Business

4 Situations When Legal Matters Can Make or Break a Business

4 Situations When Legal Matters Can Make or Break a Business

You can lead a very prosperous business, and you may not have almost any care in the world but you would be surprised how quickly it could all collapse and you are left without anything. Thus you need to take special care of what you are doing and prevent any possible situation which could lead to the downfall of your business. 

Trademark 

Someone else will be able to use your trademark if you do not register it. This puts your company, as well as any product or service development you’re working on, in jeopardy. Obtaining a registered trademark protects your brand and gives you the tools you need to prevent others from copying your trademark and profiting from your success. If you do not register your trademark, you may find yourself legally unable to expand your firm. 

You have the legal right to take action against persons who have attempted to register competing trademarks or are operating with conflicting brands and causing harm to your business if you have your brand registered. Thus, the first sale doctrine is a trademark infringement defense. The Lanham Act governs federal trademarks in the United States. Unauthorized persons or entities are prohibited from utilizing a registered trademark under the Lanham Act. 

After a period of time, a trademark registration with the Trademark Office confers on the owner the presumption that the trademark is valid and that the owner has the right to use the mark. If a person or business uses a trademark without permission, the trademark holder/owner may file a trademark infringement lawsuit. In order to prevail, the trademark owner/holder must demonstrate two legal elements:

  • A valid trademark 
  • That the infringer’s use of the same or similar trademark is likely to cause consumer confusion.

Taxes

If your company fails to file taxes or does not pay the whole amount due, you may be subject to a penalty of 10-15 percent per month if the payment is late. There may be an additional $135 penalty as well as interest at the federal short-term rate plus an additional 3%. Even paying late by one business week or less could result in a 2% penalty for your company. The IRS can levy a penalty of up to 20% of the total amount owing if errors on tax returns are discovered. 

If you or your company is found guilty of failing to report income or proving small business tax deductions after an audit, they will be charged after the audit is completed. Until the penalty is fully paid, you must pay interest on it. The Federal Payment Levy Program protects company owners by enforcing the right to suspend certain benefits, such as Medicare provider and supplier payments, military retirement benefits, certain federal salaries, and certain individual Social Security earnings. 

Property seizure is one of the IRS’s most powerful tools. The IRS has the authority to seize a company’s assets if it owes overdue business taxes. The IRS may seize company equipment, cars, and even your business property if you don’t pay on time or in full.

Misuse of Funds

In brief, if a businessperson acts as a fiduciary (i.e., takes money from others in trust), he or she must exercise extreme caution in how the money is spent. For example, if the founder of a promising firm were to utilize investor funds to, say, buy a Porsche or otherwise live a luxury lifestyle in order to present an image of success, that would be a clear problem. 

The illicit use of another person’s money is referred to as misappropriation of funds. While the person who committed the crime had legal access to the funds, it was their use for personal gain or another unlawful purpose that made it a crime. Misappropriation of finances is related to embezzlement, a theft crime in which someone entrusted with another person’s money or property steals it for personal gain. 

A defendant may be prosecuted with both misuses of funds and embezzlement in specific situations. For example, a CEO may be entrusted with funds intended for corporate needs but instead utilizes the funds to pay personal bills. Both misappropriations of funds and embezzlement can be brought against the CEO. The defendant would be prosecuted with misappropriation rather than embezzlement if the stolen money were used for unauthorized reasons other than personal gain.

4 Situations When Legal Matters Can Make or Break a Business

Contracts

You are not required by law to draft a contract, but it may be beneficial to you. A contract is a legally binding document that records the agreements you and your business partner make. For example, who will be responsible for product transportation? It explains both parties’ rights and responsibilities. A good contract gives you peace of mind and helps you avoid disagreements. It lowers your risk of starting a business. A contract can be entered into by both natural and legal individuals. If one of the parties is a minor, a judge may declare the contract null and void. As a result, be cautious about who you get into a contract with.

Having a business is very hard and stressful, you need to take many precautions that will relieve that stress and help you when problems arise. Hopefully, we were able to help you with some legal aspects that you should know.

About the author

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Steven Ly

Steven Ly is the Startup Program and Events Manager at TheNextHint Inc. She recruits rockstar startups for all TC events including Disrupt, meetups, Sessions, and more both domestically and internationally. Previously, she helped produce Dreamforce with Salesforce and Next '17 with Google. Prior to that, she was on the advertising teams at both Facebook and AdRoll, helping support advertisers in North America and helped grow those brands globally. Outside of work, Priya enjoys Flywheel, tacos, the 49ers, and adventuring around the globe.

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