7 Of The Dumbest Legal Mistakes Small Businesses Make

The Worst Legal Mistakes Small Businesses Make
The Worst Legal Mistakes Small Businesses Make

Starting a small business can mostly be a hectic process. Excluding the fact that you have to identify good procurement sources for your goods and services, secure the right location to run your business, map out strategies to acquire customers, and even raise enough startup capital for all these to be possible, you need to ensure that the most basic fundamentals are covered, so you can avoid running into the worst legal mistakes many small business owners make.

What are some of these worst legal mistakes most new small businesses make? How can they ensure they’re operating on safe grounds and not murky waters?

While you read through this article, it’s important to know that there’re many other legal mistakes small businesses make, and that these few are highlighted because, they are some of the most common legal mistakes small businesses make.

See Also: The 3 Biggest Mistakes New E-Commerce Businesses Make


Here Are 7 Of The Worst Legal Mistakes Small Businesses Make In Nigeria, And Everywhere Else In The World:


1). Not Incorporating:

Many new small business owners avoid the incorporation (mostly LLC) route, mostly because of the high taxes companies are made to pay by the government. What these entrepreneurs miss out, is the drastic effects a non-incorporation can have on their small businesses and all the partners involved.

Not incorporating puts your small business at potential risks, and if all goes south, every one of the co-owners could be liable to their own personal finances. This basically means that an incorporation greatly reduces the risks, in the event of a lawsuit or bad-debt to your personal assets.

Decide the type of company you want to incorporate, and make darn sure it’s done right, and on time!

See Also: The One Thing Your Product Needs To Be Successful


2). No Shareholders Agreement:

Without shareholders agreements, founders could easily leave the company, investors would see you as reckless and feel shaky about an investment decision in your company, an angry partner could easily setup a competing business, and a lot more.

Although incorporation is the best route to take when starting a small business, especially with partners involved, not having a shareholders agreement that makes each partner both responsible and accountable for certain events, could be one of the worst legal mistakes any small business could make.

Ensure every partner has a sound agreement on their responsibilities and duties to the entity. This would not just prove you have a good structure in place, but would ensure everyone stays committed to the company.


3). Not Protecting Your Intellectual Property:

Not protecting your trademarks, patents, or copyright, is one of the worst legal mistakes any new company can make. The implication of this is that any brand, individual, or corporate entity can infringe on your Intellectual Property rights legally, to benefit their businesses.

Without protecting your Intellectual Property; ranging from your trademark, to your logo, idea, and even your concept, your business is totally nothing.

Protect your company before it gets trampled on.

See Also: 5 Costly Mistakes Small Businesses Make On Facebook


4). Using Someone Else’s Company Name:

Many founders fall into the problem of using some else’s company name to sign contracts and carry out a bulk of their activities, pending when they’ve fully registered their own company. Another mistake they make is to use a name they haven’t verified is still unregistered, to run all their business activities.

The problem this poses is that if you’ve gone too deep in your business operations with suppliers, contractors, and more, only to realise the business name is already taken, changing can affect some of your business relationships, based on the issue of trust and competence.

Avoid this legal mistake by all means, and ensure that before you start running your business operations or getting into any agreements and contracts, the business name is available for registration.


5). No Contracts With Employees:

When employees have no contracts, they could easily skip a day at work and come up with some flimsy excuse, run-off with some of the companies cash and assets, and worst still, you could get arrested by the government for irregularities, illegal hiring, and trying to evade tax.

Tie every single employee to a contract, so you’d be certain of their competence-level every single time.

See Also: 5 Warning Signs For You To Immediately Stop A Business Expansion


6). Using Personal Accounts To Store Company Revenue:

If the company’s income is been stored in personal accounts, rather than a legal corporate or business account, there’re a couple of things that could happen:

  • You could get arrested for tax evasion and fraud.
  • A partner holding the revenues in his/her account could run-off, leaving every other partner in shock.
  • You would appear as totally incompetent, highly inexperienced, and careless before any potential investor.

That said, not running your operations from a business account is one of the worst legal mistakes any small business could make.


7). Not Respecting Local & State Laws:

Have you determined if you require any licence to run your type of business? Are you aware of the local & state laws for hiring & firing employees, filing tax returns, and all? Not being aware of the local and state laws could be detrimental to your small business in the event of an investigation.

Make sure you’re strictly in compliance with every federal, state, and local law regarding running your type of business.

See Also: Don’t Make Any Of This 7 Dangerous Sales Mistakes


What are your thoughts on these 7 worst legal mistakes small businesses make? Let me know by leaving a comment below.


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Stan Edom
Stan Edom
I'm an entrepreneur with an expertise in supply chain management, small business development, e-commerce, internet startups, and agriculture. In my spare time, I'm always trying to solve problems people face in their everyday lives with tech.

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