Small Business Advice

4 Major Legal Mistakes Small Businesses Often Make

No business begins without a little risk. There are no guarantees that your business will be successful and profitable. That being said, you shouldn’t play dumb about business risks as some are more harmful than others. You’ll probably make mistakes along the way, but hopefully, learning from others will help you walk a clearer road. Here are a few legal mistakes other business owners have made so you can avoid them.

1. Early Reputation Damage

When your business is just beginning, reputation management might not be a priority, but it’s a growing concern for small businesses. About 54 percent of consumers say they don’t trust new brands, and if your competitor says something negative about you, it can do extreme damage.

Watch out for reputation damage from the beginning. Monitor mentions on social media and in the community. Dispel rumors and negative reviews early on by responding productively and rectifying any wrongs.

In addition, don’t make comments or statements that can be negative for other brands.

“The temptation for small businesses to talk trash about their competitors publically or anonymously on the web is growing,” states a Forbes article. “Be careful not to libel them…. Seek the advice of an attorney for what is libel and what is freedom of speech.”

If other brands are speaking falsely about your business, you have legal rights to dispute their claims and retain your reputation.

2. Contract and Improper Signature Problems

Contracts are standard for startups, but as a new business, it’s easy to let important legalities slip by. All contracts written or signed by your company should be carefully edited and reviewed by a lawyer.

While you’re at it, beware of forgeries and problems with signatures. Now that digital signatures and e-signatures are a common way to seal contractual agreements, the risk for fraud runs higher.

“Forgery has probably been around as long as people have been signing their names on paper,” says Melanie Attia from the e-signature organization eSignLive. “So it’s not surprising that when it comes to electronic signatures, the risk for fraud and other legal infractions such as repudiation or lack of admissibility and compliance still exist—especially if the electronic signing process is not properly designed.”

Using a proper e-signature service that digitally encrypts signatures and understanding the rules and regulations regarding this form of signage is a staple for a business hoping to thrive.

3. Lawsuits

Lawsuits can arise from anywhere, and they can derail your business. You might have a lawsuit regarding negligence, worker’s compensation, contractual disagreements, or libel. If you aren’t able to fight these claims, you could face closure.

Having an attorney is vital to escaping this debilitating measure, both before an incident arrives and after.

“A lot of solopreneurs and partnerships mistakenly believe that they do not have the same legal obligations that bigger enterprises have,” Ramzy Ladah, CEO of Ladah Law told Entrepreneur’s Abdullahi Muhammed. “They believe that legal issues will only arise as they scale, and they can always bring in an attorney later one. This is a huge mistake and one that can cost you your company, if not buckets of money. Get a lawyer before you launch, and let him/her get you set up correctly from the beginning.”

You probably can’t afford to have an attorney on staff at this stage of the game, but you could have one on retainer. There’s also a growing number of freelance lawyers you can contract only when necessary.

4. Security Breaches

Cyber security concerns should be a top priority as a small business owner. According to the US National Cyber Security Alliance, 62 percent of all cyber attacks target small businesses, and 60 percent of those who are hit will go out of business within six months of the incident.

These incidents are a higher risk for small businesses thanks to the resulting legal problems. Companies will face lawsuits because consumer information was not properly secured. They’ll also pay legal fees to recover some of the damage, and they might be subject to fines based on negligence.

Small businesses must take steps to avoid legal problems. Updating software, investing in cyber insurance, encrypting sensitive files, improving employee training, using antivirus software, and taking other digital security measures can mean the difference between struggling through a debilitating legal battle and thriving in your small business.