Starting a Wisconsin Business? Avoid these Legal Mistakes

why do small businesses fail

The first days of a new business are filled with decisions that can make or break a business. Along with a registration process, starting a new business comes with marketing, logistical, and legal decisions. While the latter may not be at the top of a new small business owner’s checklist, legal decisions can have positive and negative impacts on the health of the business. To avoid the negative consequences, avoid these common legal mistakes that small business owners make when starting a business.

Choosing a business entity without considering options

One of the most important decisions for any new business owner, choosing the business entity, has long-lasting legal and financial implications. There are many options, such as sole proprietorship, a limited liability company (LLC), partnership, and corporation. The type of business entity determines required documentation and tax payments, specifics of the resolution of liability issues, and whether raising money is possible. Choosing the wrong business entity can negatively impact both business and personal finances; contact an experienced business lawyer to determine the best business entity for the specific business situation.

Not drafting a partnership agreement

Entering into a business partnership is a common practice that can come with pitfalls, especially when a formal Partnership Agreement is not drafted. The Partnership Agreement is a legal document that should be drafted by a lawyer and customized for every party involved in the business. The document should include financial details, responsibilities of each partner, and information for a smooth conflict resolution and transition (if a partner wants to leave the business). All these details should be on paper; a verbal agreement or the absence of any Partnership Agreement can lead to serious conflicts and legal situations that could have been prevented.

Neglecting to put deals in writing

Documentation with other parties can feel like another unnecessary step, but actually serves as a protective safeguard. This applies even to subcontractors, which is often a necessary part of running a small business. Before subcontracting any work with other parties, contact an experienced business to draft a Confidentiality Agreement that ensures proprietary information is kept confidential and an Independent Contractor Agreement to put details of the arrangement down on paper.

Not establishing a hiring protocol

The hiring process comes with its own set of requirements. Specifically, certain paperwork needs to be obtained and kept on file. A business should also draft an Employee Offer Letter that spells out the details of the job, steps of conflict resolution, and includes any rules or regulations your employees need to be aware of. A few minutes of preparation and research can save a new business owner many headaches now and in the future.

The materials on this website are provided for informational purposes only and do not constitute legal advice. These materials are intended, but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as an indication of future results. Transmission of the information is not intended to create, and the receipt does not constitute, an attorney-client relationship between sender and receiver. You should not act or rely on any information contained in this website without first seeking the advice of an attorney.

Business Contracts Every Small Business Should Have

small business owner with contractSmall business owners are busy professionals with a long task list. Often lost on the to-do list is securing the contracts that contribute to long-term success—and prevent negative legal issues later. Fortunately, the task doesn’t have to be cumbersome if the right legal professionals are consulted. Note, too, that there is value in consulting a local lawyer knowledgeable in local regulations.

This list of business contracts is not inclusive; there are other business contracts necessary for day-to-day operations. To get a comprehensive list and customized contracts, contact an experienced business lawyer.

Partnership Agreement

Drafting a Partnership Agreement is an important step in starting a business (including choosing an entity, more information here) that can have long-term ramifications. A Partnership Agreement is between all parties that invest in a business and should include the financial details, rights, and responsibilities.

The Partnership Agreement should detail the parties involved in the business, how profits and losses are handled, steps to be followed if a partner wants to leave the business, duties of each party, conflict resolution steps, and any process information for adding a partner. Because the details in the document need to be as specific as possible, contact a lawyer to draft this important contract. The absence of a Partnership Agreement may lead to serious conflicts and legal situations that could have been prevented.

Independent Contractor Agreement

Outsourcing services is an essential step for most small businesses. After all, there are some processes that make more financial sense to outsource as opposed to hiring an employee (and incurring those costs). In addition to independent contractors, this contract can also be used to short-term employees and consultants. An Independent Contractor Agreement details the exact nature of the relationship and that the business is not responsible for financial and tax obligations incurred for an employee.

Employee Offer Letter

Hiring an employee is a process that should be formalized before the first employee is hired. This eliminates any situations that can turn into a headache later, both legal and financial. An Employee Offer Letter explicitly spells out the details of the job, such as the position title, responsibilities, and finances. “At will” language should be included to indicate that the position can be terminated by the company or employee. The Employee Offer Letter should also specify other details, such as conflict resolution and that a Confidentiality Agreement should be signed.

Confidentiality Agreement

A Confidentiality Agreement is a vital part of business asset protection. This contract ensures that business proprietary information is kept confidential. This document should be signed by any party (employee or otherwise) that needs access to proprietary information or may develop products, strategies, or services that may become proprietary.

The materials on this website are provided for informational purposes only and do not constitute legal advice. These materials are intended, but not promised or guaranteed to be current, complete, or up-to-date and should in no way be taken as an indication of future results. Transmission of the information is not intended to create, and the receipt does not constitute, an attorney-client relationship between sender and receiver. You should not act or rely on any information contained in this website without first seeking the advice of an attorney.