Avoid Common Legal Mistakes of Small Businesses

Saturday, March 11, 2006

Make sure you get your agreements in writing
While it may seem desirable to simply agree and shake over it verbally, this leaves you wide open to dispute down the road. Getting a contract drafted may seem too costly, or time consuming, but it will save you headaches down the road when a dispute arises.

Get everything in writing
Too many people wind up in expensive legal litigation because they did not get everything in writing. They relied on an oral agreement that was not in the contract. Not only is it hard to prove what the oral agreement was, but most contracts state that they are the sole contract and any agreement outside of the original written contract have to be in writing and have to be signed by both parties.

Failing to properly document corporate records
If you do not keep proper records of your corporation such as the annual meeting of the Board of Directors and shareholders meeting, a judge may not look at the corporation as a legal entity. This may expose your personal property to liability. If you do not properly document everything, you could also end up in trouble with the IRS and that could be very costly to your company. To avoid this, you should be very diligent with your record keeping.

Lack of Partner Documentation
Many businesses fail because of a dispute between the partners. What happens is partners think they do not need to get everything in writing because everything is going smoothly at the moment. However, even though there was no foreseeable problem, a dispute may arise between the two partners. Since there was no sound documentation on what will be done at this point, there can often be expensive litigation that follows, and a lot of the time it will mean the end of the company.