Legal Mistakes Businesses Make Without An Attorney

Numerous small to medium-sized enterprises (also known as “SMBs”) have a dilemma: when they expand, their legal requirements also rise, yet they often don’t reach a scale that justifies hiring a full-time in-house attorney and thus end up making various legal mistakes.  

However, many are apprehensive about using outside legal firms since they have no restrictions on billable hours. Due to this situation, many SMBs are left in the difficult position of being under-represented in the legal system and without proper legal counsel. 

What was the result? A string of preventable errors that may result in needless legal troubles and financial hardship.

Some critical elements that might lead to major problems, later on, including not getting the necessary permissions for their operations or not considering local rules when recruiting staff. Maintaining the smoothest possible operation of your organization requires a thorough awareness of the law, otherwise, you’ll end up making legal mistakes that will make your life a lot harder than it needs to be. 

Contractual Errors

The temptation to save on contracts might be especially powerful in the world of SMBs. 

These companies are often incredibly lean, so every dollar and minute saved matters. 

Jonathan Rosenfeld, owner of Rosenfeld Injury Lawyers says: “The tendency to save costs creates a contradiction wherein the seeming cost-cutting measures—like depending only on handshake agreements or commercially available contract templates—lead the company to serious legal risks. 

These include the possibility of disagreements arising from ambiguity and the enforceability of contracts that do not fairly represent the intentions of the parties or adhere to the law.

Here’s an area where having a fractional general counsel tightly embedded with the company has a clear benefit. 

A fractional general counsel’s continuous presence in the company’s activities and culture encourages a more proactive and consultative approach to contracts than that of external attorneys, who are typically contacted only after a contract has already been formalized and put into execution. 

Business executives and teams are more likely to ask for their opinions on important agreements because of their constant exposure and accessibility. 

For any new vendor contract, a manager is more likely to say, “Let’s run this by our GC first,” rather than pulling out an internal contract template that is already in place but often out of date. 

This move in favor of consultation makes it possible to guarantee that contracts are not only drafted with legal soundness but also specifically customized to meet the demands and strategic goals of the company.

A fractional general counsel is in a good position to create and evaluate contracts that safeguard the company’s interests since they have a greater grasp of the operations, goals, and risk tolerance of the organization. 

They are able to recognize possible dangers and craft clauses that specifically address the peculiarities of the company and its sector, including duties for confidentiality, dispute resolution procedures, and intellectual property rights. 

Furthermore, by being involved in the day-to-day operations of the company, they are able to communicate and reaffirm to team members the value of formalizing agreements and the dangers of informal arrangements.”

No shareholder agreement

Carl Rodriguez, owner of NX Auto Transport tells us: “A shareholders’ agreement controls the conditions of the separation and the issued shares in the event that the firm has to be sold or a founder decides to step down. 

Should there be no such agreement, chaos will result as this might be one of the most grave legal mistakes a business can make. 

To avoid this, get a company lawyer to create a document outlining the procedures for resolving disputes among shareholders and defining what happens to the shares in the event of a departure or other change.”

No formal human resource policy

Rhett Stubbendeck, owner of Leverage Planning says: “Small businesses often encounter HR-related issues because they lack employee handbooks and human resource rules. 

You don’t want a human problem that might force your firm to go down and at the very least divert attention from your business objectives. 

To create human resource policies that work for your organization, consult a business attorney and a human resource specialist (or, at the very least, use professional software).”

Tax elections that are too much

Nobody wants to pay more taxes than they must in order to. Chances are good that you’ve heard somewhere that an S-Corp may save you money on self-employment taxes if you ask your accountant or Google the subject. 

However, most business owners are unaware that there are some pretty significant conditions attached. 

Unprotected intellectual property

Tommy Mello, owner of A1 Garage shares: “Many small firms wait until someone else comes in and claims their intellectual property before taking the appropriate precautions to safeguard it. 

You may not know what you have that is of value to your business or how to prevent someone else from taking it. 

Consult a lawyer for guidance on inventorying and appropriately safeguarding the company’s intellectual property.”

Structures of Medical Practice

Please read this, doctors, dentists, and other medical professionals! The majority of states prohibit unlicensed people from owning medical practices in the healthcare industry. 

Many states provide workarounds, so there are methods to accommodate investors or business gurus who want to participate and get a portion of the action. 

However, you’ll need to hire a competent healthcare attorney and budget between $20 and $40k to put everything up. 

It is necessary to navigate the fine line between state and federal regulations, and this should only be set up by an experienced healthcare attorney to avoid any significant legal mistakes.