Common Mistakes That Leave Businesses Legally Exposed

Owning your own business is part of the American Dream.

Leverage your hard work, vision, and talent and create something that is bigger than the sum of its parts.

Unfortunately, this feel-good story doesn’t end happily ever after for too many entrepreneurs. Even for those that successfully navigate the challenges of a startup and “make it,” lawsuits, fines, and regulatory penalties can threaten to cause it all to crumble at a moment’s notice.

To stay ahead of these types of concerns and keep your business well-protected against all eventualities, keep reading as we explore some of the most common mistakes that leave businesses legally exposed.

Wrong Business Structure

It’s fairly common knowledge that sole proprietorships are extremely vulnerable. Any breach or malfeasance of the business leaves the owner financially and legally responsible.

Forming an LLC is the modern recommendation to limit risk. By creating a separate legal entity, it is easier to compartmentalize between business and personal liability.

With that said, it is short-sighted to assume that an LLC is automatically the right type of business structure for your enterprise. When it comes to family businesses and asset transfer, a limited partnership (LP) may be the way to go.

You may be wondering: what is a limited partnership? It is a type of business entity composed of a general partner and one or more limited partners. The general partner bears the financial and legal risk, while the limited partners’ exposure is limited to their investment. This allows limited partners to share in the growth of the business without having to pay debts or damages incurred by the business.

An LP has numerous benefits for asset management. It provides centralized control of assets during and after the client’s lifetime. Partners can make regular gifts to the LP, effectively lowering the taxable estate. It also offers ironclad protection of the client’s assets during life and upon death.

LPs have been around far longer than LLCs. Whereas there are many forms of LLCs, an LP can only be structured one way. Due to the long history and regularity, there is much more precedent on how courts will interpret disputes regarding LPs than for LLCs.

Breach of Contract and Misrepresentation

Even with the ideal business structure, there are a host of mistakes a business can make to leave it legally vulnerable.

A breach of contract is as straightforward as it gets. Putting something in writing. Forming an agreement. Failing to honor the terms of the agreement.

A breach of contract can occur against a host of parties. Vendors. Employees. Customers.

And, it’s not always the terms itself that can get the business into trouble. Omissions of material facts that result in a contract under false pretenses can represent a breach.

Data Privacy and Cybersecurity

It seems like every time you open your inbox; there is another message from a business you have bought from in the past.

“Your data has possibly been exposed to a security breach. While we have no reason to believe your information has been compromised, please cancel your saved payment methods and update your login credentials immediately.”

Unfortunately, it’s a fact of life in the internet era. And, it’s a major concern for business owners.

There are myriad ways that a business could face legal action due to a data breach:

• Failure to adequately protect customer and employee data in compliance with GDPR, CCPA, and HIPAA
• An inadequate cybersecurity infrastructure that leads to unauthorized access of sensitive information
• Lack of clear policies
• Not honoring customer requests regarding their data
• Disregarding proper consent mechanisms for collecting and disseminating customer information

Constant vigilance is the name of the game in cybersecurity. Always invest in cyberprotection to keep your business safe.

Employment and Labor Law Violations

Unfortunately for business owners, hiring is no straightforward task. It comes with a host of considerations to guarantee that the process is safe, fair, and non-discriminatory.

Many businesses miss the mark when it comes to identifying and deploying labor. Among the most common employment breaches include:

• Failure to make the job available to a broad pool of candidates
• Misclassifying employees as independent contractors, creating a range of issues for tax violations to benefits
• Violations of minimum wage and overtime laws
• Non-compliance with OSHA
• A workplace culture of harassment and discrimination

It is crucial to consult with HR experts and employment attorneys from hiring through severance. This helps your business stay one step ahead of any issues that may be flying under your radar.

Leave No Stone Unturned When Protecting Your Business

It takes a lot of vision and persistence to get a business off the ground. To help guarantee that no unexpected surprises thwart your progress, it is essential to avoid the common mistakes that leave a business legally exposed. If you are interested in boosting legal protection for your business, contact Skabelund Ultimate Asset Protection for a consultation today!