Legal Risk Management: Common Mistakes to Avoid in Your Small Business

Legal issues are among the most damaging corporate challenges businesses can face. Legal battles are not only expensive but could also put the existence of your brand at risk.

Unfortunately, many business owners do not lay solid legal frameworks while establishing their company's foundation. This lack of a solid legal foundation can eventually lead to corporate troubles that can cripple the company.

If you are a business owner or taking steps to set up your corporation, you want to avoid these business mistakes. This article discusses some common legal mistakes business executives make while building a brand and how to avoid them.

Failing to Define Your Business Structure Properly   

Starting a business without detailing the corporate structure opens the door to many  administrative and legal disputes. For example, if your LLC is not properly formed, you could lose  the legal liability protection that LLCs usually have, and you could be personally liable for the  business’s debts and liabilities.  

Failing to choose a business structure is only one risk. Some executives also choose the wrong  business entity. The different business entities have their definitions of legal liability, tax structure,  and administrative responsibilities. If your business is not appropriately structured, you are more  likely to experience tax issues or face challenges if you try to obtain outside funding for your  business. 

As such, you should carry out due diligence before defining your business structure to ensure you  don't choose an entity type that makes you entirely liable for the business or a partner's misdeeds.   

Agreement, Policies, and Contractual Mistakes

Contracts and policies are crucial to businesses. They define business deals and administrative,  client, and employee responsibilities. Every business should use contracts to protect their  interests and minimize their legal risks. 

Some mistakes businesses make while drafting corporate agreements and policies include  copying contracts from the internet, using inconsistent and unclear terms within the policies, and  lacking transparency in the contract process. 

The most damaging mistake among business owners is failing to hire an attorney to handle  contractual agreements. Without a legal team overseeing company policies or business contracts,  you may create policies that are illegal or sign agreements with terms that put you at a  disadvantage.  

Refusing to Protect Your Intellectual Property

Your company's intellectual property (trademarks and copyrights) is among your most valuable  assets. As such, you want to protect your brand from copyright infringement or theft by registering  your logo, brand name, publications, and creative works.  

Registering your intellectual property also gives business owners the power to enforce their IP  rights against infringers. Trademarks are registered with the United States Patent and Trademark  Office (USPTO) while copyrights are registered with the U.S. Copyright Office.  

These checks will help your brand avoid damaging lawsuits that are typical of copyright  infringement cases. 

Lack of Confidentiality Practices With Employees and Contractors

Data protection is non-negotiable for businesses these days. If your company doesn't have  confidentiality policies, you risk your trade secrets and contractual agreements ending up in the  public domain.  

As such, you should take the necessary legal steps to protect company data and trade secrets  by ensuring confidentiality policies and practices are a part of your company structure. You should  also ensure business deals have confidentiality clauses. 

Ignoring Business Insurance 

Business insurance is perhaps the most significant risk management practice in the corporate  world. Neglecting business insurance exposes your brand to operational, strategic, and  reputational risks. 

These events could culminate in revenue losses, lawsuits, and even the termination of the  company. Investing in business insurance is a sure-fire way to safeguard your brand from these damaging occurrences.

Conclusion  

Running a business is a complex venture, and legal missteps can have dire consequences. As  such, you must lay down a robust legal structure to avoid the mistakes that threaten the existence  of companies worldwide.  

While there are several steps you can take to manage legal risks in your corporation, none is as  vital as having a legal team.  

Your team of attorneys are your best bet to ensure you don't breach state legislation, sign  damaging contracts, or get stuck in lawsuits that could impact your reputation or market share. If  your company doesn't already have a legal team, hiring one should be the next corporate step  you should take.  

At Manning Carroll Law, we work with entrepreneurs to legally protect and grow their small  businesses. Schedule a call with us at here so we can begin building the  legal foundation for your small business.