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3 Small-Business Legal Myths Busted

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Small business owners with cupcakes in bakery shop
Getty Images/Blend Images
By Natalia Angulo

Might some legal myths be standing between you and your dream business?

Attorney, author and The Small Business Expert Susan Solovic says too often would-be entrepreneurs get stalled by legal myths that can be debunked with a little help from a pro and a smart spending plan.

"[People] shy away from getting professional advice ... trying to save dollars [and] understandably so," Solovic says. "But sometimes you can be penny wise and dollar foolish."

Myth 1: Legal Entities

Not thinking you need to set up a legal entity because you are not running a "risky business" is the most common legal myth. Solovic calls that thought process naive, explaining the legal system today makes it so that anybody can sue anybody, so the risk is always there.

"When you have a separate legal entity for your business, you have a layer of protection between you and your personal identity, your personal liability," she says. "If someone wants to sue you, they have to sue your business."

She says the number one reason people forgo establishing a legal entity is the cost. But, she says, there are great, inexpensive (sometimes even free) resources on the Internet offering help, such as BizFilings.com , LegalZoom.com and NOLOpress.com . Still, she cautions that these resources are there to help guide you through the process, not offer actual legal advice, so investing in an attorney or CPA is always worth it.

Myth 2: Copyrights and Cyberspace

"Here's the thing, if you don't see the copyright notification that doesn't mean that it's fair game," Solovic says. She has found time and again that people will grab blog posts or quotes or photos from the web and post them on their sites without asking for permission, or even giving credit to the source.

"A copyright attaches the minute an original idea is fixed to a tangible medium," she says, adding that if the notice is not immediately visible, it's just fair to assume it's copyrighted. For example, she explains when somebody asks for permission to repost a blog post she's written, she's happy to say yes as long as the person gives her attribution and links back to the original post.

"It's just better to ask and find out ahead of time, then be slapped on the wrist later," Solovic says.

And it's not always a mere slap, because penalties for copyright infringement can run from a few hundred dollars to hundreds of thousands of dollars, and sometimes even criminal charges.

Myth 3: Setting Up Your Business, What You NEED

Taking precautionary measures to insure your business, even if it means spending more money upfront, could save you in the end. Solovic explains that "without getting that professional advice, you can overlook something."

Hiring a CPA and attorney early on are critical elements, which Solovic likens to purchasing insurance for your home.

"Before you know it, you've been in business three, four years and it flares up," she says. "And not only will it cost you thousands of dollars to fix the problem, it can often put you out of business."

Bottom Line (About Partnerships)

Going into business with your best friend, sister or husband may sound like a great idea, but in the case that business slows and the relationship sours, Solovic suggests crafting a business version of a marriage prenup.

In an ideal world, you would be able to do business on a handshake, but as Solovic explains, it's important to get the terms of the venture in writing so everyone is clear on what the expectations are, what the deliverables are, whose going to pay whom, when and everything in between.

"People have very short memories and those handshakes don't stand up in court."

Follow Natalia Angulo on Twitter @natisangulorico.

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