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6 Legal Problems to Avoid (and How to Do It)

Legal problems drain finances, time and the emotions. Anyone who has been involved with legal difficulties will agree that one of the most prudent things a small business can do is set up procedures to help avoid legal problems before they arise.

Business owners should be familiar with every type of legal issue that could affect a company. Don't leave everything to the attorneys. Since the business owner will be the one most affected, advice from lawyers should be just that: advice, not the final word.

Six areas in which legal problems may arise:

  1. Employee relations. Vagueness (or non-existence) of contracts with employees can present an array of liabilities. The list of potential problems is long, including:
    • Are employees considered full-time or contract workers?
    • Has the business/employee relationship been established in a way that allows employees to be let go without having to mention special reasons?
    • Have employees been informed about this?
    • Have written policies and guidelines been put in place and presented to employees so they are fully aware of what can be the basis for termination?
      (Learn more about staffing issues.)
       
  2. Sexual harassment issues. Legal action in this area can cripple a company financially and emotionally. Policies should be put in place not only to assure proper behavior in the workplace but also to streamline the quick and easy reporting of harassment to supervisors. Whenever a sexual harassment accusation arises, a clear and systematic paper trail should exist showing how the issue was handled from the moment the accusation was made. (Learn more in the NFIB Federal Employment Law Handbook PDF.) 
     
  3. Written contracts with customers and vendors. Use an attorney experienced in your line of business to draw up contracts. Avoid trying to save money by cutting and pasting sections from standard contracts that may or may not cover all your bases. Make it a blanket policy to avoid oral contracts. Employees who work with customers or vendors should be well versed in all contracts that apply to their sphere of influence. If anyone makes promises that can't be kept, it could be difficult to patch things up with customers or vendors and the company will be the one damaged. 
     
  4. Intellectual property issues. Guidelines and written contracts should be drafted to make it clear who has ownership of intellectual creations. Proving ownership of patents, copyrights and trademarks can be tricky and aggravating unless spelled out clearly in contracts signed by all involved (business owners, investors, employees, independent contract workers, contracted/partnered outside companies, etc.). 
     
  5. Financial relationships with investors. Securities regulations are among the most complex of legal issues. Operate on the basis of written contracts, not handshakes. Be aware of disclosure issues. Even investments from friends and family members can end in legal problems if proper procedures and documentation are not followed. 
     
  6. Not consulting an attorney soon enough. It's natural to try to avoid the high hourly fees lawyers charge. But hoping legal difficulties will simply go away is not realistic when they're staring you in the face. It's almost always more cost-effective in the long run to address legal problems early. (Read more on how to hire an attorney.)