Legal Pitfalls: What Small Business Owners Should Know About Running A Business (Part 2 of 2)

Business owners should know about the legal pitfalls of operating a business. Here are some to consider.

No written contracts. When you do business without contracts, you do so at your own risk. What’s the use of making an agreement if it’s not enforceable? Sure, it may be convenient to just rely on verbal promises. But what if something goes wrong? Good contracts serve important functions like the following:

  • define the parties’ obligations and legally bind them to those obligations
  • limit a party’s liability or shift the risk of loss if something goes wrong
  • require parties to handle a related dispute outside of court, which is especially beneficial when the dispute requires attention from someone with particular expertise or if the parties wish to maintain confidentiality 
  • supersede other agreements, understandings, or promises that are not included in the contract
  • provide a remedy if a party breaches the contract
Do you need a contract for every transaction? I say that if a matter materially impacts your business, it should be in writing. This includes anything from employment agreements to purchase of materials. An experienced attorney can prepare an enforceable contract or explain a contract.
No licenses. You may need a license depending on your business. A business license permits and authorizes the owner to operate the business. You can incur fines or worse if you operate a business without a license where one is required. Find out if you need a license, and if so, take steps to obtain it. 
Violation of local laws. Most cities or towns have local ordinances related to land use. An ordinance is a set of local laws that govern a city in conjunction with state and federal laws. Many ordinances designate areas within the city for business operations. If you conduct business in an area not designated for business operations, you risk being fined and having your business shut down.
Trademark and copyright infringement. One surefire way to get hit with a lawsuit is to infringe on someone’s trademark or copyright. Be cognizant of the material you use for your business. Many people realize that unauthorized use of another’s logos or literature is generally prohibited. But did you know that using a logo or literature that is “strikingly similar” to another’s trademark material is also prohibited? Before using logos or literature, take a look at what is already out there especially for products or services like your own.
Breaching privacy and security. Be careful when dealing with people’s personal information. Companies that store or transmit certain types of information must, by law, properly secure and dispose of the information. You should develop and present a privacy policy to your customers and clients that clearly communicates how your business will protect their personal information. 
No liability insurance. Even if you protect yourself from personal liability by forming a business entity, you still need to protect the business itself. A single lawsuit could wipe out an uninsured business. By obtaining the right insurance policy, including comprehensive general liability and automobile liability coverage, you can protect your business’s assets. 
These are just some of the pitfalls of running a business. Consult an experienced business attorney if you have questions about legal issues effecting your company.
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