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18 legal mistakes business owners make that can cripple their companies

18 legal mistakes business owners make that can cripple their companies

After more than 20 years of serving as a business lawyer for a number hugely successful businesses, I know that becoming a prosperous company most often depends on being in the right market, at the right time, with the right solution, with sufficient capital, with the right management team.

But even a business with each of those attributes may fail to achieve its potential if its owners make these all too common mistakes regarding legal matters:

  1. Failing to incorporate and observe corporate formalities. Business owners expose themselves to personal liability by failing to use a correct corporate entity to operate the business and failing to observe the necessary corporate formalities – such as co-mingling business assets and personal assets.
  2. Failing to have an owner’s agreement. Business owners enter into business together with dreams of success and great optimism. However, the unexpected occurs, priorities change, divorces occur, owners die, friendships go bad, disagreements happen, some owners work harder than others, and the direction of the business changes. Failing to enter into a written agreement anticipating such situations frequently results in the demise of a business.
  3. Raising capital in violation of securities laws. Raising capital in violation of state and federal securities laws may expose business owners to personal liability and even require owners to pay treble damages
  4. Promising ownership to employees without due care. Promising ownership to employees, strategic partners and vendors without written agreements specifying defined vesting schedules and ownership restrictions and using equity as currency without considering the long-term consequences is frequently a costly and irrevocable mistake.
  5. Underestimating the cost, time and unpredictability of litigation. Litigation is an awful way to resolve business disputes, typically requires significantly more time, money and attention than anticipated and litigation results are rarely completely satisfying.
  6. Failing to protect or respect intellectual property. Business owners must take steps to protect trademarks, trade names, copyrights, patentable ideas, software, trade secrets and other intellectual property, including entering into agreements with all employees and independent contractors regarding assignment of intellectual property and confidentiality agreements. Owners must also ensure not to infringe on the intellectual property rights of others.
  7. Mistakenly relying on oral agreements. All important business arrangements, terms and conditions and agreements should be in writing. Over time, memories differ, owners of vendors and customers change, and confusion and disagreements arise. Disputes will be avoided if all agreements are in writing.
  8. Not understanding contracts. Careful lawyers select every word and every provision in a contract with a specific purpose. Business owners should not enter into a contract if they do not understand and agree with every provision. It is too expensive and takes too long to rely on a judge or arbitrator to interpret a vague contract. Owners should not agree to be bound by material provisions they do not find acceptable.
  9. Using poor contract forms for critical agreements. Certain agreements will be used repeatedly, and those standardized agreements should be carefully prepared to avoid litigation and limit the business’ potential liability.
  10. Not dealing with issues directly and in writing. When problems arise with another party, business owners should review the applicable contract, determine the appropriate actions, and document issues in writing. Failing to document issues in writing from the outset leads to misunderstandings, may result in unintentionally waiving rights, and complicates resolution.
  11. Treating employee issues too casually. Mischaracterizing employees as independent contractors, maintaining a locker room atmosphere, failing to pay required overtime wages, ignoring applicable employment laws, or paying employees “under the table” are very expensive mistakes. An army of attorneys are willing to take these cases on a contingency basis, and many claims include mandatory attorney’s fees for the employee and punitive damages.
  12. Not entering into agreement with employees. When appropriate, enter into non-competition, non-solicitation, confidentiality and non-competition agreements with key employees.
  13. Failing to pay taxes. As tempting as it may be to delay paying applicable taxes as a method for “managing cash flow,” failing to pay income, sales and payroll taxes will result in fines, penalties and personal liability.
  14. Not appreciating that every company is a technology company. Today, every company is a technology company. Engaging in business over the Internet, licensing critical software, and storing data in the cloud trigger critical legal issues that are not readily apparent and require particular attention.
  15. Ignorance of the law. Ignorance and complexity of the law are not defenses for ignoring laws or not complying with applicable local, state and federal laws. Business owners must understand and comply with all applicable laws.
  16. Misunderstanding or lacking insurance coverage. Maintaining proper insurance coverage often avoids litigation. In situations where litigation cannot be avoided, insurance coverage will protect the business from having to bear the exorbitant costs of litigation.
  17. Hiring subpar professional advisors. Business owners must select competent attorneys and accountants with specific experience in relevant industries that approach the relationship as team members and not by-the-hour hired guns.
  18. Not planning for the exit. Operate the business to create value for the next owners and have a succession plan in place. Business owners will fail to maximize the value of the business upon a sale if the business’ success too heavily relies on too few key individuals, critical relationships, or non-assignable essential agreements

Knowledge alone of the above list of legal mistakes frequently made by business owners is not sufficient to ensure the success of a business. Business owners who invest the time and energy to address these issues proactively are more likely to avoid costly consequences and to achieve the maximum potential for their businesses.

