Checklist for a Small Business

More Small Business Legal Mistakes

Lots of helpful advice about potential legal mistakes for small business owners already exists on the internet. Sometimes, though, too much advice can be overwhelming. We’ve combed through the results and found the articles that we think are the best, and added some of our own.


Some of the best advice can be found in Forbes Magazine, in an article where Aileron contributed their top 10 legal mistakes. Here is a great example of a common mistake:


No human resource guidelines. Very small companies get in trouble because they do not have employee manuals to guide the conduct of their team. There are famous examples of very successful companies going bankrupt over lawsuits from former employees. What to do: Seek the advice of a lawyer (or at the very least, professional software) to formulate human resource policies that fit the company.”


Rieva Lesonsky wrote about the 5 biggest legal mistakes made by small business owners on the Fundera Ledger. Among other items, she notes that a common mistake is


Choosing the wrong form of business. If you’re a one-person business, you may think you don’t need the additional complications of forming a corporation or LLC. For even the smallest business, however, incorporating or forming an LLC protects your personal assets against creditors, so the cost and time can be worthwhile. The form of business you choose will also affect how easy it is to raise capital later on, whom you can solicit investments from and more, so it’s important to not only consult a lawyer, but also take your long-term goals into account before making the decision.”


We would add that you also should consult with a tax advisor about the tax implications of your choice of entity.


What’s missing? Here are 3 more common legal mistakes a small business makes.


  1. Not keeping personal transactions out of the business entity’s cash flow. Owners of small businesses often pay personal expenses out of the company’s bank accounts as if they are business expenses. This can create both tax and liability issues.
  2. Not ensuring the public is on notice of the entity’s legal status. As Ms. Lesonsky states, “incorporating or forming an LLC protects your personal assets against creditors.” However, if you fail to sign a contract in the name of the entity or deal with suppliers without clearly indicating that they are dealing with an LLC or Corporation, you could be exposed to personal liability.
  3. Extending credit without checking the credit of your customer. Even if they have been in business for years or appear to be profitable, require a deposit or payment in advance whenever possible. If the customer resists, make sure you get a credit report before extending credit. If possible, also get a personal guaranty if extending credit to a Corporation or LLC.