A lot of successful businesses start around a kitchen table or computer basement, and they operate informally at first, disregarding or entirely ignorant of many legal requirements. It is essential for a business to operate legally in order to join in the mainstream. However, we all know that it is undoubtedly a costly transition to make. Being smart and approaching it well-prepared can save money in the long term. It will enable your business to grow and avoid legal fees and other major problems. Here are eight common legal problems faced by emerging businesses.
1. Striving too hard to get a “big order”
Procedures have to be in a place, and under control, to attract business from major customers. A software business start-up run from a basement, using neighbor children working after school to fill orders, has to struggle to land a big contract from a large company. They have to demonstrate their ownership of any intellectual property and show that their employment and business practices will satisfy their customers’ audit procedures.
2. There’s a fund crisis due to overhead
Increased overheads can threaten the viability of a business. A popular gold cash buyer expanded their mailing system through creating a website and found that it had to double prices to cover the increased overheads in an attempt to get necessary licenses and credibility to gain trust and reputability. Also, a crisis may ensue if orders start to decline dramatically. You can attempt to recoup this financial crisis with the help of a crowdfunding source or through a joint venture.
3. Issues with employees
An example is a cleaning firm that had to increase its rates significantly to cover the costs of addressing a range of legal issues and obligations related to its employees. Procedures had to be set up for each worker, including the I-9 Immigration form which requires documents that establish an employee’s identity and eligibility to work. Liability and workers’ compensation insurance had to be set up, and a payroll system to handle tax withholding.
4. Incurring penalties and fees for payroll and sales tax
Thousands and thousands of dollars of penalties, interest, and legal fees. That is just one of the major problems faced by a business owner who failed to pay sales taxes and payroll in a timely manner. The tax authorities levied on the owner’s business and personal bank accounts, thus disrupting activities in both.
6. Not being able to take advantage of the available legal protection
You should consider incorporation (such as S-Corp, C-Corp, or LLC) to protect your assets from business liabilities. Other considerations are homestead declaration to protect your home creditors and registering for copyrights and patent law protection.
6. Unable to consistently establish and follow workplace practices?
Policies and procedures must be set up to guide employees and contractors. Professional industry practice, training, management of issues and problems should also be defined and followed. If relevant, non-competition and non-solicitation agreements should be in place.
7. Insufficient bookkeeping and accounting practices
Use good practices for keeping all financial records. Prompt invoices, regular reports, and keeping records so any irregularities are detected early on. Prepare for, and pay all, your estimated taxes when required to.
8. Wrong business partnerships
Like marriages, business partnerships are much easier to get into that out of. It often starts with great enthusiasm and big expectations. Ask yourself these questions before you put your signature on the dotted lines of any contract.
- Do you really need a business partner?
- If yes, then what exactly are looking for a business partner?
- What is his financial situation?
- What are his expectations?
- What level of commitment he has to the business?
- Is he willing to put everything in writing?
- What happens if things don’t work out?
Yes, two brains are better than one, but there needs to be compatibility in order to create harmony and business flow. Don’t rush in, be cautious, thorough, and again, put everything in your agreement into writing.