Legal Mistakes That Every Micro-business Should Avoid

The idea of getting an opportunity sometime in the future, to tell the world about how you dropped out of college or quit a stable yet mundane job to pursue your dream and of becoming ridiculously successful sounds extremely romantic. However, people who have crossed over into the ‘will-do-anything-to-make-my-dream-come-true’ zone know that the reality is anything but romantic.

The actual task of starting your own business can be quite overwhelming. It throws quite a few challenges and testing circumstances which compel you to be prepared for the worst without turning into a pessimist. You will be allowed some mistakes along the way which would teach you invaluable lessons.

However, there is one unforgiving aspect that doesn’t allow you the liberty to make even one mistake without resulting in extremely dire consequences, some even leading to shutting down of business. That aspect is – legal. Micro-businesses are at a higher risk of committing some common legal mistakes that can put them at great risk. These are some common legal mistakes that every micro-business should avoid.

1. Not Choosing the Right Business Structure

There are three legal business structures that one can choose from – Sole Props, S-Corps, and LLCs. Being unable to establish the right legal structure for your business would hurt you in the long run. You may face issues like investors backing out, getting sued by employees or customers, or unable to get investors on board due to the lack of legal structure.

Determine which structure works the best for your company specifically. Research well, weigh all the pros and cons of each business structure and implement the decision when all the loose ends are tied up. Do not hesitate to take an attorney’s help to reach a decision.

2. Not Protecting Your Product Through Patents/Trademarks/Copyrights

You might have spent every waking hour of the past few years to create the best product possible. You are sure that your product will make customers happy and create a significant impact in the market. However, if you fail to protect it, you are basically giving permission to anyone to steal your idea and project it as their own. Fighting over the rights would do you no good if you fail to patent /trademark it. As a micro-business, it is crucial for you to protect your intellectual property to ensure that your product remains rightfully and legally yours. In case someone attempts to duplicate your product as their own, you’ll have a stronger ground to fight on and retain your property. If you are unsure of how to approach this aspect, request an attorney to make an inventory of your micro-business’s intellectual property. No matter how long it takes or how much it costs, do no compromise on that.

3. Not Making Shareholders’ Agreement

Micro-businesses can witness a lot of change in the management system during its teething period. Founders may leave; new hires may assume vital roles, or the management may decide to sell the company. All these circumstances can bring in tricky situations and tackling them without any guidelines may get extremely chaotic. The answer lies in making a shareholders’ agreement, which lists down the actions that guide the company further. Bring in legal help to draft the shareholders’ agreement that would state how the company should respond in the event of shareholders’ resignation, joining or death. Change in company’s management can be quite stressful; don’t make it more difficult by not making the agreement and running around in circles wondering what to do next.

4. Overlooking Human Resource Guidelines

Maintaining ideal business relationships with your employees is a must. They are your biggest assets and it is important to remember that they have certain rights which should be protected through guidelines and policies. Overlooking HR guidelines and taking the matter lightly have caused a number of businesses to go bankrupt due to lawsuits filed by existing or former employees. Most micro-businesses do not follow the rule-book and function the same way a large corporate does. This makes it even more important for them to design policies that would work for the company without violating the employees’ rights. Consult an HR expert and prepare HR policies that would fit your company and respect the employees.

5. Careless/Incorrect Filing of Taxes

Filing taxes is a critical matter and any discrepancy would compel legal problems to come knocking at your door. Make sure that all the appropriate taxes are filed on time and in an accurate manner. Micro-businesses are legally obliged to collect payroll and sales taxes. Trying to get away with not doing so will surely take your company south. It doesn’t take too long for the government agencies to shut down any kind of business if taxes are compromised in any manner. Use a separate account, if necessary, to collect sales taxes and don’t hesitate to engage an expert’s help.

6. Trash-Talking About The Competition

The business world is extremely competitive and aggressive. It supports only those who put up a strong fight without crumbling under pressure. The competition may get fierce, but that does not mean that you talk ill about your competition at any point, especially in the age of social media where the word travels faster than light. Don’t give your competition any chance to take legal action against you with an accusation of defamation or slander. Don’t take the idea of ‘freedom of speech’ to the extreme and put yourself in tricky legal situations.


Remember that if you find yourself in a legal problem, never try to handle it on your own to save money. Get in touch with an attorney and figure out the right way to overcome such situations. The best businesses are those that, among other core points, make the effort to build themselves a proper legal structure to operate within. It is crucial for any business to ensure that their legal liabilities are kept as low as possible – so that they can remain free of any legal folderol, and focus on the prime objectives of growth and profits.

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