Top 3 Legal Issues for Small Businesses
Small businesses generally encounter all of the same issues and problems…“pitfalls”, as I like to call them. There are steps every business can take to avoid these pitfalls, and in turn, save money and the headache of legal problems later.
1. Poking holes through your own corporate veil.
Every business owner knows the value of the corporate entity – that “Inc.” or “LLC” protects you against personal liability from potential lawsuits, claims, etc. 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. The exception to this – the way for potential claimants to “pierce the corporate veil” – is if you jeopardize the sanctity of the veil yourself.
The fact that a “veil” exists means you must respect the separation the corporate veil creates. 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 you may otherwise not have been liable. I have had clients in the past whose corporate bank accounts show cash withdrawals every month for the business owners’ personal spending. This is a major no-no. Avoid the temptation. Take the trouble of using the necessary formalities; for example, use checks and deduct taxes, if necessary. The corporation is not your personal piggy bank.
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 and check that list twice. Be sure you have sufficient insurance for your needs. General liability insurance is generally a must. If you manufacture products, consider products liability insurance. If you have drivers, be sure to have auto insurance. If you have exclusives 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 you forecast for the upcoming year.
Work with an attorney and your insurance broker to determine what insurance is available and what you need. If you are unsure about a specific type of insurance, check the cost and weigh the risk as a business decision. Is it better to pay the extra $100 to avoid the possibility of a claim later? That’s a decision you should make, and renew, every year.
3. Work overtime to account for all overtime worked.
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 from an employer, the employee could recover all of her attorney’s fees, which may be substantial. Are you certain that your overtime system will withstand a $1 judgment amount?
The best way is to have a system in place and follow it. Record time for employees, have employees sign off on that time regularly to ensure accuracy and pay according to that time. If employees are not following the system, you must take steps to enforce it. Of course, this is not an exhaustive list and every small business owner should take the time to discuss their business practices with an attorney who can guide them.
Yasir Billoo is an experienced attorney whose experience ranges from representing large Fortune 500 companies in complex litigation and appeals in state and federal court, to helping small business owners with simple agreements.