Debunking 5 Common Business Law Myths
Unfortunately, there are as many common business law myths as there are businesses. There are so many websites claiming to give legal advice or tips that are just wrong and many more forums where lay persons answer legal questions in a way that just makes us cringe. You don’t ask your plumber about LLC’s and you do not ask your attorney how to unclog a sink. A lack of education on legal matters can cost you a lot of money and time, so we thought we would debunk some of these myths for you.
- Myth: if you have an LLC or a Corporation, your personal assets are safe and sound. Fact: even if you have formed a legal entity for your business, your assets may still be on the line if you are not careful. If you do not have supporting documentation, such as shareholder meeting notes or an operating agreement, your opponent may be able to “pierce the corporate veil.” Piercing the corporate veil is a consequence of a court determining that you are just using the legal entity as your alter ego and are not taking the requirements seriously. When the corporate veil is pierced, your assets are on the line in the lawsuit. Furthermore, this business law myth may hurt you if you start signing contracts with just your name and not in the name of your legal entity.
- Myth: Non-disclosure Agreements will keep all of your information secret. Fact: people talk. However, you should still have an Non-disclosure Agreement because if someone does talk and they have signed an NDA, you can ask the court for an injunction whereby the court will require the person to stop talking to others about the information that you have provided to them. Furthermore, having a Non-disclosure Agreement increases the likelihood that someone will keep your information secret.
- Myth: everything on the internet is free to use. Fact: if you take information or pictures, or anything else from the internet, you may have to agree to a licensing contract. Furthermore, you may be breaking copyright and trademark laws if you take something that belongs to someone else without their permission. A good rule of thumb is to check the Terms and Conditions on the website or to contact the owner of the information and ask them if you may use it.
- Myth: there is no need for a contract or an operating agreement since you are starting a business with your friends. Fact: good relationships quickly sour once there is money involved. You should always have a contract and an operating agreement to delineate what happens if you and your partners disagree or if the business is failing and someone wants out.
- Myth: contracts must be in writing. Fact: oral contracts are still enforceable. Some oral contracts are not enforceable due to a statute requiring them to be in writing, but in general, oral contracts are valid if they contain all of the necessary terms. However, you should always have a written contract because you may have a misunderstanding or may even forget what you agreed to. Written contracts also usually provide for a lot more protections for both you and your business as compared to oral contracts. Furthermore, written contracts save time and money in litigation because it’s not necessary to prove who said what in the contract.
We hope that we have laid these common business law myths to rest and helped you make decisions based on facts.
Donata Kalnenaite, Esq.