Four Common Legal Mistakes of Entrepreneurs

I. Not Reading and Negotiating Leases Before Signing

Once you sign a lease, you're stuck with the terms, even if they are different from what the landlord promised. A lease can have serious financial consequences, and signing a bad one can hurt your business.

Here are some important questions to ask:  

• Does the lease include all the promises made by the landlord?  

• Who is responsible for repairs?  

• Who will handle any build-out work, if needed?  

• Does rent begin before the landlord finishes any build-out?  

• How is the rent calculated?  

• How long is the lease?  

• Can the tenant renew the lease?  

• Can the tenant assign or sublease the space?  

II. Misunderstanding LLCs and Corporations

Just having an LLC or corporation doesn't mean that business owners are protected from being personally liable if they're sued. Even if you're running a business through an LLC or corporation, you can still be held responsible for any harm you cause, and you often have to sign many contracts personally. That's why having insurance is usually a smart way to protect both personal and business assets.

III. Misclassifying Workers as Independent Contractors

Employers must withhold taxes from employees' pay and provide insurance for them. You don't have to do this if you hire an independent contractor.

The law tells us who an independent contractor is and who an employee is. Simply calling someone an independent contractor doesn't make it true, and having a written agreement doesn't mean you don't need to look closely at how the work relationship actually works.

Independent contractors run their own businesses and do their work without anyone telling them what to do. In contrast, employees:  

• Work full-time  

• Have set work hours  

• Go to meetings and training sessions  

• Need permission to take time off  

• Are told when, where, and how to do their job  

• Receive direct supervision at their jobs  

• Get provided with tools and supplies to do their job  

• Have a set salary or hourly rate  

• Get paid without needing to pay back commissions they didn't earn  

• Are reimbursed for business or travel expenses  

• Enjoy benefits from their job  

• Provide ongoing services that are important to the business  

• Cannot compete against their employer  

• Receive business cards or IDs as company representatives  

IV. Not Keeping Clear and Detailed Records

Keeping clear and detailed records is important for filing taxes accurately and proving your sales and income. You also need good records to meet tax laws and other obligations. They are often required when applying for loans or certifications.

If you need help, the Small Business Legal Clinic (SBLC) is a nonprofit program that offers free legal assistance to small business owners and entrepreneurs at any stage of their journey. Our goal is to help our clients start and maintain their businesses successfully. For help, please call us at 716-828-8457 or email us at sblc@wnylc.net.