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Top Three Legal Issues Affecting Small Businesses

by Yasir Billoo, partner at Golden & Grimes LLP

Judge-Gavel

Most small businesses generally encounter very similar issues on a regular basis…“pitfalls”, as I like to call them. There are steps every business can take to avoid these pitfalls, and in turn, save money and the headache of legal problems later.

Below are the top 3 pitfalls I regularly see in my practice:

Poking holes through your own corporate veil.

Every business owner knows the value of the corporate entity – that “Inc” or “LLC” protects you against personal liability from potential lawsuits, claims, etc.

Although there are some types of claims that can be filed against business owners, personally, the vast majority of claims can only be brought against the corporate entity. The way for potential claimants to “pierce the corporate veil” is if you jeopardize the sanctity of the veil yourself.

The fact that a “veil” exists means you must respect the separation the corporate veil creates. If you use your company’s bank account to withdraw cash, even once, or you spend corporate funds (cash or credit) on personal expenses, you may be personally liable for a claim on which you may otherwise not have been liable. I have had clients in the past whose corporate bank accounts show cash withdrawals every month for the business owners’ personal spending. This is a major no-no. Avoid the temptation! Take the trouble and use the necessary formalities; for example, use checks and deduct taxes, if necessary. The corporation is not your personal piggy bank.

Ensure sufficient insurance is in place.

The end of a calendar year is a good time to make a list of all insurance you have and check that list twice. Be sure you have sufficient insurance for your needs. General liability insurance is generally a must. If you manufacture or supply products, consider products liability insurance. If you have drivers, be sure to have auto insurance. If you have exclusions for employee injuries in your general liability policy, be sure to have worker’s compensation insurance. Plus the amount of coverage you have should be commensurate with the amount of business you forecast for the upcoming year so you don’t jeopardize the future of your business.

Work with an attorney and your insurance broker to determine what insurance is available and what you need. If you are unsure about a specific type of insurance, check the cost and weigh the risk as a business decision. Is it better to pay the extra $100 now to avoid the possibility of a claim later? That’s a decision you should make, and renew, every year.

Work overtime to account for all overtime worked.

Overtime lawsuits have slowed down a bit over the past couple of years, but they are far from over. The Fair Labor Standards Act permits employees to recover all unpaid overtime, liquidated damages, if warranted (which usually amounts to 2 times the overtime compensation owed), plus attorney’s fees. If the employee is able to win even $1 from an employer, the employee could recover all of her attorney’s fees, which may be substantial. Are you certain that your overtime system can guarantee protection against a $1 judgment (and the substantial attorney’s fees claim accompanying that judgment)?

The best way is to have a system in place and follow it. Record time for employees, have employees sign on and off regularly, using a reliable system to do so, to ensure accuracy and pay according to that time. If employees are not following the system, you must take steps to enforce it. Having a policy that is not enforced does nothing to protect your business.

 

Yasir Billoo

Yasir Billoo, a partner at Golden & Grimes LLP, earned his law degree from Nova Southeastern University in Ft. Lauderdale, Florida and was admitted to both the Florida Bar and the California Bar. He currently practices law in both states. Billoo also serves as President of the Florida Muslim Bar Association, and is also serving his third 2-year term as an Administrative Judge for Miami-Dade County’s Commission on Human Rights. Yasir specializes in giving legal advice to small businesses on his blog, Small Business Law.

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