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The Most Common Mistakes New Illinois Businesses Make and How to Avoid Them

As an Illinois business owner, it's essential to stay informed about the legal landscape and be aware of the common mistakes that businesses make in order to protect your company from costly lawsuits and penalties. From not properly forming a business entity, to not having proper contracts in place, to not complying with employment laws, there are many legal landmines that can trip up even the most seasoned business owner. In this guide, we'll take a closer look at the most common legal mistakes made by Illinois businesses and provide you with practical tips on how to avoid them and keep your business on solid legal footing:


1) Not properly forming a business entity


One of the most common legal mistakes made by Illinois businesses is not properly forming a business entity. A business entity is a legal structure that separates the business from its owners, protecting them from personal liability for the business's debts and obligations.


There are several types of business entities to choose from, including sole proprietorships, partnerships, corporations, and limited liability companies (LLCs). Each type has its own advantages and disadvantages and it's important to choose the one that best fits your business needs. For example, corporations offer personal liability protection but require more formalities and have higher ongoing costs than sole proprietorships or partnerships. LLCs offer personal liability protection, pass-through taxation, and more flexibility in terms of management and ownership than corporations, but they may be subject to additional state taxes and regulations.


It's important to consult with an attorney to determine the best business entity for your business and to ensure that it's properly formed and registered with the state. This includes filing the necessary paperwork and paying the required fees, as well as creating and adopting an operating agreement if you're forming an LLC. Spending a little more time, money, and effort early on in properly forming a business entity will ensure that you save yourself a significant amount of time, money, and headaches in the future.


2) Not properly incorporating and drafting bylaws


Another common legal mistake made by most small businesses is not properly incorporating and preparing bylaws. Incorporating a business is what creates a separate legal entity, which provides protection to the owners from personal liability. Bylaws are the rules and regulations that govern the internal affairs of the corporation and they help to establish the corporation's management structure, and outline the rights, powers, and duties of the shareholders, directors and officers. If a business is not properly incorporated, the owners may be held personally liable for the debts and obligations of the business. If a business does not have proper bylaws in place, it may face issues related to management, decision-making, and shareholder rights.


To avoid this mistake, it's important to consult with an attorney to ensure that your business is properly incorporated and that bylaws are in place. This includes filing the necessary paperwork and paying the required fees, as well as creating and adopting an operating agreement if you're forming an LLC. It also includes drafting bylaws that clearly outline the rights, powers, and duties of the shareholders, directors, and officers, and that establish the management structure of the corporation, which will help the business to run smoothly, and avoid disputes and misunderstandings


3) Not having proper contracts in place


Another common legal mistake made by Illinois businesses is not having proper contracts in place. Contracts are legally binding agreements that establish the rights and obligations of the parties involved. They're essential for protecting your business interests and avoiding misunderstandings and disputes.


For example, employment agreements can help protect your business by setting out the terms and conditions of employment, including job duties, compensation, and termination provisions. Vendor contracts can establish the terms of the relationship between your business and its suppliers, including payment terms, delivery schedules, and quality standards. Lease agreements can establish the terms of the relationship between your business and its landlords, including rent, security deposit, and maintenance obligations.


To avoid this mistake, you should consult with an attorney to review and draft all contracts for your business. This includes reviewing any contracts that you're asked to sign as well as creating contracts for your business to use. Your attorney can also advise you on the enforceability of a contract, what terms should be included in the contract, and how to negotiate the contract.


4) Failing to comply with employment laws


Compliance with employment and labor laws is critical for Illinois businesses, as failure to do so can lead to costly lawsuits and penalties.


Employment laws govern issues such as minimum wage, overtime, discrimination, and employee benefits. The Illinois Human Rights Act, for example, prohibits discrimination on the basis of protected characteristics such as race, sex, and age. And the Illinois Workers' Compensation Act requires employers to provide workers' compensation insurance to cover injuries or illnesses that occur in the course of employment.


Talking to an attorney can help ensure compliance with all relevant employment laws. This includes reviewing and updating your employment policies and practices, such as your employee handbook, to ensure compliance with the law. It also includes training your management and human resources personnel on the laws and regulations that apply to your business, as well as ensuring that any claims of discrimination or harassment are promptly investigated and resolved.


5) Failing to obtain proper insurance


Insurance is critical for Illinois businesses, as it can provide financial protection in the event of a lawsuit or accident. Common types of insurance for businesses include general liability insurance, which provides protection for third-party claims of bodily injury and property damage, and worker's compensation insurance, which provides benefits to employees who are injured on the job.


It is highly recommended that new businesses discuss the insurance needs of their new business with an experienced insurance provider so that you can be sure you and your new business are covered.

As you can see, running a business in Illinois comes with a unique set of legal challenges and it's important for business owners to stay informed and aware of the most common legal mistakes in order to avoid them. At Imeri Rogers, LLP, we are dedicated to helping business owners navigate the legal landscape and protect their companies from costly legal mistakes. Our attorneys have the knowledge and experience to help you comply with the laws and regulations that apply to your business, and to provide you with the guidance and support you need to make informed decisions for your business. We invite you to schedule a consultation to discuss the legal needs of your business and how we can help you.

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