When you run a business, the world gets a lot more complicated. You’ll find yourself faced with a plethora of issues and decisions that most people never have to consider, and legal inconveniences may be an unfortunate side effect. Here are seven such issues, along with considerations for dealing with them.
Licensing is one of the most common legal issues small businesses encounter. Make sure you're in accordance with your local government's requirements for business licensing. Otherwise, you will likely find yourself facing fees that could easily have been avoided. The cost of the license may vary depending on where you operate, but the need to have one remains constant throughout the country. If you have any questions, consult your local government licensing agency, your lawyer, and/or your accountant.
Trademarks are another surprisingly common legal issue faced by small businesses. Be sure to do plenty of research ahead of naming or renaming your business or launching any new products or services. If you can think of it, there's always a chance someone else has as well, and it's entirely possible that the other business already owns the trademark. Infringing on someone’s trademark is not the kind of legal hot water you want to find yourself in, even if that infringement was an honest mistake.
3. Employee Termination
It happens to many businesses. You hire someone you believe to be more qualified than they really are, and soon realize you'll be losing money by keeping them around. Or you find out that they just don’t fit in with the rest of your employees and are affecting productivity and morale for the entire team. You can lessen your chances of legal repercussions if you take the right precautions before terminating anyone.1 This starts with spelling out the terms of employment in an employee manual and documenting any disciplinary actions involving the employee. If there’s any doubt about what you should do, it would be worth your while to consult your attorney.
Make sure you classify employees correctly as far as the government is concerned. "The misclassification of employees as independent contractors presents one of the most serious problems facing affected workers, employers and the entire economy," according to the Federal Department of Labor.2 This is a subject the Department takes very seriously, so before you classify someone as an independent contractor, be sure to read the DOL guidelines, and contact the Nevada Department of Labor if you’re unsure.
5. Shareholders' Agreement
If your business has more than one shareholder, an agreement is strongly encouraged. One day, the business may split up or be sold, and if no agreement exists, legal battles can and likely will ensue. Even if current shareholders are on the best of terms, things can always turn sour, and it's not a good idea to leave any gray area when it comes to who gets what. The agreement should be drafted, or at the very least, overseen by a lawyer with experience in such matters.
6. Overtime Disputes
Make sure your overtime rules are clear and that you approve all overtime in advance. Not only will this provide you with a helpful financial control, it could save you potential legal trouble. According to Black Enterprise3, "Overtime lawsuits have slowed down a bit over the past couple of years, but they are far from over. The Fair Labor Standards Act permits employees to recover all unpaid overtime, liquidated damages, if warranted (which usually amounts to 2 times the overtime compensation owed), plus attorney’s fees. If the employee is able to win even $1 from an employer, the employee could recover all of his or her attorney’s fees, which may be substantial."
This is one issue that you can control yourself. Don't rush into a lawsuit, because doing so means paying legal fees, and as you can probably guess, these can add up quickly. If you can find a way to negotiate and settle a dispute outside of court, it might be wise to consider that option.
Consult an attorney if you have questions or concerns about any legal issue. Doing so will likely cost you less than the fees that come along with legal battles.
1. Click here for a NevadaSmallBusiness.com article on precautions to take before firing an employee.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A.