10 Business Mistakes That Could Lead You and Your Company to Bankruptcy
Richard Fonfrias, J.D.
Chicago’s Financial Rescue
& Bankruptcy Lawyer
Fonfrias Law Group, LLC
MISTAKE #1: Not forming a corporation or LLC. In today’s lawsuit-happy society, you need every protection you can get for your personal assets. Make sure you’ve done everything reasonably necessary to protect yourself from your business liabilities. Ask your lawyer how to limit your liability and protect your assets.
MISTAKE #2: Not having control of your partnership, LLC or corporation. If you own half or less than half of your company, you’re asking for problems. Even 50/50 ownership between owners is really nothing more than a deadlock. Ask your lawyer how to avoid deadlocks and stalemates.
MISTAKE #3: Not treating employees like employees. Don’t try to avoid payroll taxes by calling your employees independent contractors. When the IRS catches up with you, you’ll be slapped with taxes, interest and penalties. Ask your lawyer how to avoid these serious problems.
MISTAKE #4: Not protecting yourself from “partners” and employees. You can protect yourself and your company from “partners” and employees who want to leave with your trade secrets and customer lists. Ask your lawyer how to keep these important assets in your company.
MISTAKE #5: Not keeping proper records. At one time or another, you will need to substantiate your actions with business records. If you hope to limit your liability by using a corporation, you must have records that show the corporation was acting as a corporation; not to mention when the tax police (IRS) come calling and audit your books. Ask your lawyer how to keep records so you avoid problems.
MISTAKE #6: Not separating corporate and personal assets. If you commingle your cash in the same checking and savings accounts, you may lose the liability protection you want from your corporation. Plus, you could expose yourself to added taxes if you take money out of your corporate account. Ask your lawyer to help you correctly separate your business and personal assets.
MISTAKE #7: Not appreciating the power of minority owners and shareholders. Minority owners can cause you many unpleasant problems. Don’t do anything that could be construed as taking unfair advantage of minority owners. Ask your lawyer how best to handle business matters as they relate to other owners of your business.
MISTAKE #8: Not having employment contracts with your employees. If you don’t have employment contracts with employees, you’re simply asking for problems. Ask your lawyer how you can protect yourself and your company by using written employment contracts.
MISTAKE #9: Not having a written operating agreement with the other owners of the business. Such agreements are even more important than employment contracts. They are critical for dealing with an owner’s withdrawal from the business. Ask your lawyer about the problems you face if you operate without an operating agreement.
MISTAKE #10: Not going to a lawyer when you know you should. For whatever reasons, people often fail to protect themselves, exposing their businesses and families to astounding amounts of personal liability. Don’t hesitate to call your lawyer. If he or she doesn’t welcome your calls, choose another lawyer. No business will succeed today without careful guidance through the legal mine fields. Your best insurance is an experienced business lawyer.