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Legal Issues that Small Businesses Face

Small businesses are bound to deal with a wide variety of legal issues as they grow. Preparing for them before they get out of hand and effectively dealing with them when they do arise is critical for your business' success and survival. Ignoring or poorly preparing for them can hurt your company's growth and could potentially even put it out of business.

The business and contract lawyers at the Katz Law Group strive to help small businesses survive and thrive in Massachusetts. With nearly 40 years of experience, our attorneys have seen it all. Here are nine of the most common legal issues that small businesses face.

1. Entity Formation

One of the very first legal issues that companies have to handle is their corporate formation. Choosing the wrong type of entity to create can saddle your company with needless paperwork and compliance requirements, or can leave you personally exposed to liabilities that your company takes on. It can also leave you with a higher tax burden than is necessary.

It is essential to talk to an experienced business lawyer who has seen countless other companies through this pivotal moment in a company's creation.

2. Hiring New Employees

Hiring your first employee is a huge moment for many small business owners. It means that your business has succeeded and grown to the point where you can no longer do everything on your own.

However, it means that you now have to follow all of the rules of employment law as well. This means complying with both state and federal rules regarding:

  • Overtime pay
  • Minimum wages
  • Rest and meal breaks
  • Workplace discrimination

It also means that you will have to come up with an employment contract that will advance your company's interests without hindering your employee's ability to work to their fullest capacity. You may also want to supplement the contract with an employee handbook that clarifies your new worker's role and expectations in the workplace. This handbook would include numerous details that are too small for the employment contract, itself, like your company's social media policy.

The hiring stage is also your best opportunity to protect yourself and your small business, should you ever regret your decision to hire this particular worker. You can prepare for these problems by including the following provisions in the employment contract:

3. Letting Current Employees Go

If you have decided to terminate a current employee, you could also expose your company to a wide variety of risks if it is not done properly. It is essential to not give a discharged worker a reason – no matter how flimsy or speculative – to sue your company for wrongful termination. Lots of small businesses get into hot legal water by firing someone too quickly and not adequately preparing for the worker's last day. A common example is firing a worker because they invoked a legal right in the workplace – an act that generally amounts to retaliation.

In some cases, even the most thorough preparation will not cover up the fact that the worker to be discharged will have leverage or a legal claim against the company. When this is the case, a severance agreement may help protect your company.

4. Handling Allegations of Employment Violations

Both during the employment relationship and at the end of it, your workers can accuse you or your company of a wide variety of violations of employment law. Some of the most common include:

  • Misclassifying employees as independent contractors
  • Wage and hour violations
  • Workplace discrimination
  • Harassment in the workplace, often in the form of sexual harassment
  • Wrongful termination
  • Other legal violations, like fraud, with the employee acting as a whistleblower

These allegations, even if unfounded, can threaten the company with huge liabilities and can tarnish the brand of your small business.

5. Partner Disputes

Many small businesses begin as partnerships. When multiple people get together to share their resources and talent in order to create a new business, the results can be very innovative and lead to lots of success. It may also not pan out, leaving the business a net loss.

In either situation, you benefit from having a partnership agreement that sets out everyone's duties and obligations to the company and to each other.

6. Commercial Lease Issues

Most small businesses that operate out of a brick and mortar storefront do not own their premises, at least not at first. Renting your business premises, however, exposes your company to a wide variety of risks, such as:

  • Rent increases after the lease expires
  • A commercial landlord who may be slow to fix problems that arise
  • General unwillingness to properly maintain the property
  • Expenses of moving your business, should things go too badly

For lots of businesses, especially small ones, these potential problems cannot be avoided. Renting is the only option you have. However, preparing for commercial lease disputes before they arise can save your company lots of money and can save you tons of stress. A small business lawyer with experience in commercial real estate can help you negotiate with your commercial landlord for better terms or help you break your commercial lease or assign or sublet it with as little risk to your company as possible.

7. Securing the Necessary Business Licenses

Depending on what your small business does, it may need to acquire one or sometimes several licenses in order to operate legally. If you open up shop without these licenses, you can get shut right back down again and often have to pay a fine or penalty.

Lots of small business owners overlook this very necessary step to starting a business. Others do it, but fail to find all of the licenses required. Regulators are never persuaded by a “lack of knowledge” defense, though. It is up to you to find all of the licenses that you need to operate, and if you do not have them, you can get punished in a variety of ways.

8. Trademarks

Trademarks are an issue for small business owners from the very beginning, though they might not be aware of it: The very name of your business carries with it the risk of infringing on someone else's trademark. If you start a business, open up shop, and use a name that is already in use and is trademarked, you can find yourself in an awkward legal predicament very quickly.

As your business grows, though, you can start using trademark law to your advantage. Trademarking your company's name and logo can prevent others from using it in ways that would tarnish your business' brand.

9. Enforcing and Complying With Contracts

From the start, your small business will run on contracts. These are legally binding agreements between your small business and other parties. They outline everyone's obligations and rights under the agreement.

A small business' contracts and agreements can make or break the company, especially if it has just started up and has not achieved financial stability yet. Small business owners that play fast and loose with the contracts that they make set themselves up for surprises down the road. They may have just agreed to do something that is completely beyond their abilities, exposing the company to the stated penalties for breaching the contract, or may have overlooked important contractual provisions that drastically undercut the value of what they got out of the deal. Even if the terms of the agreement are what you wanted, the contract's enforcement mechanism may be extremely weak, leaving you with little recourse should the other party fail to perform.

Small Business Lawyers at the Katz Law Group Serve Clients in Massachusetts

The small business lawyers at the Katz Law Group legally represent numerous small businesses in Norfolk and Middlesex Counties, as well as in the cities of Worcester, Framingham, and Marlborough. Call them at (508) 480-8202 or contact them online to get the legal advice you need for your small business to succeed.

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