Small business owners can make costly legal mistakes. Although most entrepreneurs aren’t legal experts, don’t expect a judge or court to be sympathetic to your ignorance. These five legal mistakes are common, so be aware of them and avoid making them.
You probably don’t understand Latin if you don’t speak it fluently. It’s a common phrase in legal circles that is very important for small business owners. This means “ignorance is not an excuse for anyone.” It also means that you are responsible for complying with the law even if you don’t know.
You have a lot to learn. How do you know all the laws that can impact your business? Let’s first look at some of the biggest legal mistakes you could make before we tackle “every” law. They are relatively simple to fix, which is a good thing.
1. Not registering your business
Are you able to sell products to customers? Are you making more than $12,000 per year? These are the reasons why you should register your business according to the State of Washington. However, this is only Washington.
To check your state’s Secretary Of State website, however, you will find most businesses must register with the state.
Are you unsure where to start? You can find a guide at the U.S. Small Business Administration.
2. Contractors vs. employees
Do not feel ashamed. Even the most experienced business owners make legal mistakes like this. It might seem tempting to hire contractors only because you don’t have to cover the costs associated with hiring an employee.
After taking into unemployment, Social Security and Medicare, and other expenses you will pay between 1.25 to the base salary of the person. This does not include office equipment or training.
It’s no surprise that contractors are loved by everyone. Here’s the key part: You can’t decide whether the person is a contractor or an employee. They can’t be treated like any other employee, but you can call them contractors. Here are the facts IRS wants to tell you:
- Behavior: If you can have control over the worker’s schedule and how they do their job, you are an employee.
- Financial: If they have some control over their payment, they are likely to be considered employees. They are a contractor if they are paid from an invoice.
- Relationship: Do you have an ongoing relationship? Or offer benefits? They are likely to be an employee if they do.
3. Online contracts
Let’s be cautious with this one. Many business owners use online contracts to create contracts that have very little consequence. That might be okay. However, a small advance on an employee’s salary may not require an attorney. In most cases, however, however, it is not a good idea to pay a few dollars for a generic contract in most cases.
The Internet makes it seem like we are all experts when in reality, we are not. Don’t pretend to be an attorney if you aren’t one.
Contracts are used to formalize agreements, but they should also close any legal loopholes that could render them invalid. Only an experienced attorney will be able to draft a contract that suits your needs. That protects you completely.
There are other reasons, too:
- Contracts based on one word have been thrown out by courts. “Hereby assigns” and “hereby agrees to assign” have two very different meanings.
- You get what you pay for. This is a common adage that you’ve probably heard before. There must be a reason why an attorney would charge you more than the online form.
- Not everything online is true.
- The person who created the online contract has never been to your home. Do you trust them to protect your business’ legal rights?
4. Not documenting Non-U.S. workers properly
According to the Immigration Reform and Control Act, discrimination against non-citizens who have legal rights to work in the United States is not allowed if you have more than four employees. You cannot refuse to hire someone because of the paperwork. This is because it takes more time to get along with him/her.
The I-9 form is one of these forms. You must confirm that the person can work in the United States by filling out the I-9 form. Although you don’t have to be an expert at spotting fake documents and can still trust the person, it is important to verify that they are allowed to work in the United States.
5. Not reading a contract
This is something we’ve all done, right? Someone might say, “Sign here”, and you will sign the document without ever reading it. Never sign anything without reading it first. These are the things to watch out for when signing any document.
- Is it clear that the names of the buyer and seller are clearly listed?
- Are rights and obligations clearly defined? (Someone will deliver the goods at this time for this price.
- Are the remedies clearly defined? Does each party know what happens if the contract is broken? Is
- it clear how disputes will be settled?
- What happens when the contract expires?
- Every contract is different. If it isn’t clear, don’t sign.
Bottom Line —
When in doubt, contact an attorney. Spending a little money to legally protect yourself will cost you far less than if you find yourself in court trying to defend yourself.
Remember, just because you didn’t know doesn’t mean you’re not responsible.