Six Common Legal Mistakes Small Businesses Make… And How You Can Avoid Them

If you’re a small business owner, you know just how many aspects of your company you need to focus on to get your business off the ground.

One that many startups tend to miss are legal issues. And this despite the fact that they can make – or break – your business.

Here are six common legal mistakes that Toronto small business owners make, and how a bit of preventive care can help to keep your company from capsizing.

#1. Not incorporating.

If you don’t set up the right legal structure for your company, you may open yourself up to personal liability. When you form a corporation you protect yourself, generally speaking, from being personally responsible for certain actions and consequences of your business.

What to do: Contact a local business lawyer to help you determine the best legal structure for your company.

#2. Not putting a shareholders’ agreement in place.

A shareholders’ agreement sets out the framework for how issues will be decided between shareholders. If you don’t have one in place before issues arise, you leave yourself vulnerable to unpredictability that may make it impossible to carry on business or to exit.

What to do: Your small business lawyer can tailor a shareholders’ agreement to your company’s needs, and eliminate uncertainty as to what happens when – among other things – disputes arise, or a shareholder dies, leaves the company, or gets divorced.

#3. Not protecting your company’s intellectual property.

No matter how fledgling you are, you should consider protecting your business name and logo, and the products you sell or the services you offer.

What to do: Arrange for a patent, copyright, or trademark to protect your company, and have your small business lawyer take an inventory of it.

#4. Not putting employment guidelines in place.

Workplace disputes arise when employees are not treated the same way for the same issues. No matter how few employees you have, you need to ensure that you have company policies and procedures in place so that they are treated fairly.

What to do: Your lawyer can help you put an employee manual in place. You should also get advice from your lawyer about how to properly characterize your employees. Not doing so correctly may make you liable for back pay, overtime, and penalties.

#5. Not hiring a lawyer to handle disputes.

Handling disputes on your own isn’t the cheapest way to get rid of legal problems. There are evidentiary and other legal rules you aren’t aware of that can damage your case.

What to do: If there is a dispute, or if you’ve been contacted by a lawyer, you should hire one to respond on your behalf. But remember, the best time to engage legal counsel isn’t after a dispute or litigation has already arisen. It’s beforehand, so you can avoid having to deal with costly problems in the first place.

#6. Not keeping a minute book.

If you’re incorporated – either federally or provincially – you’re obligated to keep certain records to show your company’s activities. This is known as a minute book, and it contains various documents, including minutes of meetings, articles of incorporation, by-laws, resolutions, and so on. These records must be updated as certain events happen in your company.

Accurately maintaining the corporate books is extremely important because these records are relied upon by buyers, lenders, and investors for the sale of the business or its assets, and the assumption of loans.  They are also important in the event of an audit by Canada Revenue Agency or other statutory authority.

What to do: Have your small business lawyer keep your minute book up-to-date.

Have you made a mistake that you need small business legal advice for?

Anton M. Katz, Barrister & Solicitor has 22 years of corporate law and commercial litigation experience.

Contact us today to book your free initial consultation.

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