The opportunities and advantages associated with being your own boss and operating your own business are endless. However, with great opportunity comes great risk. Although getting out of the red and into the black is understandably your top priority, equally as important is avoiding legal pitfalls that can compromise your business assets, and possibly your personal ones.
Below is a non-inclusive list of some legal considerations small business owners should be aware of.
Corporate Form
In Ohio, doing business under another name does not create an entity distinct from the person operating the business. The individual who does business as a sole proprietor under one or several names remains one person, personally liable for all his obligations. Therefore, corporate formation is crucial to avoid personal liability.
The most common business types are sole proprietorships, limited liability companies, corporations, and limited and general partnerships. Each type has advantages and disadvantages. For instance, corporations, limited liability companies, and limited partnerships shield owners from business liabilities that are not personally guaranteed, while sole proprietorships have less formal requirements for maintenance and make decision-making easy, but put your personal assets at risk.
Employment Law Issues
One of the biggest areas plaguing small business owners is employment law and employment law related issues. From the hiring process to the termination process, business owners need to make themselves aware of state and federal law requirements and establish procedures to limit their liability.
When seeking out potential applicants, it is important to consider some basic strategies. Most importantly, do not take applicants at face value. At a minimum, small businesses should check an applicant’s references and former employers. Ohio courts have found employers liable for not properly investigating an applicant’s qualifications to determine if they are fit for the job. Stephens v. A-Able Rents Co. 101 Ohio App.3d 20, 654 N.E.2d 1315 (8th Dist. 1995). Moreover, depending on the type of job, background and credit checks may be appropriate to determine if the applicant’s background aligns with the needs of the business.
Some other employment considerations for business owners are (1) classifying employees properly as either exempt or non exempt for minimum wage and overtime purposes (2) understanding the benefits of at-will employees and avoiding unintended implied employment contracts (3) avoiding discriminatory practices, and (4) abstaining for retaliatory conduct.
Non-competition Agreements
It is estimated that the average American switches jobs somewhere between fifteen and twenty times over the course of their working life. With the probability that your employees will not be lifetime employees, it is important to consider utilizing non-competition agreements to safeguard your business.
A non-competition agreement is a contract between an employer and employee where the employee agrees not to compete with the employer’s business for a period of time following his termination of employment. In Ohio, non-competition agreements will be enforced to the extent necessary to protect the employer’s legitimate interests. A covenant restraining an employee from competing with his former employer upon termination of employment is reasonable if it is no greater than is required for the protection of the employer, does not impose undue hardship on the employee, and is not injurious to the public.
Contracts
Contracts are a part of every business. Whether the contract is an employment, supplier, or shareholder agreement, it is important to understand exactly what you are agreeing to. The way agreements are written and structured or the placement of a comma could affect your rights and responsibilities.
Also, be sure to sign contracts in your capacity as an officer of the corporation. Signing in your individual capacity could cause you to incur the liability personally instead of as an entity obligation.
For more information on how to create strategies to avoid liability, please contact Jennifer R. Roberts, Esq. at 937-223-8177 or [email protected]
