to $10,000 depending on the severity and duration of the violation.) Which we obviously do NOT want you to encounter. So don’t skip this step!
Want to avoid issues with not having your business properly set up? Join Lawless to Flawless™ and formally legalize your business in 7 days or less!
Why You Might Not Need Business Licenses
7 Steps to Legally Start Your Business Today
Is My Website Legally Legit if My Business Isn’t Registered?
You didn’t think we’d get far without mentioning contracts, did you? Having unclear and unenforceable contracts is a major issue for businesses — one that can become an ongoing problem if not fixed.
The American Bar Association reported that 40% of small businesses experience at least one contract dispute within the first five years of operation. And those are just the ones that are brought to litigation. We’ve heard countless stories from customers who let a client out of a contract or did extra work they didn’t originally sign up for simply because when they went to enforce their contract they realized they couldn’t because it wasn’t clear.
This loss of revenue is all too common for small business owners. According to the International Association for Contract and Commercial Management, poorly drafted contracts can lead to significant financial losses, with small businesses losing an average of 9% of their ANNUAL revenue due to contract-related issues.
Avoid contract disputes by ensuring that your contracts are clear, concise, and full of everything you need to protect your business. We’ve got more than 35 contract templates inside of our shop that have each been created and peer-reviewed by attorneys, so you know they’re legit. Shop the Contract Templates >>
What Does a Contract Need to Be Legally Binding?
6 Things You Didn’t Know You Could Put in Your Contracts
Don’t Forget These 7 Things in Your Contract
7 Essentials to Include in Contracts
What Happens When a Client Wants to Cancel?
There are few things that feel more like a gut punch in the business world than having someone else steal your work and pass it off as their own. And if you aren’t protecting your intellectual property, you’ll have a difficult time forcing said person to cease and desist.
On the other hand, businesses with registered trademarks report an average increase in brand value of 20% and are 10% more likely to survive beyond five years (around half of all small businesses fail within the first five years). Not only that, but trademarks contribute to customer loyalty, with 72% of consumers recognizing trademarks as an indicator of quality and consistency.
So if you want to protect your intellectual property, and show your customers that you mean business, you’re going to want to trademark things like your business name, logo, product names, and more.
Want someone to walk you step-by-step through the trademark process? Enroll in Trademarks on Tap™ and start protecting your assets today!
11 Things You Might Want to Trademark in Your Business
How to Trademark Your Business Name in 5 Easy Steps
Trademark vs. Copyright: Which One Should You Use?
What is a Copyright? An Overview of Copyright Basics
According to the US Department of Labor, approximately 30% of small businesses are not fully compliant with all applicable employment laws, which can lead to fines and legal issues. The most common employment law violations are wage and hour violations, misclassification of employees, failure to comply with workplace safety regulations, and discrimination and harassment issues.
In fact, a survey by the National Federal of Independent Businesses found that 45% of small businesses misclassify their employees. To avoid this, be sure you are clear on the difference between an employee and an independent contractor. Employees typically work under the control and direction of the employer, have set working hours, receive benefits, and have taxes withheld from their paychecks. Independent contractors, on the other hand, have control over how they complete their tasks, work for multiple clients, and handle their own taxes.
The IRS and Department of Labor can impose fines and penalties for misclassification, including failure-to-pay penalties and interest on overdue taxes. If you want to be sure that you hire your Independent Contractors correctly, grab our Ultimate Hiring Bundle, and be sure you’ve dotted all of your i’s and crossed all of your t’s with your hires.
Employment Law for Small Business: A Comprehensive Guide
1099-K vs 1099-NEC for Small Business Owners
Freelancer Agreements: A Comprehensive Guide
3 Tips for Hiring Independent Contractors
Is Your Team Growing? Here’s How to Hire (and Fire) Legally
8 Mistakes You Might Be Making When Working with Independent Contractors
Rule Changes for Independent Contractors: What You Need to Know
Another of the all too common legal issues that new businesses face is incorrect tax filings. According to the IRS, approximately 40% of small businesses incur tax penalties each year due to incorrect filings, late payments, or failure to comply with tax regulations.
The most common tax penalties faced by small businesses?
We highly recommend hiring a CPA to ensure that you are correctly filing your taxes, and doing so on time.
Paying Yourself From Your Business
Should You Use Venmo for Your Business?
Payment Platform Showdown: PayPal vs Square vs Stripe vs Venmo
Last, but certainly not least, new business owners tend to ignore issues around consumer privacy. In fact, a survey by the International Association of Privacy Professionals (IAPP) found that only 20% of small businesses are fully compliant with the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA). Of the small businesses that do have a privacy policy, 35% don’t regularly update it to reflect changes in data practices or regulations.
However, privacy is an important issue for consumers. According to a survey by Pew Research Center, 79% of consumers are concerned about how companies use their data, and 64% feel that the government should do more to regulate data privacy.
This means that small businesses need to be sure that they are not only up to date and compliant with privacy laws, but that we are going above and beyond to secure our customer's information and share how we’re doing so within our privacy policies. If you don’t have a privacy policy in place yet, grab our Terms & Conditions and Privacy Policy Bundle and start protecting your business AND your customers.
What’s the Difference Between Terms and Conditions and Privacy Policy?
Why Terms and Conditions are Important
What are Terms and Conditions?
Is Your Website an Asset or a Liability
When it comes to avoiding the most common legal issues new businesses face, all you need to do is get intentional. These are not hard problems to solve - they just aren’t as flashy and exciting on your to-do list as creating a new offer, designing a new sales page, or serving your clients.
If you want to be sure you’re creating a legally legit business, download our free No-Nonsense Checklist to Starting a Business today!
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