What are some of the most common legal mistakes that small business owners make?

What are some of the most common legal mistakes that small business owners make?

I love this question because when we start a business, we all make mistakes—some bigger than others. But mistakes are part of the learning process of being an entrepreneur. I really enjoy working with entrepreneurs, helping people like me who wanted to start their own businesses, figure out what mistakes they’ve made, correct them, or avoid them in the future.

The main mistake I see is not putting an operating or shareholders’ agreement in writing. It’s crucial to ensure that all the rights of the business owners are clearly delineated on paper. The number one issue people come to me with, where I often feel helpless, is when a partner is upset with another partner and wants to buy them out or sell the business. If they don’t have something in writing that dictates the rights, duties, and obligations of each owner, it becomes a real struggle.

When you start a business with a friend or a few friends, that early stage is exciting. You’re fired up, you go into business, and then you start making money—it’s a lot of fun. But if you never took the time to ensure your legal infrastructure was in place, problems will eventually arise. Whether it’s a year out, three years, or five, you will have divergent interests. At some point, the interests of each shareholder in the company will change, and if you don’t have all your rights in writing, it’s going to be a real challenge.

So, while we all make mistakes—it’s going to happen—the most important thing is to make sure you have your legal infrastructure in place. And if you didn’t do it at the beginning, you can stop and get it all together right now.