How to Keep Your Company out of Legal Trouble

When you're running a small business, there are so many things you need to keep track of. One major thing you have to consider in everything you do is your legal responsibilities. While the majority of businesses want to stay on the right side of the law, it's still possible to get into legal trouble unknowingly. Planning ahead by using the following tips can help.


Pick the Correct Business Structure

The way you structure your business impacts the way rules apply to you. It can also come with tax advantages and help protect you if legal problems arise.

If you operate your business as a sole proprietorship and your company gets sued, your personal assets could become the target of a lawsuit. To prevent this situation, you can have a trust own the business. That way, if the company is sued, only the trust's assets can be targeted. You can also choose to incorporate your business, which separates your personal assets from your business and means you need to comply with some additional legal requirements.

Document Carefully

Documentation is hugely important for a small business. Keeping track of your finances and activities not only makes good business sense, but it can also help you prove your innocence if you run into legal trouble.


Make sure you get all agreements in writing as well. While an oral contract is legally valid, it's difficult to prove the terms of such an agreement in court should the other party go back on their word. You should also have employees sign contracts when you hire them and when they leave the company to protect yourself from potential legal action.

Choose the Right Insurance

Having the right insurance could even end up saving your business. While it's an additional expense, if you ever need it, you'll be glad you have it. The right insurance coverage for you will depend on your company's needs and risks, but some types of insurance a small business should have are:

  • General liability insurance
  • Property insurance
  • Worker's compensation insurance
  • Errors and omissions insurance

Get Expert Legal Advice

The law is complicated, so you should have experts you can turn to if you have questions or run into legal problems. It's wise to have an attorney on standby who is familiar with local laws.

You may also need to work with attorneys who have expertise in the specific issues your company is dealing with. If your business is facing issues related to contract disputes, warranty claims or business torts, you can hire a business dispute lawyer. If you're experiencing problems related to taxes, you can hire a tax attorney.


Plan Ahead for Taxes

Many of the most common legal issues that small businesses run into are related to taxes. It's important to keep track of your finances so that you can pay taxes properly. You also need to leave room in your budget to pay those taxes. Some of the most common tax-related mistakes small businesses make include skipping estimated tax payments, which can result in penalties, and failing to account for payroll taxes in pricing.

Protect Your Data

Chances are, your small business uses technology. Make sure you have up-to-date security software on your computers and that you regularly back up your files. You should also have clear policies that employees must follow when dealing with sensitive data and provide cybersecurity training to your staff. You may also want to get cyber insurance in case a data breach occurs.

Protecting your small business from potential legal trouble requires taking a proactive approach. While this certainly isn't a comprehensive list of the steps you can take to protect yourself, following the tips above is a great way to start.

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