Owning your own small business can be both rewarding and challenging. As a small business owner, you wear many hats, and it's not always easy to keep up with every role. Thus, it is common for new small business owners to make a few legal errors that could leave them in hot water if the right circumstances arise. Luckily, you can learn from others' mistakes rather than making your own. Here are three legal mistakes to avoid as a new small business owner.
1. Choosing the wrong business structure.
Are you a sole proprietorship or an LLC? In many cases, you are better off registering your business as an LLC because doing so protects your personal finances should anyone sue your business. However, there are exceptions to this rule; some businesses with very low risk are better off as sole proprietorships. To figure out which business structure is safest for you, talk to someone who focuses in business law. You do not want to find out you chose the wrong structure a few years down the road when a customer files a lawsuit against you.
2. Paying employees under the table.
Your business may not be bringing in a lot of money yet, so you probably want to save money wherever you can. Paying employees "under the table" and "off the books" may seem like a good way to save -- until the IRS catches up with you and charges you for all of those back taxes -- plus penalties! If you cannot afford to legally hire an employee, then your business may not be large enough to actually hire employees yet. You can always hire contractors on an as-needed basis without having to pay them full-time as employees.
3. Not carrying the necessary insurance.
Insurance is not just an option to protect your business. In most jurisdictions and for most types of businesses, liability insurance is required. This type of insurance will pay if a customer is injured or harmed by one of your products or services. Depending on the nature of your business, you might also be required to carry workers compensation insurance and some other types of coverage. Describe your business to an insurance agent, and they can tell you what you need.
A good way to make sure you avoid legal errors in your business is to keep a lawyer on retainer from the get-go. Meet with them quarterly, and they can keep you on track as your business grows.