Fuad AlKamalia

AlKamalia Private Law Firm

Starting and running a small business not only takes business savvy, but also some legal knowledge. There are classes available that can teach you about possible legal issues, but even those can't give you the full spectrum of issues that small business owners face on a daily basis. Protecting your small business will contribute to the success of your business. If your small business finds itself in legal troubles it can be a serious disadvantage. Smart business decisions start with educating yourself about a few simple legal matters that can help keep your business focused on the business. Here are the top 5 most frequent mistakes you can avoid with your small business.


1. Verbal Agreements: Please don't rely on these. Written contracts and service agreements are so important to protecting your business in the event that you have to go to court. It is difficult for a verbal agreement to hold up in court. The drafting of contracts is also important in making sure that each parties risks and opportunities are clearly defined. Specificity is the key to a well written and signed contract. If drafted properly an agreement should provide reasonable protection for your company and its interests.

2. Choosing the wrong business structure: If you decide to incorporate, there are several types of business structures to choose from: S corporation, C Corporation, Limited Liability Company (LLC), Limited or General Partnership and Sole Proprietorships. Choosing the right entity will help protect your business and personal assets. While each of these provides owners with limited liability for business debts and obligations, there are advantages and disadvantages to each. Choosing the wrong structure could put your business at risk.

3. Failing to protect your intellectual property: Intellectual property refers to the trademarks, patents and copyrights and trade secrets of your company. Register your trademarks with your state and the federal government, patent your inventions, register your copyrights, and protect your trade secrets with employment and non-disclosing agreements. Intellectual property is often the most valuable asset of a business.

4. Disorganization: Organized documents lead to accurate accounting records, which leads to proper tax filing. Proper tax filing lessens your chance of an audit and if you are audited, your files will be organized and readily accessible. If you can't afford an accountant you may want to invest in a bookkeeper or an accounting program to make it easier to keep account of your daily transactions.

5. Not getting liability insurance: When you own a small business, you have responsibility for your customers, staff and yourself. But you are also responsible for what happens when people use your product or service or set foot on your premises. If you get sued for personal injury or because of damage to property, you're covered for the claim and the legal defense costs with most policies. If you are caught without, the legal fees may just put you out of business.

Fuad AlKamalia In Abu Dhabi

Life can be unpredictable, and in a few years time, you could be living in a different home, a different city, or even a different state. In fact, between 1995 and 2000, almost half of the population in the United States had moved to a different residence and 8.4% of those people moved to a different state.

Surprisingly enough, moving to a different state has a significant impact on where you choose to incorporate your business. For example, if you were living in New York and decided to incorporate your business there and then had to move to a different state such as California, you would not be able to just pick up where you left off. Your business would first of all be considered a foreign corporation, as it was incorporated out-of-state, and it would need to qualify to do business in that state. Essentially, you would have to pay franchise taxes and file tax returns in both the state you incorporated your business in and the state you recently moved to and want to operate your business in.

This is not to say that it is impossible to reincorporate in another state, such as California, the issue is that there is no simple way to change the jurisdiction in which a corporation is formed. Going back to the example posed above, in order to reincorporate in California and change the jurisdiction of formation, a new California corporation must be formed. Then, you must merge your previous corporation, say the one in New York, into the new California corporation.

Don't worry, there is an easier and less expensive alternative for deciding where to incorporate. First of all, instead of forming a corporation in the state where you will initially conduct business, you should incorporate your business in Delaware. Then you can qualify the corporation to do business wherever you decide to start it up, and if you move and take the corporation with you, you can easily qualify to do business in a new state and surrender its home state qualification.

You should be aware that this alternative approach does require the corporation to pay the annual fee in Delaware (around /year) and to maintain an agent for service of process in Delaware. This additional cost is worth the prospect that your corporation would be able to move to another state in the future and be able to do business without any glitches.

This approach does involve a little bit of extra expense, even for a corporation that is still doing business in its original home state, because the corporation has to (1) pay Delaware's very small annual fee (about (/year) and (2) maintain an agent for service of process in Delaware. However, the marginal additional cost gives the corporation an enormous amount of flexibility where there is any possibility of a move to another state one day.

You may ask yourself, why do this in Delaware, why not Nevada where it could be cheaper? The truth is that contrary to popular myth, Nevada is not cheap, and in fact their annual fees are steeper than those for Delaware. There are plenty of positive benefits for incorporating in Delaware, but most of those are more relevant to larger corporations. Smaller corporations benefit from being able to start doing business in a new state in an easier and more cost effective manner.



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