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Avoiding Legal Land Mines: Protecting Your Company from Disaster
By Karalynn Cromeens
Starting a business requires confidence that you can succeed and the belief that you’re the best in your industry. It’s incredibly impressive for those who have taken that leap of faith and gone out independently. Their hearts are on fire, and they can’t wait to do what they do best.
I learned early on that if you want to stay in business, you can’t focus solely on what you do well. You also need to manage the business side so you can keep the doors open. From a legal perspective, there is much beyond your craft that you need to manage as well. If you don’t, you will eventually hit a legal land mine. The only question is, will your company be able to survive the hit?
Legal Land Mine Checklist
• Incorporation: You must be incorporated. If not, you’re personally guaranteeing every debt and everything your business does.
• Insurance: Your insurance policy must be written specifically for your type of business and protect you if something goes wrong.
• Do you have employees or subcontractors? You must know the answer to this question. (Hint, it doesn’t matter what you call them; it only matters how the government views them).
– If you have employees: You need a well-thought-out and documented hiring process and an employee hand book with an up-to-date safety plan made specifically for your business.
– If you have subcontractors: You need an easy-to-understand subcontract that covers all your bases and clearly manages expectations.
• Contracts: If your customer is signing, write your contract in plain English so they truly understand the process. If you are signing someone else’s contract, have the contract reviewed to understand the agreement and negotiate the harmful terms.
• How are you going to collect your money? With a consistent collection strategy before a collections issue ever arises.
• C.Y.A. (cover your a**): The processes you put on every project are crucial to ensuring you’re covered if something goes wrong.
Sadly, most businesses don’t realize how dangerous it is to not have all of these bases covered. Sometimes it takes already hitting the land mine to realize it. The above checklist may seem daunting, but it is better to start by doing one at a time than not working on them at all. I’ve put them in an order that I believe is the most important from a legal point of view, but you’re free to choose which one to start first for your company. You don’t want to ignore this list or think that what you already have is sufficient. When was the last time you had your contract reviewed to make sure you were protected? When was the last time your employee handbook was updated? I highly recommend putting these strategies in place to avoid a legal land mine down the road that could take out your business. Don’t learn the hard way; take action today.
Karalynn Cromeens, author of Quit Getting Screwed, Understanding and Negotiating the Subcontract and Quit Getting Stiffed, A Texas Contractor’s Guide to Collections and Lien Rights, is the owner of The Cromeens Law Firm and The Subcontractor Institute in Houston. She has been a licensed construction attorney for over 16 years.
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