Three Legal Mistakes Small Businesses Make

Most new business owners approach their new venture with two primary thoughts – how much is this going to cost, and what can we do to minimize initial out of pocket expenses? A conservative approach to business expenses is crucial some of the time. After all, a new business can spend thousands of dollars on hundreds of goods and services from accounting and finance, to web design and search engine optimization, to office space and equipment. It comes as no surprise that there are endless individuals and companies happy to take money to “help” a new business owner get off the ground. Spending some money it is necessary, of course, but how much, and on what? A new business owner might want to save money whenever possible, but there are a few areas that will cost more in the long run, or could have devastating consequences, without bringing in the right expert. Legal help during a business’s initial stages can be critical to its overall success, or can help it avoid failure. Here are just a few important examples of legal mistakes a new company can make when trying to navigate without an attorney.

1. Setting up the wrong type of entity

error-102075_1280In general, owners can structure an entity as a sole proprietorship, partnership, limited partnership, limited liability company, limited liability partnership, C-corporation, or an S-corporation, but not every business qualifies for every category. Each entity type has different costs, requirements, liability implications, and tax consequences. An attorney knowledgeable in business formation can help ensure that owners choose the correct entity at the outset. Choosing the wrong entity can result in expensive surprises, including additional expense to change the entity type at a later date. An experienced attorney can help you avoid this potentially costly mistake.

2. Using unenforceable contracts, or contracts that do not adequately protect the business

Contracts are long, boring, and contain hundreds (or thousands) of nonsense words like “heretofore,” right? Most people cannot be bothered to read contracts, much less write them correctly. But proper contracts are crucial to every business. Without proper contracts, you might inadvertently include provisions that are unenforceable (such as non-compete provisions, which are unenforceable in many states), or may give away too much, or protect your business too little. For example, you may be able to include an attorneys’ fees provision, or you may need a clause that will allow you to send a customer to collections for failure to pay invoices. An attorney can ensure that you have the best contracts specific to your business that will best protect you and your business. They know the law, and can provide you with important advice.

3. Accepting unfavorable contract terms

Many new business owners do not realize that they can negotiate contract provisions. Step one is to read every contract you are asked to sign. An attorney can help business owners to understand that “standard provisions” are not necessarily standard. You can refuse to accept certain provisions, and can even negotiate price. Talk to an attorney before you blindly accept contract terms.

Hiring an attorney at the outset may seem expensive and cost-prohibitive for a cash-strapped new business, but it is important for every entrepreneur to build in legal costs to their initial out-of-pocket expenses. Hiring a knowledgeable attorney can save a business hundreds or even thousands of dollars in the short term and long term. Many small law firms are happy to work with new businesses, and put them on a path to success.

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Montage.HeadshotErin Giglia & Laurie Rowen
Co-Owners of Montage Legal Group and FreelanceLaw

Erin Giglia and Laurie Rowen are the co-owners of Montage Legal Group, a freelance attorney network with over 100 freelance attorneys who were hand-picked out of thousands of applicants. Montage’s freelance attorneys have impressive credentials from top law schools like Harvard Law School and Columbia School of Law, and were trained in prestigious law firms like Latham & Watkins and Skadden Arps.

In an effort to provide increased service to law firms, in 2015, Montage Legal Group acquired FreelanceLaw, which is an online subscription database of non-attorney freelancers that work for law firms on a project/freelance basis. Any freelancer who would like to work for law firms – including virtual paralegals, legal secretaries, web developers, bookkeepers, court reporters, translators and more – can subscribe to FreelanceLaw.com and be connected to law firms nationwide for project-based work.

Laurie and Erin have been recognized for their efforts to create work-life balance in the legal industry, and have been featured in numerous publications including the ABA Journal – “Freelance Law: Lawyers’ Network Helps These Women Keep a Hand in the Workforce” and Forbes.com – “How Two Moms Are Changing the Legal Industry.” Please visit www.montagelegal.com and www.freelancelaw.com.

2018-01-30T23:47:47+00:00

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