10 legal things to know when running your own business
It is important to note that I am a serial entrepreneur and experienced executive — not a lawyer. Here, nonetheless, are ten things I’ve learned over the years that are critical legal principles to guide a business: Payroll taxes don’t belong to
It is important to note that I am a serial entrepreneur and experienced executive — not a lawyer. Here, nonetheless, are ten things I’ve learned over the years that are critical legal principles to guide a business:
Payroll taxes don’t belong to you
A business owner or executive that withholds payroll taxes from employees and fails to pay the taxes is deemed to have stolen the money and is subject to criminal penalties. Don’t even think about it.
Sexual harassment is a real problem
As a business owner you must take the risk of sexual harassment claims seriously. Do not tolerate any inappropriate discussion in the office. Prohibit pornography in the office. Always investigate allegations of sexual harassment fully. Never punish someone who complains of being harassed.
Patents are only worth what you’re willing to pay to defend them
It is expensive to get a patent. That is only the smallest part of the cost of a patent. Unless you are prepared to spend money to pay attorneys to threaten or actually sue people who may be violating your patent, it is virtually worthless. Don’t waste money on patents you aren’t willing to defend.
No one ever reads a contract until it is too late
There are two lessons that come from this one point. First, you should carefully read every contract and negotiate what and where you can well up front. If something goes wrong, the long forgotten contract will come out and you don’t want to be surprised. Second, you should behave generously with respect to the contract, focusing on its spirit and intent so that your partner is never tempted to get it out and read it.
Employees must be paid
The law is painfully clear that you must pay your employees. More importantly, you have a moral obligation to pay them. Finally, if you don’t pay the employees in a timely way, they will leave.
Don’t be surprised by taxes
Even before your business is profitable, you will be subject to a variety of sales, payroll, property and excise taxes. Be sure to review your liabilities with a local tax expert for every jurisdiction in which you have operations. Failure to pay a tax year-after-year can be extremely damaging to your reputation and potentially fatal economically.
Your business is subject to regulation
If you think there are no regulations that govern the conduct of your business, you are almost certainly wrong. Many regulations apply to all businesses. Most industries are also subject to additional industry-specific regulations. Be sure you learn about them before you violate them.
Taxes and regulations are potentially fatal to small businesses; the best way to prevent your business from becoming a victim is to grow. A ten-person company is much better able to be fully compliant than a two-person company. A 100-person company is much better able to comply than a ten-person company.
Document every exchange of money
If your company ever accepts money, you should create a document to explain it. For sales, a receipt should be recorded. For investments, lengthy, detailed and formal documentation is in order. Absent good documentation, you risk losing your business to a small investor with a sharp lawyer.
You need a lawyer
Don’t ever get the idea that you can operate a business without having a lawyer. Set up your business with a lawyer and keep her phone number handy. Set limits on hours and billings, but get help and counsel. Don’t confuse the practice of law with a DIY project.
Simply by recognizing these key issues early in your business you can save yourself a lot of grief — and give your business the extra chance for the long-term growth and success it deserves!
Devin Thorpe, husband, father, author of Your Mark On The World and a popular guest speaker, is a Forbes Contributor. Building on a twenty-five year career in finance and entrepreneurship that included $500 million in completed transactions, he now champions social good full time, seeking to help others succeed in their efforts to make the world a better place.