1. Not Starting a Business as a Limited Liability Entity
2. Not Having Good Written Agreements
- How much time and effort is each person expected to contribute?
- How much capital will each person contribute?
- What happens if the business needs more capital?
- What happens if one person wants to leave the business?
- If the partner is married, what rights and interest in the business will the spouse have in the event of divorce or death of the partner?
- Will the company buy back the stock or interest from the estate of the deceased partner or from the partner leaving the business?
If you are presented with a contract to sign by another party, you should have it reviewed by a business attorney before signing it to have the attorney explain all the key provisions in the document so you can ensure that you understand what it is that you are agreeing to and what the consequences are of failing to abide by its terms.
3. Not executing Contracts in the Name of your Entity
If you are named on the contract and due to unanticipated circumstances your business is unable to fulfill its obligations under the contract, the other party can sue you personally, which places your personal assets at risk. If, however, you ensure that you are not personally named in the contract other than as a signer on behalf of your company, the other party is limited to suing your company. Also, try to avoid signing personal guaranties whenever possible. If you fail to observe these rules, you lose the limited liability protection for which you formed your legal entity.
4. Setting Unclear Expectations and Rules for Employees
5. Treating Independent Contractors Like Employees
If you have a legitimate independent contractor situation, it is extremely important: (1) to ensure the contract you have covers the entire agreement and protects you in the case of a breach, and (2) that you continue to observe the rules and limitations relative to your relationship with the independent contractor throughout the term of your working relationship.
6. Ignoring Intellectual Property, Disclosure and Solicitation Issues
7. Not Hiring a Good CPA
8. Not Hiring a Good Business Attorney
I have seen countless situations that could have been avoided or at least minimized had the client sought legal advice early on. It can cost ten times more to work though a legal problem than it would have to identify the potential legal issue early and handle it before it spirals of control. Isn’t it better to identify and avoid potential legal problems with the help of an attorney than it is to watch your hard earned revenue pass directly to the legal system and an opposing party?