Business Law Basics

Business Law Basics


“The first thing we do, let’s kill all the lawyers”

The above, often quoted (or should I say, misquoted)  line from William Shakespeare’s Henry VI is a blunt summation of how most business owners feel about those of us in the legal profession. Many business owners view their attorney as a necessary evil – someone who they pay too much for reasons they cannot understand. Others forego using an attorney and later complain when things go horribly awry.

Legal issues present a challenge for business owners. The following are just a few basic tips to avoid the numerous pitfalls which exist for your business:

Operate Your Business Through a Liability Limiting Entity: In today’s litigious society, it makes sense to form an entity through which to operate your business. The most common forms for small businesses are the Subchapter S Corporation (also referred to as an “S Corp”) and the limited liability company (“LLC”). Which entity you choose is largely determined by tax consequences, and your CPA and your attorney can work together to get you in to the most appropriate entity.

Sign Contracts in the Entity’s Name: Running a small business is stressful enough without putting your personal assets – and, in some cases, your family’s assets – at risk by obligating yourself personally for obligations of your business. Sometimes your personal guaranty is required (such as a lease or a bank loan), but for most business agreements, there is no need for you to incur personal liability. Once you form your entity, sign agreements as an officer of the entity; don’t sign in your own name.

Title Business Assets Properly and Do Not Commingle: A common mistake made by many business owners is to use the business’ checkbook as the personal checkbook. This is a very bad idea which can spell disaster for your business. Commingling business and personal assets, or improperly titling assets used in the business, opens your company up to an attack by a creditor under a theory of law called “piercing the corporate veil”; it is every bit as ugly as it sounds, but if you keep the business and personal separate, you will never have to go there.

Establish an Ongoing Relationship With a Business Attorney: Business attorneys like small businesses. We like being involved in their growth and success and some of us (the author included) will actively promote our clients’ businesses. Do not be afraid to use an attorney; most business attorneys worth their salt will work with their clients to make sure that the clients feel that they are getting the most for their money. Find a good one and use them as an advisor and a resource for your business.

Heed these simple steps and you will avoid a legal headache that makes you feel like Shakespeare.