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Six Legal Traps for the Unwary Business Owner
By Marc Clerc
Owning a business can be an all-consuming yet rewarding adventure. Business owners typically work long hours and juggle multiple responsibilities to make their businesses successful. In doing so, however, many ignore the myriad legal issues confronting their businesses - at their own peril.
Savvy business owners understand it invariably costs less money and time to proactively avoid a problem than it does to reactively fix one. This article provides business owners general guidance on how to avoid some of the major pitfalls facing their businesses.
Assemble a strong team of professional advisors.
One of the most common problems we encounter is business owners that have failed to surround themselves with experienced business professionals like a CPA, a business attorney, an insurance agent, a banking contact, a lending contact and a business coach. As a business owner, you need this team of people to guide you through the intricacies of owning a business. Perhaps best of all, this will free you up to do what you enjoy and what makes you money – running your business!
Consider incorporating to protect your personal assets.
Every business owner needs to understand the advantages and disadvantages of incorporating to shield personal assets from liability associated with the business. A business attorney will explain the various types of entities available (corporations, limited liability companies, etcetera) and the importance of observing the “corporate formalities” after incorporation.
Document your agreement with your partner.
If you have a partner, your business agreement needs to be in writing. Meet with your lawyer and address such key questions as:
• How will the various duties and responsibilities be allocated?
• What decisions need to be made by both partners?
• What if one partner wants to leave the partnership, becomes ill or disabled and cannot work?
• What happens if one partner passes away? If not handled properly, you may end up with an unintended partner – your former partner’s husband or wife!
• What if the business loses money? Can both partners be required to contribute personal assets or pledge them as collateral for a loan?
• Who decides if the business will be sold? Who decides on the price?
Commercial leases - caveat emptor!
Unlike residential leases, commercial leases can strongly favor the landlord. Many commercial leases require the tenant to maintain and even replace the heating and air conditioning unit in their space. This can be a very expensive proposition that could cripple a business that isn’t prepared.
Even more importantly, many commercial landlords require your house and other personal assets as collateral to guarantee that you will pay the rent. This “personal guaranty” is effective even if you have incorporated your business in order to avoid personal liability. For these reasons, it is critically important that you obtain the advice of a qualified attorney to ensure that you fully understand each and every term of the lease.
All important agreements must be in writing.
A rule of thumb: the deal is not complete until the agreement is in writing and all the parties involved have signed it. Contracts do not need to be thirty pages in length – they can be as short as one page and still protect you and your business. If it’s important for your business, it’s important enough to be done right.
Find out before you act.
Make sure you understand your responsibilities before you act in areas such as zoning, licensing, intellectual property, trademarks, employment, consumer protection, environmental matters, product liability and advertising.
This is just a short list of the types of pitfalls that can easily be avoided with qualified professional assistance. Please call Marc at 508-587-6902 or contact him via e-mail at mclerc@clercpc.com to discuss your specific situation in detail or to schedule a free initial consultation.
This article is intended to provide a general overview of information that may benefit a business owner and his or her business. It is not intended be all-inclusive nor should it be construed as legal advice. Please call us to arrange a meeting with one of our attorneys to discuss any questions you may have regarding your specific business needs.
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