Common Legal Mistakes Small Businesses Make

Small businesses are established by passionate individuals who dream of carving a niche in their industries. These new entrepreneurs usually do not come from business families or have the support of industry mentors who can guide them at every step. It leaves them with their own discretion and knowledge for making important decisions related to the organisation. While they use the information gathered from online sources and team members to comply with the regulations, they tend to make certain mistakes.

It is inevitable to avoid errors because legal jargon is difficult to understand, and the obligations vary for different business types and industries. Hiring a lawyer can help prevent these issues, but sometimes, it may not be financially feasible. Let us help you by listing the common legal mistakes small businesses make to steer clear of them. Entrepreneurs should keep these in mind to build a compliant business.

1. Using the Wrong Business Structure

The business structure is to be decided when the business plan is created. Australian businesses are of four types: sole trader, partnership, company, and trust. Most entrepreneurs do not give it much thought and start operating as sole traders to save time and expenses. However, when they start growing, they have to change the structure to company, which proves expensive and challenging.

If the business will expand in the future, it is best to establish it as a company or a partnership. Entrepreneurs who wish to include co-founders or partners in the business structure must sign legal contracts with each individual to define their rights and responsibilities. This ensures the sale of the business online can be completed effectively.

2. Not Protecting Intellectual Property

Small business owners who build unique products and develop new ideas must protect these assets with Intellectual property Rights to prevent their illegal use. They can get their inventions patented and safeguard their logos and branding materials with the help of trade marks.

The artistic creations used for marketing must be protected with copyright. In addition, entrepreneurs must assess the assets that can be saved through IP. They can also protect the visual design of their products through registered designs IP. Entrepreneurs must also avoid infringing the IP rights of other businesses while creating new designs, products, marketing campaigns, etc.

3. Plagiarising Content from Competitors

Small business owners lack legal expertise and do not know how to frame the terms and conditions and privacy policy for their business website. Most copy this content from their competitors, which includes details of how the business protects customer information and how the website should be used.

In such cases, small business owners often forget to remove the competitor’s name from the content, which leads to lawsuits. Thus, businesses should hire a lawyer to create these documents in compliance with the Australian Privacy Act of 1988 and its 13 Australian Privacy Principles (APPs). It can make the sale business online an easy task at the time of retirement.

4. Using Templates for Legal Contracts

Many small business owners use the free templates available online to prepare various legal contracts, such as employee, supplier, partner, and contractor agreements. However, these require expertise for customisation. These documents may not have the desired clauses required by the business and lack depth.

These contracts must abide by the Australian Consumer Laws applicable to small businesses. If a business breaches these regulations, it can face legal action and penalties. Using the wrong templates or those belonging to foreign countries can create legal problems.

5. Trying to Evade Business Taxes

Small businesses are known for tax evasion to save money. Many make calculation or accounting mistakes that impact their tax liabilities. The owner needs to understand the tax obligations of the business based on its type, location and size.

The Australian Taxation Office can penalise a business if it finds discrepancies between the reported income and expenses and the actual amount during the audit. It can damage the image of the business and make the sale of the business online challenging. It is best to comply with the tax laws and stay updated about the changes in regulations.

6. Not Getting the Required Permits

Small businesses operating in Australia have to follow the legal framework to stay compliant and protect the entity. These permits and licences increase the trustworthiness of the business and avoid legal consequences. These are helpful in securing funding for the start-up and maintaining efficient operations.

Permits and licences differ for every industry and depend on the operations of the specific business. For example, a restaurant must comply with state regulations to avoid fines and continue smooth operations. Entrepreneurs can find their required licences and permits on the Australian Business Licence and Information Service (ABLIS).

7. Failing to Safeguard Confidential Data

Every business has confidential information that must be protected from being leaked, hacked, or copied by competitors. This includes product-related information, customer data, financial information, etc. Entrepreneurs must have a privacy policy to protect this data and should not collect personal customer data unnecessarily.

They must limit access to the data to authorised users to avoid mistakes that could lead to breaches. In addition, they must prepare non-disclosure agreements to be provided to potential buyers at the time of sale of the business online to keep the trade secrets safe.

Wrapping Up

Small business owners can make legal mistakes that lead to lawsuits and penalties. These can be impact the reputation of the business and affect it financially. Thus, entrepreneurs should avoid making these errors at all costs.