5 Legal Myths That Are Costing Your Business Money

December 6, 2021
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There are way too many myths going around the internet about what you do (and don’t) need to do to get your business up and running legally. Most of these myths say you can hold off on getting your legal protections in place if you’re just starting out because you don’t have as much risk early on, but they ignore the super important fact that you and your business can be sued at any time, regardless of whether the person suing you will win.

If you don’t have the proper legal protections (like business insurance and good contracts) in place, you could be responsible for paying for your attorney’s fees and court costs, plus the amount of any judgments entered against you. Throughout my time representing female founders, I’ve come across these five myths all too often, but don’t worry. We’re about to bust all of them right now.

Myth #1: I don’t need to register my company until I start making more money.

One of the most important reasons to register your business is liability protection. If you don’t have a registered company or are operating as a sole proprietor, you will be personally liable for all the debts and liabilities of your company.

This means if your business is sued, and your business doesn’t have liability protection, you could be personally responsible for any damages your business has to pay, meaning the money in your personal bank accounts, as well as potentially your house, cars, investments, and any other assets you have, could be up for grabs. Also, if your business goes under and you have debt, you will be personally responsible for paying off that debt.

You’re also losing out on the legitimacy and brand loyalty that generally comes with having a registered business. For example, investors usually won’t invest in your business unless it’s registered.

Additionally, most banks will only allow you to open a business account under a name other than your own if you have a registered business, and you want to have a business account so you can keep your personal expenses separate from your business expenses. This will save you countless headaches at tax time and will help you keep liability protection if you have formed a company that has it, like an LLC or corporation.

Myth #2: I don’t need contracts until I start getting more clients.

Think of your contract as a document that sets out the rules for the transaction. It should clearly explain things like what you’re selling, how you are going to be paid, whether your client can cancel or get a refund, who is responsible for paying attorneys fees and court costs if there is a dispute, and who owns the rights to any creative works made during the transaction.

Every time an issue comes up—a client has to cancel, a client wants a refund, you receive a chargeback, or a client thinks you’re supposed to be doing more work than you agreed to do—is costing you and your business money. If you have the right contracts in place, they clearly spell out these things, that way your client knows whether you allow refunds and cancellations, how you deal with chargebacks, and how much work you agreed to do for the price paid. This helps avoid disputes and gives guidance on how your process works, which will help you avoid court and unnecessary expenses that could put you out of business.

Myth #3: I don’t need business insurance.

Business insurance will protect you and your business if you’re sued or if something else goes wrong. Again, anyone can sue your company at any time. It doesn’t matter whether their case has merit.

Although having the proper protections in place will give you a better chance of winning when you are sued, if someone does sue you, and you don’t have business insurance, you might have to shell out your hard-earned cash to pay for your attorneys’ fees and court costs, which can get really pricey (like potentially put you out of business if you don’t have insurance pricey).

This is where business insurance steps in. Depending on your coverages and limits, your business insurance will usually pay for your attorneys’ fees, court costs, and any damages you are required to pay at the end of the lawsuit, which means your hard-earned money will stay in your pocket.

Myth #4: I don’t need to register my trademark.

A registered trademark gives you the exclusive right to use your trademark in your area of business nationwide and allows you to prevent others with similar companies from using marks that could potentially be confused with yours.

You should conduct a trademark search before you decide on a brand, course, or product name to ensure no one else already has the rights to it. If the mark is not already in use, you should also register your trademark as soon as possible to prevent copycats.

Trademarking early avoids the risk of having to rebrand after finding out someone else already had the rights to your brand or course name. Additionally, having the exclusive right to use your brand builds recognition and brand loyalty. It’s also important to remember that trademarks are assets, which get more valuable as your business and brand grow.

Myth #5: I don’t have to worry about having the proper disclosures on my website until I start getting more visitors.

There are privacy laws that require any businesses collecting personally identifiable information from visitors to disclose their data collection and usage practices. If you have email opt-ins, freebies, or if you are collecting personal information when selling a product or service on your website, you need a privacy policy.

If your company is sued or fined for not properly disclosing how you use visitors’ personally identifiable data, it could put you out of business, and if you haven’t registered your business under one of the types of business entities with limited liability, you will be personally liable for all of your business’ fines and damages.

To comply, you must have a privacy policy that discloses your data collection and retention practices to your visitors. Links to your privacy policy should be clearly displayed near your email opt-ins, contact forms, and anywhere else where you collect personal information from visitors. If your website uses cookies, you must also have a cookies banner informing visitors of cookie use. If you do any affiliate marketing, make sure you have the proper disclosures near any products you recommend.

I hope everything goes right in your business and you don’t have to deal with any legal pitfalls, but I would much rather have you be prepared. It doesn’t take much to get your basic legal protections in place, so if you have a business and have been putting your legal off, it’s a good idea to discuss the specific legal needs of your company with an attorney who’s licensed in your state.

“It doesn’t take much to get your basic legal protections in place.”

Image: Courtesy of Colynn O’Brien

About the author: Colynn O’Brien is a business attorney and coach for female founders. She is the founder of Iluma Law Firm, PLLC and She’s Legit, where she helps female founders get more sleep at night by making sure their contracts are legit and their brands are protected. She loves helping her clients with the nitty-gritty, not always so fun aspects of their businesses, and giving them a support system along the way.

Featured image: Color Joy Stock

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