There can be many reasons why someone would want to start their own business. They may have a desire to be their own boss or may have a great idea that they want to share with the world. New small business owners are usually very excited and optimistic about their venture. Often this has a positive effect on their business. That being said, most new small business owners do not anticipate (or even consider) the various legal hurdles that may arise while maintaining the business, and how they should deal with such hurdles.
Here are some of the most common problems faced by business owners, and the possible solutions to them:
Not Incorporating The Business
Usually, small businesses operate as a sole proprietorship. This is because they can be easily established and are not very difficult to maintain. That said, the business owner is held directly responsible for the business’ activities of a sole proprietorship, and will be directly exposed to liability should anything go wrong.
Possible remedy: Business owners must try discussing the various types of available corporate structures with their business lawyer and select the one that protects them from being exposed to any personal liability on account of their business’ activities.
Not Making Key Agreements: The Shareholder’s Agreement or The Buy-Sell Agreement
Agreements like the Shareholder’s Agreement and the Buy-Sell Agreement are very important for a business to run smoothly. Lack of such agreements, or even poorly-drafted agreements, can lead to severe consequences for the business owner.
Each of these agreements have a specific role to play when it comes to running the company smoothly: While the buy-sell agreement sets the guidelines of what will happen when a co-owner decides to sell his/her share of the business (or runs into problems such as disability, bankruptcy or divorce), the shareholder’s agreement sets the parameters of the shareholders’ actions.
Possible remedy: The best way to ensure that these agreements work properly is to have your business lawyer draft them well so that proper guidelines can be set up and executed as and when the need arises.
Bringing In Outside, And Often Problematic, Investors
Possible remedy: The first step to avoiding problems is to carefully select the investor(s). Furthermore, small business owners should have their business lawyers set out the responsibilities and duties of either party clearly. This will avoid any pitfalls later on.
Not Paying Their Taxes:
By law, businesses must pay a certain amount and certain type of taxes – this includes taxes that are collected from employees as well as sales tax. Not paying these critical taxes can have the business face very serious consequences, including (but not limited to) facing fines and being shut down.
Possible remedy: The best way to avoid this problem is to use a payroll service that automatically pays taxes whenever they are due. Business owners should also set up a separate account which consists of records of all collected sales tax and payroll taxes. Those who don’t want to use a payroll service should create a proper system where all tax-related funds are removed from the general account automatically. This prevents various types of funds from converging and causing further problems.
Violating Employment Laws:
Many new business owners are under the false impression that due to the size of their business, they are immune to facing the consequences of not following basic employment laws. Small business owners must understand that there are some laws which apply to all employers, regardless of the size of the business. For instance, employers are always required to carry workers’ compensation insurance for all their employees.
Possible remedy: Making a comprehensive employee manual can help guide the employees’ conduct and establish the rules that need to be followed. Business owners must also consult with their business lawyer and determine the important rules that must be included.
Not Protecting Intellectual Property:
Most small businesses are based upon a novel and unique idea. If not adequately protected, these ideas can be taken away by people who can proceed to use them as their own, and make profits out of it.
Possible remedy: Small businesses must make it a point to copyright their work, secure a patent, and/or register a trademark to prevent others from stealing their ideas. It is highly advisable to take help from an intellectual property lawyer, who can help business owners understand the process underlying the protection of intellectual property.
Defaming Their Competitors:
In order to expand their own business and make it more popular, some business owners tend to resort to degrading their competitors by trying to “explain” why their business is better than their competitor’s. While it is fine to claim one’s business as the best, lying about another in order to get an edge and make a profit can have the business owner face expensive and demanding lawsuits based on antitrust violations or defamation.
Possible remedy: Small business owners must consult with a lawyer and keep a record of all words and/or acts that may render the business liable.
Facing Problems Related To Flow Of Cash In The Company:
One of the most common problems faced by business owners are those related to cash flow. It may so happen that the business owner might not have enough money to pick up on a new opportunity or the business itself might run into cash-flow issues while paying for employee wages or overhead expenses, among others.
Possible remedy: One of the best ways to avoid this problem is to take a business loan or have an alternative line of credit. Business owners can also try implementing an accounting program which allows them to automate their payments, send out invoices, and identify the areas where savings can be made.
These and many more challenges await the burgeoning entrepreneur. However it’s not all gloom and doom, it just means that doing your homework and in the correct instances speaking with an attorney will save you many years of heartache and untold amounts of money.
