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Common legal mistakes business make

Legal problems are the worst. It doesn’t matter if your company has been in business for years or you just launched a startup. Legal trouble can be both time-consuming and expensive. In fact, it can be so bad that it could put you out of business for good.

With that said, there’s a lot you can do to avoid legal issues by ensuring you’re well-prepared in advance. Remember that it’s always best to avoid them before they happen. Of course, you can’t always be clairvoyant and know which legal issues you’ll end up facing, but there are a few, which are super common.

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This article will go over three of the most common legal mistakes business owners make and how to avoid them.

Ethnic business couple arguing over contract

Don’t fail to prepare for employment issues

The fact is that there are many issues regarding employment and the law, which naïve business owners ignore to their peril. For example, business owners need to prepare for some legal matters, including harassment, discrimination, union regulations, and other legal matters that can take a lot of time and money to resolve if it goes into litigation.

For instance, businesses usually assume all is well when their employees perform as expected. Still, there may come a time where the employee’s performance or attitude becomes an issue. At this point, you’ll want to make sure your employment contract has enough termination clauses, so you don’t end up with a disgruntled former worker who feels like their rights for due process were disrespected.

To avoid these sorts of legal problems, you should research and inform yourself regarding the laws in your area that regulate the hiring, managing, and firing of employees. Additionally, you should be aware of the local, state, and federal regulations on health and safety, overtime wages, and any relevant industry requirements.

Finally, make sure that you have written documentation of everything.

Don’t fail to plan for succession

Succession planning is about making sure that your business can continue to operate once you are gone. A company’s lack of succession planning could cause many issues, such as the inability to find competent successors. In turn, executives or managers who feel they should be in line for succession but were passed over could launch lawsuits.

You might think that you don’t need to worry about this if you just began a startup, but you’d be mistaken. Indeed, if you don’t take care of the legalities of succession planning well in advance and yours is a family business, then the legal troubles could extend into suits and countersuits between your family members … even if that’s years down the road.

These legal issues are incredibly complex and can be time-consuming. It’s, therefore, in your interest to draft a formal plan together with your attorney, which will dictate what happens to your company when you are no longer running the show.

For instance, this could mean that one of your children or another heir steps into the top leadership role. It could also mean a manager from the outside steps in on a temporary (or permanent) basis. Another option is that you could ensure the liquidation of your company entirely once you are out of the picture.

The main thing here is not to wait until it’s clear you’re going to kick the bucket or head off into the sunset.

Never work on the basis of a “handshake deal”

Contracts are dense, complex, and rife with legalese. Contracts can also be expensive to put into place, so as a business owner, you may be tempted to arrange an informal arrangement when working with vendors or contractors instead of signing a written contract.

However, there are many reasons why the lack of formal, written agreements is terrible for your company’s long-term success. For example, there can be uncertainty about whether both parties are genuinely committed to fulfilling their obligations in an informal arrangement because the understanding between the parties was never formalized.

This lack of commitment could lead to any number of destructive consequences, including a lackluster work performance on both sides–or worse yet, costly lawsuits when one or the other party becomes disgruntled. Therefore, it’s best to never, ever work without a formal, written contract in place.

African American business woman with contract


Many business owners aren’t equipped to handle the legal issues that can arise in areas like employment, succession planning, and getting proper business contracts written. Getting expert legal advice from a licensed attorney is often, therefore, your wisest course of action before you ever get your business up and running.

Remember that assuming you can do everything yourself is a huge mistake. “Winging it” has gotten more business owners in deep legal trouble than you may realize. Speaking to a qualified professional can be highly beneficial since they can walk you through what may happen if certain events occur (like employees getting sick or quitting) or you just found out you have six months to live.

The main point to remember is that getting your legal ducks in a row can help prevent a plethora of legal mistakes that could negatively impact the success of your business.

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