Thursday, March 8, 2012

5 Legal Matters That Can Make or Break a Small Business

When you’re running a business, making mistakes is a fact of life. But making legal mistakes – especially when they are avoidable – can mean the difference between the success and failure of your company. 
For your reference, a look at five legal areas that could break your business:
1. Contracts…
“What’s in the small print does matter. Businesses will sometimes use the same generic purchase order, order acknowledgement or delivery confirmation form for every deal, assuming that the same form works in all circumstances or that the boilerplate, microscopic type does not really matter… The order of the exchange, subject matter of the terms and even the size and font of the type face can affect which terms will be enforced.” (10 Things Every Small Business Owner Should Know About Contract Law by Dinsmore & Shohl LLP) 
See also: Ten Things You Must Know before Entering into a Contract (Frederic Abramson) 
2. Trademarks…
“… it is advisable to clear up any trademark issues before launching a new product or services. To do otherwise can be expensive and aggravating. Taking the time and money to choose a strong, non- infringing mark, and to protect it with a federal registration, is a worthwhile investment for the growth and expansion of your brand.” (Launching Your Business or Product? Pick a Good Trademark by Akerman Senterfitt) 
See also: Trademarks 101 (Delain Law Office, PLLC) 
3. Organizational documents…
“Part of the formational process for any of the three types of limited liability entities involves a filing with and certification by the state… Proper tax elections also need to be made. There are also statutory operational formalities involved with those entities (bylaws, formal notice, meetings, and voting, with written minutes or resolutions, etc.), unless properly provided otherwise by an LLC Operating Agreement providing for operational informality, or filing a Corporation as a Close Corporation with a Shareholders Agreement allowing for lack of formality.” (Business Formation Q&A by D. Lee Gwinn) 
See also: Even in Deals with “Yourself,” You Still Need Proper Legal Documents (Davie Law Group) 
4. Employment agreements…
“Do not assume that handshakes and a shared sense of adventure will insulate the company from misunderstandings with the stakeholders/founders… Hence, often a separate employment agreement on top of the operating agreement (LLC) or shareholders agreement (Corporation), is necessary to set out specifics about the founder/ employee’s relationship to the business entity (e.g., at-will employment, duties, obligations, confidentiality, termination, equity incentive and other forms of compensation, etc.).” (Top 10 Legal Documents For Any Technology Venture by Wahab & Medenica LLC)
See also: Barbie / Bratz Dispute Highlights Importance of Employment Contract and Policy Language (Hopkins & Carley) 
5. Non-compete agreements…
“While you may read your employment agreements and understand what you intended, a judge may not. In two recent cases, circuit courts examined non-compete agreements in light of entire employment contracts. The cases show that terms buried within a separate portion of an employment agreement might give the court a reason to decline to enforce your non-compete agreement. Specifically, courts have declined enforcement because the agreements were written in an inconsistent manner or because the employee’s job title changed after signing the agreement.” (Are Your Non-Compete Agreements Enforceable? by Warner Norcross & Judd) 
See also: A Twist on Non-Compete Agreements: Don’t Let Your Vendors and Customers Squeeze Your Margins (Alan Bush) 
Related Reading:
 Legal Resource Guide for Entrepreneurs (Fenwick & West LLP) 
 Starting a Small Business? Remember These 10 Essential Steps 
 Business Structures: What’s Right for My Company? 
 Funding a Small Business: 7 Financing Sources to Consider 
 Legal Contracts: 6 Drafting Tips for Small Businesses 
 7 Employment Law “Hot Buttons” for Small Business – A Legal Roundup
If you are contemplating starting a small business, please consult an attorney who specializes in Small Business Law.  You can always contact me at (800) 730-5691 or The Out-House General Counsel.

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