By Matthew Sharp

Small business owners must address multiple legal issues to protect themselves and their companies. There are laws for everything from determining the right corporate structure to protecting intellectual property. Here are five potential small business legal issues that can create problems if they are not handled correctly early in the life of a business.

1. Lacking a Business Structure

Businesses of any size benefit from a formal structure from sole proprietorships and partnerships to corporations and limited liability companies. You should create a business structure for the main purpose of protecting your personal assets. Types of business structures include:

  • Sole proprietorships
  • Limited liability companies (LLCs)
  • Partnerships
  • Corporations

A business structure separates your business assets from your personal assets. If your company runs into legal or tax trouble, only your business assets are under threat. If you have been careful about personally guaranteeing loans or contracts, your personal assets remain safe from litigation.

2. Working without a Contract

You should do nothing without a properly written contract. All agreements must be in writing for enforcement. A contract documents the legal relationship between your company and another party, such as an employee, customer, or vendor.

A carefully drafted contract lays out the rules of conduct between you and another party, including how and when payment is due, what information the other party can divulge to a third party, and other limits and requirements between contractual partners.

3. Ignoring Tax Laws

Almost everything you do as a business has tax considerations. If you do not follow the applicable tax laws, you will be at the mercy of the local, state, or federal government to whom you owe the taxes. The penalties for non-payment or non-withholding of taxes are steep, and your liability continues to grow until you have an agreement in place to remedy the issue.


4. Failing to Protect Intellectual Property

Intellectual property sounds like something only a large corporation would have, but it pertains to any person or business with a patent, copyright, or trademark that makes the business competitive. Intellectual property law is a crucial component of protection for technology companies, which run on ideas more than physical products.

If someone else were to “steal” the property and use it, your business would be damaged. Without legal protections for your intellectual property, you have no recourse to litigate or take any other action to reclaim or remedy the loss of the property.

5. Skipping Insurance

Like contracts and business structures, business insurance protects your business from liability. Every business needs general liability insurance but, depending on the type of business, you may also need auto insurance, product liability insurance, worker’s compensation, and other coverage, so you don’t lose your business to liability claims, storm damage, or other unforeseen circumstances.

Unless you are an expert in business law, including contract law, tax law, and intellectual property law, it’s highly recommended to consult an attorney that specializes in these areas. A lawyer can draft contracts with the right language to protect your business assets, determine the best business structure, and guide you through the complexities of U.S. tax code.

Litigation is expensive and can quickly cripple a business. The right time to hire an attorney is long before you need defending in a court of law, preferably before you launch your business. An experienced business lawyer knows all the ins and outs of structuring a business and protecting its assets.