Top 5 Legal Mistakes Small Business Owners Make — and How to Avoid Them

Running a small business means wearing many hats — from marketing to management, and everything in between. But one area too many business owners overlook is legal compliance. A few simple oversights can lead to costly penalties, disputes, or even threaten your business’s future.

Here are the top 5 legal mistakes small business owners make — and how you can avoid them.

1. Not Having the Right Business Structure

Choosing between an LLC, S-Corp, or sole proprietorship isn’t just paperwork — it affects your taxes, liability, and long-term stability. 

Mistake: Many small business owners start as sole proprietors without realizing they’re personally responsible for debts or legal claims. 

Avoid it: Work with a legal professional to choose and properly form the right structure for your business. This protects your personal assets and can optimize your tax situation.

2. Skipping Written Contracts

Handshake deals might feel simple, but they can lead to big headaches later. 

Mistake: Operating without clear written agreements for clients, employees, or vendors can cause confusion and disputes. 

Avoid it: Always use well-drafted contracts that outline expectations, payment terms, and dispute resolution. A small investment in a solid contract can save thousands in legal fees later.

3. Ignoring Employment Law Basics

Even small teams need proper hiring practices and compliance with wage and labor laws. 

Mistake: Misclassifying workers (e.g., contractors vs. employees) or failing to keep proper HR documentation can lead to fines and lawsuits. 

Avoid it: Stay informed on employment law updates, and document everything — from job descriptions to pay agreements. Consult a legal professional before bringing on new team members or contractors.

4. Overlooking Intellectual Property Protection

Your logo, brand name, and content are valuable assets — don’t leave them unprotected. 

Mistake: Failing to trademark your business name or logo can open the door for others to use it, causing confusion and legal battles. 

Avoid it: Register your trademarks and ensure your website, social media, and marketing materials are legally protected.

5. Not Keeping Up With Compliance and Recordkeeping

As your business grows, so do your legal responsibilities. 

Mistake: Missing annual filings, tax forms, or license renewals can result in penalties or business suspension.

Avoid it: Keep a compliance calendar for all filing dates and maintain organized records for taxes, licenses, and contracts.

Final Thoughts

Legal mistakes often start small — a missed form, an unwritten agreement — but can quickly spiral into major issues. The good news? Most can be prevented with the right guidance.

At The Law Office of Katie A. Lawson, PLLC, we help small business owners protect what they’ve worked so hard to build — from formation to growth and beyond.

eady to safeguard your business?  Visit www.klawsonlaw.com to schedule a consultation today.