3 Ways to Avoid Legal Woes

AMOA Financial Can Help Your SMB Avoid Legal Woes


Small business owners find comfort in using an entity structure like LLC or S-Corp to protect their personal assets in the event of legal action, but did you know this isn't always enough?Co-mingling personal and business assets can sometimes be enough to pierce the corporate veil in the event of a legal investigation and disqualify the business owner from the protection of his or her business structure. 

Signing contracts in your personal name instead of your business name or writing personal checks to pay business expenses are both examples of co-mingling funds which can cost your corporate protection. 

When we "pierce the veil", which is the technical term for losing your business' legal protection, it means that another person taking legal action against you can collect on your personal assets in the event of a legal loss in court. Yet, if you resist piercing your corporate veil, it would be extremely rare for a court to order a Founder or CEO to pay business debt with personal assets.  


It is extremely important to have a written agreement between your business and the other party you are working with. The majority of business lawsuits result from unrealistic expectations or misunderstandings in a spoken agreement. The best way to reach two satisfied parties is to have a written agreement in place.  

Doing business involves many negotiations and conversations before parties to finalize expectations. Often times what is important to one party may be overlooked or not as important to the other. Having an agreement ensures both parties most valuable needs are discussed and agreed upon from the beginning.

Without a written agreement a simple misunderstanding can become a confusing and massive problem. Both parties should have the option to refer to the original agreement, written clearly in black and white, to avoid confusion and help maintain business goals. The point of the contract is to ensure the deal is clearly detailed with no room for uncertainty. Best of all this practice aids in positive long-term business relations. 


One of the strong points of being an Entrepreneur is your ability to move quickly. You're able to make major choices without the red-tape and executive input that larger corporations require. Yet this very strength can also be used as a weakness when legal obligations are made in haste. 

As a matter of fact, many small business owners are guilty of not only reading contracts too quickly but even worse-- signing without reading. Make this practice unacceptable in your organization. Instead adopt the practice of reading and understanding everything you're asked to review. You must know your legal obligations. 

It is common to let numbers entice a quick sign, simply to land the deal, but that type of rushed choice can lead to horrible business decisions. It is not uncommon for a legal agreement to place responsibility for resources, accommodations or errors on the other party. Imagine being in the middle of a project and finding you're financially obligated for items you hadn't anticipated or work hours you thought were completed by your business partner? These type of sudden changes could bury a small business owner's profit and place him or her in the red. We've all come too far for these types of risks.

So follow these simple recommendations to avoid unnecessary pitfalls, protect your assets and build long-lasting business relationships. Like I always say, you deserve it as a business owner.