 

 

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Startups: Does My Business Have To Register For Workers Compensation?

startups                                                                                                                                        Starting a new business can be a daunting process. In many cases, new business owners must not only deal with the task of getting the organization off the ground, but also establishing proper insurance requirements. But what exactly are the insurance needs for a start-up company—for example, is workman’s compensation a must? Those who are establishing a new organization should familiarize themselves with the basics of workman’s compensation, when it is needed, and how it can be beneficial.

What is Workman’s Compensation? 

As suggested by the name, workman’s compensation is a type of insurance policy that pays the wages for men and women who are injured while performing the tasks required by their job. In addition to covering weekly wages, workman’s compensation may also cover medical bills and other similar expenses that occur as a result of an injury on the job. Finally, general damages for pain, suffering, and employer negligence may also be included in a workman’s compensation package. Depending on the severity of the injury and the specific insurance plan, these payouts may vary quite a bit.

Who Needs Workman’s Compensation?

Obviously, workman’s compensation packages are a must for large corporations who employ hundreds, or even thousands, of workers. But what about a relatively small start-up company that is just getting its feet off the ground? According to Entrepreneur, nearly any company that has at least one employee is required by US regulation to provide workman’s compensation insurance. Of course, there are always exceptions—for example, businesses in Texas and New Jersey are not, at least in theory, required to have a compensation policy. In addition, start-ups that are owned by sole proprietors or are filed as partnerships may not need to possess a workman’s compensation insurance plan.

Benefits of Workman’s Compensation

Though there is a small group of start-ups that are not required by law to have workman’s compensation, there is no question that they can still benefit from the insurance plan. In fact, there are a number of perks associated with having a workman’s compensation policy—including the protection that it offers in the event that an accident does occur. Similarly, employers that possess workman’s compensation plans are often more attractive to potential workers, as they may be used as part of the benefit package. It may also be useful as a basic insurance plan for sole proprietors who cannot afford medical insurance for themselves.

Establishing Workman’s Compensation

In most cases, start-up business owners who are interested in purchasing a workman’s compensation insurance plan can do so by consulting with any professional insurance agent. Some states, however, do require employers to work with specified state-run grants when applying for workman’s compensation insurance. Those who are unfamiliar with these types of insurance plans should be sure to speak with an expert in the field of workers compensation. In most cases, these professionals can provide assistance when it comes to choosing the best plan for the company.

Featured images:
  •  License: Image author owned

About the Author:
Andrew Miller is a passionate member of the End Ecocide movement, an avid legal blogger and Environmental Law Student. He has worked in marketing for over a decade and finds his passion in bringing concepts to life. As a Socialpreneur, he is an agent for positive social change through both his writing and business endeavors.

 

 

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An Overview of New 2013 Laws Affecting California Employers

An Overview of New 2013 Laws Affecting California Employers 

An Overview of New 2013 Laws Affecting California Employers

New employment laws could affect your California business‘ day-to-day operations and company policies in 2013. Download CalChamber’s white paper “An Overview of New 2013 Laws Affecting California Employers” for an overview of the changes in the law and how each of these California laws could affect your business.

New Laws for 2013:

  • Religion and Reasonable Accommodation
  • Sex Discrimination and Breastfeeding
  • Social Media and Personal Passwords
  • Inspection of Personnel Records
  • Itemized Wage Statements/Temporary Service Employers
  • Penalties for Wage Statement Violations
  • Commission Agreements
  • Fixed Salaries and Overtime
  • Wage Garnishment
  • Human Trafficking Posting
  • Workers’ Compensation Reform
  • Accessibility Reform
  • FEHC Eliminated, Duties Transferred to the DFEH
  • Intellectual Disabilities
  • Unemployment Insurance: Overpayment and Penalties
  • Prevailing Wage
  • Farm Labor Contractors
  • Warehouse Workers

 

About CalChamber

CalChamber is the largest, broad-based business advocate, working at the state and federal levels to influence government actions affecting all California business. As a not-for-profit, we leverage our front-line knowledge of laws and regulations to provide affordable, easy-to-use compliance products and services.

Free White Paper

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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