Running a business is no easy feat. Not only are you tasked with creating great products and services, building effective marketing campaigns, and ensuring great customer service, but you also have to handle all the less glamorous behind-the-scenes tasks. Legal procedures are rarely fun to deal with, but they help guarantee that your business is in good standing and that you won’t be risking everything you’ve worked hard for.
According to the Bureau of Labor Statistics, 20% of small businesses fail within the first year. Within the second year, 30% have failed. And within five years, 50% of all small businesses go under.
Image source: Washington Post
Of course, there are many reasons why these businesses aren’t surviving the infancy stage. Roughly 17% of businesses that failed lacked a business model or plan. But with the right legal actions, you can avoid some costly, crippling mistakes. Here’s what you should avoid:
Filing Their Business Inaccurately
There are several business entities you can choose to file your business under. Among the most popular include sole proprietorship, limited liability company, C corp, and S corp. There are pros and cons to each, however, filing the wrong way can be catastrophic. For example, a sole proprietorship has no clear distinction between a business and the owner, and therefore, the business owner has zero liability protection. Yet many businesses set their company up this way simply because it’s easy, low-cost, and there are no corporate taxes or double taxation fees. But in a business economy where half of all businesses fail (more depending on the industry), you should take extra precaution. You could lose all your personal assets if your business doesn’t make it.
On the same token, many businesses choose to operate under a DBA, or “Doing Business As.” According to Incfile, “If you are a sole proprietor or cofounder of a partnership and you want to do business with a name that is different from your personal name, you can register a DBA name. This gives your business a certain marketing identity that is separate from your personal name, but it’s not the same as a corporate structure in the eyes of the law.” Corporations can also do the same to use a different business name that’s separate from the corporation they’ve set up.
However, this can be extremely risky. When you operate under a DBA, you don’t have any official rights to your business name. And business owners that registers a legal entity using the same name would officially own rights to your DBA, which could hurt your marketing, credibility, brand, and bottom line. Similarly, you won’t be protected from your assets and the most you could do is have a business card with your DBA name on it.
Always be careful when it comes to choosing your legal entity. Consult with a lawyer to discuss what’s best for you personally, and what’s in the best interest of your company in the long-run.
Riding the Discrimination Line
Discrimination is a major concern for businesses today, and the line between what’s acceptable and what isn’t can be blurry. Whether you realize it or not, the threat of a lawsuit is real. According to CourtStatistics.org, the median costs of a business lawsuit for small businesses is around $54,000 for a liability suit, and $91,000 for a contract dispute.
There are countless examples of companies who have been sued for discrimination. Some of these companies are larger, and can afford to shell out hundreds of thousands on a discrimination lawsuit, while others could lose their business. IBM, for example, faced a class action lawsuit after three senior employees believed they were let go so that the tech giant could make room for a younger workforce.
The line can become even more blurry. The Wing, a renowned co-working space dedicated to women—faced another lawsuit after it was called discriminatory against men. Although the company’s branding, celeb guest speakers, and offices spaces—which include pink makeup rooms and breast pumping stations—have been consistently touted as a private space for women to work and network with other women, the company recently had to change their membership policy after discrimination complaints. Now, men can technically apply for membership.
If you’re aiming towards a specific target market, or targeting certain demographics, it’s important that you tread the line carefully. Think about who you could possibly be offending, and always err on the safe side.
ADA Compliant Signage
If your store isn’t accessible to handicapped persons, you could find yourself in trouble. Your retail space should include signage that complies with the Americans with Disabilities Act (ADA). Handicapped people should have easy access to your restrooms, parking lot, cashier stations, entryways, and fitting rooms. Permanent signs should include Braille, and need to be mounted at specific heights. There are many other rules for compliant signage, and you should take your time learning each of them. Consider hiring a third party company that’s proficient with compliance laws.
Unfortunately, many businesses have lost their companies because they failed to comply with these laws. Case in point: one man based in San Francisco filed lawsuits against a handful of businesses who were not ADA-compliant. These laws are strict, and business owners will almost always lose. There are several serial lawsuit filers who take advantage of this, and then there are others who file out of frustration when they have to deal with non-compliant stores. Therefore, it’s crucial to have your store up to par so you aren’t on the giving end of a settlement.