Five Legal Hurdles North Carolina Small Business Owners Will Face, and How to Handle Them

Cary, NC Business Lawyer

Cary, NC Business Lawyer

Running a business is as easy as hanging your shingle and selling your goods or services, right? Wrong. Unfortunately, many North Carolina small business owners have that mistaken belief: be a good person, do good work, and everything else will take care of itself. In today’s increasingly litigious business climate, being a proactive planner can mean the difference between success and failure. Here are five legal hurdles that North Carolina small business owners will face, and how to handle them.

1.     Not Incorporating.

When you’re just a man with an idea, operating as a sole proprietor to test the water is fine to do – why spend the money to make things official if the idea is a dud? But many small business owners make the mistake of never revisiting that issue even when their idea takes off and their business grows. Operating as a sole proprietor carries with it a lot of personal risk – risk that a creditor could sue and collect against your personal and family assets. One major advantage to incorporation (or organizing, for LLCs) is limited liability – the owner’s personal assets are off-limits from business creditors (subject to #2 below). This is a perfect example of how planning ahead, and investing a small amount, can save the shirt on your back.

2.     Not Keeping Formalities.

Incorporating or organizing your business is a crucial first step, but it’s not just a “set it and forget it” proposition. Corporations and LLCs are legally separate entities from their owners, and in order to maintain the benefit that the entity provides, you must truly treat the entity as its own separate existence. This means keeping proper records, a separate bank account, annual minutes, by-laws or an operating agreement, and not treating the company as your alter ego.

3.     Not Getting it in Writing.

This issue is an epidemic in small businesses. Trust overrides common sense and the owner will enter into a handshake or verbal agreement, or will go into business with someone, and never reduce the agreement or partnership to writing. All of the terms are “known” between the parties, and that may work out every once in a while, but as soon as the arrangement goes south – and it will – it’s a “he said, she said” battle and neither side is going to ultimately win. Reducing all agreements, contracts, partnership, etc. to writing will allow you to memorialize the actual agreement when both parties are on the same page and have a cool head. Proving the agreement becomes easy at that point. You’ll save hours of stress and thousands of dollars in the end.

4.     Inadequate Insurance.

Insurance exists to help pay for things you don’t have the money to pay for yourself. This applies equally to commercial insurance for small businesses. Many business owners simply get the “standard” commercial insurance policy, or get minimum limits to save a few bucks, without thinking much about their potentially losses or claims – until it’s too late. There’s nothing quite like getting sued and realizing the claim isn’t covered under your insurance, or suffering a massive loss and realizing that your policy isn’t going to cover all of it. Meeting with an insurance professional and getting the proper insurance coverage and limits is key to avoiding this issue. Even if the yearly premium is a bit more, it’ll be worth it in the end.

5.     DIYing it.

I can’t tell you how many times I’ve met with business owners who have tried to tackle the above issues on their own without consulting an experienced professional, but it’s a lot. The issue is, most business owners just “don’t know what they don’t know.” For some, the issues created by their attempts can be corrected. But for others, it’s too late: the lawsuit was already filed, the partnership dispute is already happening, or the agreement was already defaulted. Part of being a successful business owner is knowing when you need help. Legal planning is one of those times. The cost of using professionals will pay for itself 10x in the long-run if something goes wrong.