One Coach

Small-business owners face many challenges and decisions, in marketing, sales, management and other areas. Even if you excel in all of these, your hard work may be for naught if you should encounter legal difficulties. 

If you are faced with  penalties, liabilities and lawsuits, your personal and business assets may be in jeopardy.  The issues identified here are generally not “fun” to deal with.  But it is better to deal with them now, rather than face potentially door-closing consequences later.

Here are some legal issues that all small-business owners should be aware of. We’ll introduce more legal topics and explore these in more depth in subsequent posts. 

Forming an entity.  Even solo entrepreneurs with no employees, working out of their home, should consider forming an entity.  Why?  Creating a business entity is like creating another person – one that you control, and that is responsible for all of the financial and decision-making aspects of your business.  If you do everything through your entity (contracts, leases, bank accounts, etc.), and observe proper formalities, your personal assets will be greatly protected from liabilities caused by the business.  (All businesses create some liability, though it can range from great to small.)  Your home, your personal bank accounts – those are personal assets that could be seized by a creditor if you do not pay the business bill, or make a bad hiring decision, or for mistakes made by employees.  

You may think, “Nobody would come after me, I have no assets.”  Well, if you are under 65 and are in decent health, you have your entire working life ahead of you to pay off a judgment. Creditors will take payment over 20 years if they have to. 

There are many different types of entities, and most states have laws governing each type.  Talk to your  accountant and/or attorney about the form of entity that is right for your business.  The cost for a simple and straightforward entity formation can be as low as $500 – $1,000 dollars.  It is worth spending the money to protect all that you have worked for.  Once you have your entity, educate yourself about the “corporate formalities” for your chosen corporate form. These are the  steps you need to follow and document to prove that your entity is separate from your self.      

Business insurance.  A standard Business Office Policy or Commercial General Liability policy will protect your business assets from liabilities in a  range of situations.  Each policy is different, and will have exclusions (for example, intentional torts such as assault – your insurance company will not insure you against that).   Talk to an insurance broker about the policy that fits your business – there may be riders in addition to the basic policy that will cover you more fully.  It is worth the time to educate your insurance broker about your business.  Look for at least an AA rating.  Again, there is a cost, but it could save you millions if someone decides to sue you. 

Next time: Employment laws, licenses and registrations, contracts

This blog post is intended as a general discussion of legal principals, and should not be construed as legal representation or advice.  OneCoach is not responsible for any act or consequence resulting from your reliance on anything contained in this blog.  OneCoach and its attorneys do not represent you in this or any matter.  You are highly encouraged to retain local counsel to assist you with any legal issues.