The mere thought of an audit or a lawsuit strikes abject
terror in the hearts of most small business owners. No one
wants to find their business the target of an IRS audit
– in fact, most of us shudder at the mere mention of
the phrase. Lawsuits are also frightening prospects. Yet
small businesses and entrepreneurs frequently leave
themselves open to failing audits and losing lawsuits by
not taking steps to prepare or plan for them.
Scary Fact #1: A study released in March of 2007 estimated
that U.S. citizens pay about $865 billion every year in
expenses related to lawsuits. A significant amount of
these lawsuits are brought against doctors and other
professionals. But a sizeable amount of this cost is tied
to suits brought against small businesses.
Small businesses and entrepreneurs are particularly
susceptible to lawsuits because they are often so focused
on starting and growing the business – often with a
minimal staff – that they just don’t get around
to doing the paperwork needed to protect their businesses
and their personal assets. Further, many believe that a
business license and articles or incorporation, articles of
organization or partnership agreements are the only
documents they need in order to do business.
Depending upon the state in which your business is located,
this may be sufficient to allow you to do business. But it
is woefully inadequate to protect your business.
Scary Fact #2: If you didn’t form and structure your
business correctly, your personal assets could be at risk
in the event of an audit or a lawsuit. Incorporation is a
great thing, as is formation of a partnership. Without
proper structure and continued documentation, the business
is susceptible to disallowed deductions and personal assets
are well within the reach of those who bring lawsuits.
Business structures cannot prevent audits or lawsuits. But
S Corporation or C Corporation and Limited Liability
Company structures do allow you to separate your business
and your personal assets and offer liability protection.
The same is true of Limited Liability Partnership. You
have worked hard for your home and your possessions, not to
mention your savings and retirement plans and investments.
Don’t risk losing everything because your company
isn’t structured correctly.
Scary Fact #3: Many small businesses and entrepreneurs
fail to properly and adequately document decisions,
agreements and business activities. This failure puts the
entire business at risk. You must record business
decisions and summarize them in your Annual Meeting. If
you don’t, your notes will not stand up in court.
Every agreement made by a business needs to meet three
criteria:
1. It should be in writing.
2. It should clearly state how disputes will be resolved.
3. It should be reviewed by an attorney before it is signed.
Finally, ensure that every product you release and every
property you own and use for business carries appropriate
warnings, disclaimers, and the like. No matter how much we
might like to think otherwise, we live in a society in
which people are more than ready to take others to court if
they think they will gain financially. Once a lawsuit is
brought, your legal fees begin to accumulate. Even if you
win, you will incur significant financial loss.
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Kari VanNoy and Juli Walsh are both paralegals. They have
spent the last ten years building their mission to educate
and protect small business owners. They created Just A
Minute, LLC to assist busy entrepreneurs and small business
owners with their corporate and company minutes and
resolutions to keep their company assets safe, secure and
protected. To learn more about how they can help with
Annual Meeting planning and documentation, visit
http://www.justaminutellc.com .
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