A typical mistake of a small start-up business is not availing itself of a business structure that may shelter the business owner from personal liability. Corporations and Limited Liability Companies may afford such protection.
A well thought-out and well vetted business plan is an essential element to business success. Business plans should include, without limitation, market analysis and planning, financial projections and cash flow analysis, organization of management team, sales strategies, just to name a few items. A business may be subject to liability and incur significant legal costs due the lack of sufficient forethought.
Putting your agreements in writing is imperative for avoiding misunderstandings that could lead to litigation or not obtaining the item that was subject to the contract. Oral agreements, some of which may not be enforceable, are fraught with inconsistencies in the minds of the contracting parties. A written agreement helps to circumvent problems that occur more readily with oral contracts.
Employment hiring, managing and firing practices are essential to a strong business foundation. Understanding the laws that apply to employees may protect you from undesirable situations. Hire your employees carefully. Look for people that you can trust and rely upon. Provide employees with proper guidance. Adopt and enforce strong employment policies and clearly communicate them to employees. Well drafted employment agreements assist in defining expectations. Maintain good records on employee mistakes and your employment decisions.
Owners of entities with more than one owner should prepare an agreement between themselves to be used as a road map for many company and ownership issues. Items and triggering events that should be addressed include, in part, capitalization, distributions, voluntary and involuntary transfers of ownership interest, death, disability, and ownership buy-out. Litigation may ensue without a written understanding of how to handle certain events.
ASSEMBLE A PROFFESSIONAL TEAM
It is essential to assemble a team of professional advisors. The right accountant, banker, insurance agent, and attorney will help protect your business and provide an avenue to guide your business down the path to financial success and liability protection.
AVOID LEGAL PROBLEMS
Educate yourself on business law basics so you can identify when a legal red flag is raised. Have an attorney review your business structure, operations, and agreements. Litigation is expensive. You may obtain a favorable judgment, only to find out that the other party filed bankruptcy and your judgment is worthless. Attempt to reconcile disputes in the early stages of disagreement. Also, do not stick your head in the sand. Ignorance is not bliss and is not a defense to liability. It is important that you are aware of how the law applies to your business as a whole.