Top 7 Legal Mistakes Businesses Make

The continued profitability of a successful business can be put at risk if a business owner fails to anticipate the following key legal issues that often arise. Business people need to be prepared on the front side for these challenges. Otherwise the results of legal mistakes businesses make can be costly.

1. Not Having Agreements with Employees.

Businesses often have trade secrets or confidential information such as customer lists. This information needs to be protected from employees who may go to work for a competitor or open a competing business. Non-disclosure, non-competition (non-competes), confidentiality and non-solicitation agreements can be valuable tools to a business.

2. Lack of a Corporate Structure.

Owners of businesses often expose their personal assets to business liability by failing to incorporate their businesses. (I am not talking about merely having a DBA). Having the correct business entity for your business purposes and needs is critically important to protect personal assets. Also, failing to follow certain corporate formalities, such as not commingling personal assets and business assets can expose your personal assets.

3. Lack of an Owners’ Agreement.

When there are multiple owners of a business, life changes in the lives of owners will occur that will affect the business. These include divorce, death, parting of ways between owners that result in the need for a buy-out and many others. Unless the owners have an agreement in place before these transitions occur, it is often very difficult and sometimes impossible for owners to reach agreement without the matter resulting in litigation.

4. Not Using Written Contracts.

Relying on oral agreements is typically a bad idea for many reasons. As time passes, memories fade, expectations change and the potential for disagreement increases. It is much better to address all issues directly and in writing at the beginning so that all parties are clear as to what is expected on all performance issues.

5. Using Incorrect Contracts.

Just as important as using a written contract is using the right contract. Standardized contracts should be carefully tailored to the needs and issues in the specific engagement.

6. Not Understanding the Contract.

The business owner should understand every provision of the contract before entering into the agreement. There are times when a business must sign a contract to get an account, or job and the other side will not negotiate the terms of the contract. However, Even if a business owner is not practically able to negotiate the terms of the contract with the other party, the business owner needs to understand each provision of the contract.

7. Underestimating the Time, Risk and Cost of Litigation.

Lawsuits also frequently involve much more time than owners initially expect – time that would otherwise be spent on growing the business. Litigation can also be much more unpredictable and expensive than most business owners anticipate at the beginning of a case.

For more information on protecting your business from these and other legal mistakes businesses often make, call your business attorneys in Houston – Erik Larson or Diana Larson – at 713.221.9088.