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  • Ronald J. Axelrod

Small Business Legal Pitfalls

Updated: 4 days ago

Small business owner standing in front of his store.

Beware of Small Business Legal Pitfalls

Having legal issues and being entangled in litigation can be very expensive for a small business and may also affect its reputation. It's important to beware of small business legal pitfalls that are more common than you might think. The type of legal issues you’ll encounter while running your small business may be dependent on your field of work, but there are legal issues that are common to every business—from selecting the right type of business structure or entity to failing to keep proper business records. Below we have highlighted some of the most common legal issues that can severely impact your small business.

Pitfall #1 – Lacking the Proper Small Business Ownership Structure

It’s essential that you choose the proper business structure for tax and legal purposes when forming your small business. Choosing the wrong type of entity may have devastating consequences, especially if your business has been set up as a sole proprietorship. (Sole proprietorships can be problematic if the business gets sued because the owner’s personal assets, like their home and car, are available to satisfy debts of the business.) The more common types of entities you can select from are:

  • Sole Proprietorship

  • Partnership Entities (GP, LLP, or LP)

  • Limited Liability Companies (LLC)

  • Professional Corporations (PC)

  • Incorporations (Inc., Corp., Ltd.)

  • Not-for-Profit Corporations (NFPC)

  • Selecting whether to be taxed as a C-Corp. or an S-Corp.

With the help of Ronald J. Axelrod & Associates, a small business lawyer in Rochester, NY, (and perhaps in consultation with your accountant), you can make the right decision about which type of structure is right for your type of business.

Pitfall #2 – Not Obtaining the Required Licenses and Permits

Your small business should have all licenses and permits in place to operate legally. Not having the legally required licenses and permits can make a business vulnerable to issues with local government and customers (e.g., fines, lawsuits, enforced business closings). Consulting with your local government licensing agency, your small business lawyer, and/or your accountant is essential. Many municipalities require a permit to operate in their jurisdiction. Almost all professions will require licensing from the state.

Two small business owners (a man and a woman) going over paperwork.

Pitfall #3 – Ignoring Tax Laws

If a business does not follow tax laws, it might result in legal issues. Since almost everything a business does has tax considerations, it’s vital that even small businesses learn what their state and federal tax laws are and adhere to them. This may also include Workman’s Compensation Insurance and other mandated insurance requirements. If a business owner does not pay or not withhold taxes, the penalties can be severe. It’s not uncommon for small business to face these tax issues because they don’t have proper professional guidance from the start. A small business attorney can you’re your business navigate tax and regulatory compliance.

Pitfall #4 – Failing to Register Intellectual Property

Registering intellectual property is essential for every business to protect its intellectual property assets and failure to do so is surprisingly a common legal issue faced by small businesses. You may think that the term ‘intellectual property’ pertains only large corporations, but it important to consider when naming your business or products. Be sure to do plenty of research ahead regarding naming or renaming your business or launching any new products or services. Things to consider are trademarks, patents, and copyrights.

A woman business owner keeping records.

Pitfall #5 – Not Keeping Proper Business Records

Generally, small businesses, especially start-ups, know little about keeping proper business record keeping. If your businesses do not have proper records in place, you may face numerous legal issues—from personal liability to contract disputes. Proper records need to be kept including employment, human resources, corporate tax, and more. Keeping all necessary documents for sales contracts, lease agreements, partnership agreements, etc., is vital. State law also requires that businesses have annual meetings and that these meetings be properly documented.

Pitfall #6 – Skipping Business Insurance

Dealing with liabilities can be extremely expensive, especially for a small business. Obtaining business insurance will protect your small business from liability. Also, depending on the type of industry, a business should have auto insurance, product liability insurance, worker’s compensation insurance, and other types of coverage that protect the company from liability claims and comply with State or Federal requirements. Skipping insurance makes your business vulnerable to lawsuits by customers, vendors, or investors. With the help of an experienced business law attorney, you can ensure you have the right insurance coverage if something goes wrong. It is recommended that your small business law attorney, like Ronald J. Axelrod, review your insurance coverages for making sure you have proper named insured and beneficiaries.

Bottom Line for Small Businesses

These are only a few of the many small business legal issues that can occur. Having a working relationship with a trusted small business law firm, like Ronald J. Axelrod & Associates in Rochester, NY, can help you understand and avoid potential legal problems that can occur. With over four decades of small business law practice, Ron Axelrod and his team of legal professionals are highly skilled in protecting their clients’ small business interests. Call on the expert—Rochester, NY, small business lawyer, Ron Axelrod at (585) 203-1020 or reach out to us online to schedule an appointment.

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