Top 3 Legal Issues Affecting Small Businesses

Small business owners often fall prey to legal pitfalls that potentially expose the company or themselves to unforeseen liability, costing their business significant sums of money. The most costly mistake might be not having an experienced attorney as part of a team of advisors, who can provide timely guidance as the business grows.

As an owner of a small business, the danger of crippling litigation should be at the top of your priorities. There are steps that every business can take to avoid these pitfalls, and in turn, save money and the headache of legal problems down the road, says Yasir Billoo, an attorney specializing in the areas of business/commercial law, employment and labor, and civil appeals.

The following are the top three pitfalls that Biloo sees on a regular basis in his practice:

1. Avoid mixing business and personal accounts. Every business owner knows the value of a corporate entity legal structure. Having an “Inc” or “LLC” protects your against personal liability from potential lawsuits and claims. Although there are some types of claims that can be filed against business owners personally, the vast majority of claims can only be brought against the corporate entity, says Billoo. The only way that potential claimants can get around this is if you jeopardize the sanctity of the veil yourself. Meaning, for instance, if you use your company’s bank account to withdraw cash, even once, or you spend corporate funds (cash or credit) on personal expenses, you may be personally liable for a claim on which may otherwise not have been liable. Business owners should avoid using business bank accounts for person spending, warns Billoo.

2. Ensure sufficient insurance is in place. The end of a calendar year is a good time to make a list of all insurance you have in place, suggests Billo. Be sure you have sufficient insurance to cover business needs. General liability insurance is generally a must. If you manufacture or supply products, consider products liability insurance. If you have drivers, be sure to have auto insurance. If you have exclusions for employee injuries in your general liability policy, be sure to have worker’s compensation insurance. Plus the amount of coverage you have should be commensurate with the amount of business your forecast for the upcoming year, so you don’t jeopardize the future of your business. Work with an attorney and your insurance broker to determine what insurance is available and what you need, he adds. If you are unsure about a specific type of insurance, check the cost and weight the risk as a business decision.

[Related: Why You Need Business Interruption Insurance]

3. Work overtime to account for all overtime work. Overtime lawsuits have slowed down a bit over the past couple of years, but they are far from over. The Fair Labor Standards Act permits employees to recover all unpaid overtime, liquidated damages, if warranted (which usually amounts to 2 times the overtime compensation owed), plus attorney’s fees. If the employee is able to win even $1 form an employer, the employee could recover all of his or her attorney’s fees, which may be substantial, cautions Billo. Make sure that you have an overtime system in place and follow it. Record time for employees and have them sign on and off regularly, using a reliable recording system to ensure accuracy and pay according to that time, he stresses. Also, having a policy that is not enforced does nothing to protect your business.