In the previous installment of this popular series, which shares simple legal advice from my own experience, I touched on two issues that have to do with staff and payroll – including staying straight with the IRS. I want to share one more tip for dealing with personnel in this issue, and then more on to a few more general topics to wrap up the series next time.

As you read through these tips, remember – it’s never too late. Whether your business is just starting up, or has been around for a while, you can always correct potentially problematic issues to assure yourself of clear legal sailing down the line.

6. Keep accurate personnel files. Everyone is familiar with the three most important rules in real estate_ location, location, location. There are also three important rules when it comes to personnel matters that will keep your company out of trouble_ document, document, document.

How many times have you counseled, disciplined or warned an employee and failed to put a record of that event in the employee’s personnel file? If a former employee files a claim for unemployment benefits, or if your company faces a claim of discrimination, that personnel file will become a key piece of evidence. This is why you must keep accurate personnel files on all employees. For example, if you’re targeted by a discrimination lawsuit, you should have not only complete and accurate records for the employee bringing the suit, but also accurate records for other employees, which will assist your attorney in defending you against the lawsuit.

The next two tips move away from personnel issues to the basic structure of your business. It is crucially important that this be done right, and you’d be surprised how many companies never bother to find out what the right way is until it’s too late.

7. Properly register your business. Don’t assume that if you registered your business once, in a single state, that you’re done. In fact, in order to have the full protection of the legal system, you must be registered to do business in every state where you transact business. For example, if you regularly conduct business in Florida, but have not registered in Florida, you may not be able to pursue a claim against your Florida customer who owes you money.

The good news is that registration is simple and relatively inexpensive and usually done through the Secretary of State, Corporations Division. This is such a basic step, so don’t wait until you are in trouble to consider registering the business.

Another key aspect to registering your business_ if you operate under a trade name, you need to register that name in order to protect your use of the name. I probably don’t need to tell you how important the value of a brand is these days. You’ve probably invested a lot of time and money establishing recognition of your business; you wouldn’t want to lose the good will associated with your trade name. As with a state registration, this procedure is simple and inexpensive and should be done by every business operating under a trade name.

8. Do not mix business and personal finances. Are you properly protected? One major reason why businesses are formed as corporations, limited liability companies or other independent legal entities is to protect the owners from personal liability. However, simply forming a company isn’t enough to protect you unless you demonstrate that you’re serious about running your company separately from your personal affairs. If there are any legal “grey areas” you may well be held liable even if you operated through a company.

Nothing poses a greater danger to that protection than an owner who mixes business and personal finances. Do not use your business account to pay your personal bills. Do not place personal funds in the business account without proper documentation that it is a bona fide loan. These transactions blur the line between personal and company finances and in doing so, you may forfeit the protection a corporation, LLC, or other legal company is intended to provide.

For the sake of complete propriety and keeping everything totally above-board, you may want to consider executing a written security agreement establishing your personal security interest in certain assets of the business, with those assets securing a loan from you to the business. Treat your business as a separate entity and keep the boundary lines clear between your personal finances and your business finances.

To be continued…

If you have any questions at any time, or to receive even more winning legal tips to help your business avoid common pitfalls, contact us at (212) 661–7010 or (973) 365–2770 or email me directly at edsmith@edslaw.net.

© 2017. E. David Smith is a Passaic Park resident and attorney admitted in New York, New Jersey and Georgia with Passaic and Manhattan offices. He is principal of Smith & Associates and focuses on high-stake disputes, corporate transactions, financing, investments and acquisitions. He can be reached at (973) 365–2770, (212) 661–7010 or edsmith@edslaw.net.