6 Biggest Legal Mistakes You Could Make In Your Small Business

Starting a small business is a big undertaking. There are many legal specifics you need to keep in mind when running your business.

These little mistakes can make or break your company in the long run. Legal requirements can be difficult to keep up when you need to do to get started.

We’ve compiled the 6 most common legal mistakes small businesses make so you can avoid them to protect yourself from legal consequences and strive for success.

Many companies are either LLCs or a corporation. The difference lies in how they are taxed.

An LLC provides liability protection for its owners, which is important if your business incurs any legal liability. An LLC also has the benefit of being easy to set up and maintain.

A corporation, on the other hand, is more complicated to establish but affords more protection from lawsuits.

It is important to note that an LLC may not be the best option for all small businesses because it may restrict certain tax deductions.

Joint Ventures Give You More Control

One of the most common legal mistakes small businesses make is not incorporating. If you do not incorporate, then your company will be treated as a sole proprietorship or general partnership, which means that it's governed by state law.

The major benefit to incorporating is that it creates an entity that is separate from you, the owner. This entity cannot be held personally liable for any business debts or obligations.

You'll also have some personal protections being a corporate officer or shareholder, such as potential liability protection and voting rights.

Register With The State

You have to register your company, which includes paying fees and filing paperwork, with the Secretary of State’s office. This is your legal "birth certificate."

The benefits of registering are that it provides a public record of your company’s existence, provides you with a tax identification number, and avoids confusion about who owns or operates your company.

Your Employees & Their Rights

One of the most common legal mistakes small businesses make is forgetting to classify their employees.

If you’re not following federal and state employment laws, you can be fined or worse: You could be sued for violating your employees’ rights.



If you have a team of people who fall into a specific category, you need to know what taxes they will generate and how much time off they are entitled to.

Name For Your Company

Choosing a name for your company isn't easy. There are many things to consider before you officially register your company with the state. Make sure and check and double-check that your company's name is in compliance with the law. 

Your company name is your professional identity, so you should make sure your identity is powerful.

Tax Filing Affairs

The tax implications of owning a business include everything from what type of business entity you should file to how many capital gains and losses your company experiences.

The type of business entity you choose will determine what taxes your company pays and when they pay them. It also determines how much money you’ll need to keep on hand for typical expenses like payroll or office rent.

Conclusion

There are a lot of legal questions that come up when you start your business.

Luckily, you have a lot of resources at your fingertips to help you through the process.



We’re hopeful that with the help of this article, we were able to help you make your way into the business market.

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