by: Charles E Davis, Attorney

At Davis Miles, we see the same errors in business operations, frequently.  Sometimes people ignore common sense and sometimes they just don’t know the where the danger lies.  Below are four mistakes we see repeated too often:

  1. The business wasn’t properly formed. In 1993, I wrote a book called, Incorporating in Arizona. I had grown weary of correcting problems that do-it-yourselfers routinely made.  The premise of the book was if you are going to do it yourself, do it like a lawyer would do it.  I had forms, directions and everything a person would need to do it correctly. And those who purchased the book could get the forms on a computer disk.  Curiously, a number of lawyers purchased the book telling me they hadn’t realized they had been making mistakes in incorporating their clients.  Today, limited liability companies are in vogue, but we still see people making serious mistakes.  The use of online Web sites and entity formation services can be disastrous for the business person. It often seems a simple process to form a corporation or a limited liability company.  But most of the do-it-yourself jobs I have reviewed have serious errors. What is missed is everything from proper tax advice and funding issues, to securities and regulatory law violations. What is pitched as a way to save a relatively small legal fee often results in much higher fees and big monetary loses. And the online company isn’t going to cover those fees and losses for you. The solution? Use your Pre-Paid Legal Services, Inc. benefits to get knowledgeable legal advice and assistance in forming your business entity.
  2. Business owners don’t understand employment laws. We are seeing unprecedented activities by the government in this arena.  Historically, large employers were the target of actions regarding wrongful discharge, wage and hour violations and other employment matters. In the last two years we have seen the government take a very aggressive posture toward small businesses. We are not sure what the change has been, but it may be that they have figured out that small businesses don’t have the money to defend themselves.  Whatever the reason, it is more important than ever that small business and their owners take the proverbial ounce of prevention. The solution? Use your Title 1 Benefits, under your Pre-Paid Legal Services Plan to get answers to your employment law questions.
  3. The business isn’t adequately insured.  Insurance, or insurance in the proper amounts, is frequently overlooked.  Why isn’t putting your business in a limited liability company or corporation enough?  First, if you have insurance, the insurance company will frequently pay for your legal defense. Second, and this is something universally misunderstood by business people and their consultants, you can never avoid personal liability for your own actions.  So, if you have a business that you run out of a limited liability company, but you are the one who crashes the company car into the school bus, the company is liable, but so are you, personally. Insurance is cheap, compared to legal fees.  The solution? Get insurance and get it from a good company. And make sure you keep your Pre-Paid Legal, Inc., small business plan, active to cover your other legal expenses.
  4. Nevada won’t help. Routinely we see advertisements extolling the virtues of Nevada corporations and limited liability companies, and clients who have fallen prey to the slick marketing ploys.  The ads for Nevada entities are cleverly designed to lead people to believe that they will get certain tax and liability protection benefits.  Nevada corporations will almost never save an Arizona business any taxes, nor will they generally give you more protection than an Arizona entity.  In fact, they are often not properly capitalized, so that they give almost no protection.  In every case I have reviewed, the proffered advantages of forming an entity in Nevada aren’t available and the only thing that the purchaser gets is an “up-sell.” So what started out as a relatively cheap way of forming a business entity becomes a very expensive binder on a bookshelf somewhere that is worth nothing….or will take a lot of money to fix. The solution?  Use your Pre-Paid legal benefits to get solid legal advice and discounts on fees from reputable lawyers who have a stake in your success.

One of our great privileges at Davis Miles is to assist people when they are making potentially damaging legal decisions. Because we see it daily, we believe those business owners who formulate a smart plan and use their plan save themselves headaches, heartaches and money.  As one of the larger firms in Arizona, we are here to help you, each day, every day to avoid costly business mistakes.  Call us for help and advice. We’re here to serve you.