3 Common Reasons Why Business Owners Run Into Legal Problems

When you do what I do for a living, it gives you eye-opening insight into reasons why business owners run into legal problems.

Lately we have been seeing a lot of business litigation in 3 areas of law:

1. Corporate Law
2. Labor Law
3. Intellectual Property Law

So why do business owners run into legal problems in these areas of law? Here are 3 common reasons:

Reason 1: Failure to Comply with Corporate Formalities

Most business owners think that simply filing their Articles of Incorporation automatically protects them from being personally liable for the debts and liabilities of the corporation. This is a big mistake!

Corporations are required to comply with various formalities in order to maintain their corporate status and benefit from the protections against personal liability.

• These corporate formalities include, but are not limited to:
• Annual Board Member and Shareholder Meetings
• Providing notices of Annual Meetings to the Board Members and Shareholders
• Documenting Annual Meetings with Corporate Minutes
• Filing a Statement of Information with the State of California
• I have found that 3 out 5 business owners I talk to have not opened their corporate book since their date of incorporation.

As I look through some of their corporate books and records, I notice that they have no corporate minutes, stocks have not been issued to shareholders, they have boilerplate bylaws that don’t apply to their business, and they are missing essential documents that can lead to serious issues if the corporation is ever sued.

What shocks me the most is that the business owners have no clue that they will NOT benefit from the protections extended to corporations so long as their corporate books and records are not in compliance.

So let me ask you… when was the last time you checked your corporate book and records to make sure that everything is current and in compliance with regulations and formalities?

Reason 2: Violation of Labor Laws

I recently attended a labor law seminar entitled “Be Afraid, Be Very Afraid.” Yes, it’s become that bad!

Labor Laws have become extremely complex in recent years. Most business owners either neglect or simply don’t understand labor laws and the implications of violating those laws.

Did you know that if you interrupt an employee on the 29th minute of their 30-minute lunch break to ask them to help you with an urgent matter, you have to give them another 30 full minutes to make up for that 1 minute that you shorted them? I know, it’s madness — but it’s also the law!

I have been talking to more and more business owners who are extremely confused with things like:

• Exempt vs. Non-Exempt Employees
• Paid Time Off (PTO)
• Sick Pay
• Accural vs. Lump Sum
• Vacation Pay

Due to the complexity of Labor Laws, many business owners are simply sweeping matters of employment law under the rug until it’s too late and they are facing a major lawsuit that will be detrimental to their business. Don’t let this happen to you.

Reason 3: Failure to Protect Intellectual Property

More and more business owners are finding themselves in legal battles with employees, independent contractors, or other service providers over infringement of their intellectual property rights.

Your inventions, trade secrets, trademarks, domain names, brand identity, formulas, algorithms, processes, customer lists, marketing plans, financial records, ETC., have great monetary value and must be protected.

Many business owners think that making employees sign a “non-compete” agreement protects their intellectual property rights but, guess what — it does NOT! In fact, non-compete agreements are not even enforced in California anymore.

Taking the necessary measures to protect your intellectual property now may save you thousands, if not hundreds of thousands, of dollars in the future.

Is your intellectual property protected? Do you have a non-disclosure / confidentiality agreement signed with your employees and service providers? Does your non-disclosure / confidentiality agreement contain a “trade-secret” clause?

Below I have provided 3 Checklists (in downloadable PDF format) to help you determine if your business is at risk of running into legal problems in these 3 areas of law. This information is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual legal needs.

Corporate Formalities Checklist  |  Labor Law Checklist  | Intellectual Property Checklist

The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls.