Nobody wants legal trouble, but it’s an unfortunate reality for small business owners in Arizona who neglect crucial protections for their business. Whether entrepreneurs are juggling too many responsibilities or simply feel they cannot afford a lawyer, plenty of them learn too late that taking a casual approach to legal matters leaves one’s business vulnerable. The good news, however, is that research and preparation can help business owners evade common legal missteps. It’s impossible to forecast every possible legal risk, especially considering the nuances of different industries, but these are regular legal mistakes to avoid.
Improper or Unwise Business Setup
One of the most important decisions you will make early on in your entrepreneurship journey is how you set up your business. Sole proprietorship and general partnership structures are legally sound, but it’s wise to establish limited liability through an LLC, corporation or even a limited liability partnership. Otherwise, in the event of a lawsuit or other issue, not only are your investments in the company and the company assets at risk, but so are your personal assets. Failing to legally separate and protect your personal assets from those of your company can be a costly, irreversible mistake.
Ownership structure also affects investor relationships and the potential to sell the business. Most outside investors look for the stock structure of a corporation, but small businesses may choose to establish an LLC instead because of the demands of maintaining corporate records. Consider the tax implications, investment opportunities and whether you intend to sell your operation before filing setup paperwork.
Poor Record Keeping and Document Organization
Every business is required to maintain documentation on cash flow, tax history, human resources, employees, insurance and much more, which is no small feat — especially for entrepreneurs who are unfamiliar with record keeping best practices. However, there are substantial monetary penalties for businesses that fail to keep up these records — and the impacts can be felt years down the road. A violation may even disqualify the owner from certain business loans, causing the entire operation to fold.
Small business owners in Arizona should become familiar with the documentation required for their chosen organizational structure. Corporations, for example, have specific records that must be maintained and do not apply to other types of businesses. From the time you establish your business, keep all of your documents (and keep them organized) so you can protect yourself and avoid the dissolution of your business.
It’s exciting to see your business grow enough to need staff, and stellar employees can amplify that growth even further. But before bringing anyone on board, be sure to do your due diligence on local, state and federal employment regulations. Resolving workplace legal issues can be a costly endeavor.
The first mistake in this category is not setting expectations upon hiring employees. Arizona is an “at-will” state, meaning either an employee or employer can dissolve the employment agreement at any time. In other words, absent a contractual agreement to the contrary, workers are not bound to one company and can leave whenever they want, while companies can fire employees at any time without reason. Employees of your small business in Arizona will likely already know they have employment-at-will status, but they should still acknowledge it formally during onboarding. Additionally, they should sign paperwork containing your business’ conduct policies, especially those around harassment and discrimination. Arizona courts often treat employee handbooks as enforceable contracts, so take special care when writing them.
Small business owners also run into trouble when they improperly treat W-2 employees like independent contractors. Fortunately, the IRS provides detailed information about classifying workers as self-employed, independent contractors or simply employees. Arizona also passed a new Declaration of Independent Business Status law (A.R.S. § 23-1601) that allows employers to have their independent contractors declare their status and verify they meet the requirements.
Finding Themselves in Court
Running a small business in Arizona is incredibly demanding. You likely wear many hats in the effort to keep the operation running smoothly, and there is a major investment of your time, money and resources. Therefore, your business cannot afford to find itself in court. Litigation is oftentimes a lengthy process, and legal fees can mount quickly.
The best way to stay out of legal trouble is to take the time and money to establish protections and set up your business to avoid these regular legal mistakes. Consulting with experienced attorneys may seem expensive up front, but think of it as a long-term investment in your small business’ success. The attorneys at Gottlieb Law can help small business owners in Arizona get their company setup correctly and proactively avoid most common legal mistakes. Contact us today at 602-899-8188 or schedule an appointment on our contact us page.