As any entrepreneur can tell you, starting or running a small business takes a significant amount of time, energy, and money. All too often, it can be tempting for a business owner to take the path of least resistance and not address a concern until it becomes a problem. However such a reactionary leadership style and approach to business is rarely the most prudent course of action. In fact, taking a wait and see approach can foreclose opportunities to plan for difficult eventualities or to correct a concern before it grows into a major problem or litigation that threatens the continued existence of your company.
The Jayson Law group can provide assistance with many common and complex concerns held by small businesses and their owners. Our attorneys have prepared this piece to identify some common legal pitfalls for small businesses. However, this article is not a substitute for individualized legal advice and counsel should be sought prior to deciding on any legal action.
Failure to incorporate or otherwise insulate personal assets from liability
Once you start a business, and perhaps even prior to its formation, the pressure to turn a profit or raise funding is ever present. For a small business owner who is wearing multiple hats in the company, the competing concerns for your time can be overwhelming. Thus, one of the most common mistakes occurs at the outset of the business. The owner or owners fail to incorporate or form a limited liability entity that exposes their personal assets to liabilities that may be incurred by the business.
By default, a business in New Jersey will be formed as a sole proprietorship or a partnership. However these forms of organization do not insulate personal assets from business liabilities. Rather a form of organization such as an S Corp, C Corporation, LLC, or LLP should be used so that a business setback doesn’t mean that you’ll lose everything. Working with an experienced business lawyer can make you aware of the advantages and disadvantages of each business structure. And even if your business is currently operating as a partnership or sole proprietorship, we can work to reorganize it to better align with your goals and concerns.
Did not draft a shareholders’ agreement at the outset
It is not uncommon for friends or associates to go into business together. But, priorities and goals can change. One or more founders may wish to leave the business to pursue other ventures. Without clear guidance as to how to proceed, internal conflict is extremely common. Furthermore, as the business grows individuals from outside of the initial circle are likely to come into the company. If their relationship to the business is not clearly defined, litigation over ownership and control of the company may arise. Drafting a clear and thorough shareholders’ agreement or operating agreement can often resolve issues of this type before litigation becomes a serious possibility.
Playground-style insults in a professional environment are likely to result in a defamation lawsuit
Social media, blogging and other online outlets provide a soapbox for anyone with an internet connection and a keyboard. Many small business owners correctly recognize that harnessing these tools can significantly improve business, but some approach the issue by insulting the competition rather than by building their own brand and reputation. For companies that consider themselves disruptive or for those are looking to shake up an established industry, the temptation to bad-mouth the competition can be nearly irresistible. But, failure to resist this temptation and proceed cautiously can result in a costly lawsuit for defamation. If you have concerns about whether a particular article or advertisement crosses the line into libel, slander or tortious interference with a business relationship and is likely to result in litigation, consult with an experienced attorney prior to making it public or posting it anywhere.
Failure to secure client or customer data on company servers
Companies and corporations have an obligation to protect and secure client data. Data breaches can cause significant damages. Often, small businesses do not elect to carry insurance policies that cover a risk of this type. For those that do, their coverage limits may be quickly exceeded. Thus companies must ensure that they make all reasonable good-faith efforts to secure the data.
Furthermore, for certain industries that commonly handle sensitive personal information, mandatory encryption regulations exist in New Jersey. Health insurance providers and others are required to encrypt data or they can face penalties and sanctions under New Jersey’s Consumer Fraud Act. An experienced commercial lawyer can review your business’ data policies and practices to determine if they are likely to satisfy the relevant state or federal regulations.
Rely on the Jayson Group for small business legal concerns
The business lawyers of the Jayson Law Group are dedicated to serving an assisting the small businesses of Newark, Union and all of northern New Jersey. To schedule a free, confidential legal consultation, call (908) 258-0621 or contact us online.