Top Legal Mistakes Small Business Owners Make and How to Avoid Them

Published September 15th, 2025 by Klafehn, Heise & Johnson P.L.L.C

Owning a small business in Rochester or across Monroe, Orleans, and Genesee Counties can be exciting and rewarding. But many entrepreneurs make legal missteps that can lead to costly disputes, fines, or even business failure. Whether you’re just starting out or have been in business for years, avoiding these mistakes will help protect your company and your personal finances.

At Klafehn, Heise & Johnson P.L.L.C., we work closely with small business owners to prevent problems before they happen. Here are some of the most common legal mistakes—and how you can steer clear of them.

1. Failing to Choose the Right Business Structure

Choosing the wrong structure—such as operating as a sole proprietorship when an LLC or corporation would provide better protection—can expose you to unnecessary personal liability and tax complications.

How to avoid it: Consult with an attorney before forming your business to determine whether an LLC, corporation, or partnership fits your goals and risk level.

Need guidance choosing a structure? We can help you set up your business correctly from the start.

2. Skipping Written Contracts

Handshake deals may seem simple, but without a written contract, enforcing agreements can be difficult. This can lead to disputes over payment, deliverables, or partnership responsibilities.

How to avoid it: Use clear, written contracts for all major relationships—clients, vendors, employees, and partners. A well-drafted contract protects everyone involved and minimizes misunderstandings.

3. Ignoring Employment Laws

Misclassifying employees as independent contractors or failing to comply with wage and hour laws can result in penalties and lawsuits. Small businesses are often surprised by how strict New York’s labor laws are.

How to avoid it: Stay informed about federal and state employment laws, including overtime rules and required postings. Have an attorney review your hiring and payroll practices to ensure compliance.

4. Overlooking Intellectual Property

Business names, logos, and creative content can be valuable assets. Failing to protect them—or accidentally infringing on someone else’s IP—can lead to expensive legal battles.

How to avoid it: Perform trademark searches before finalizing a business name and consider registering trademarks for key branding elements. Address IP ownership in contracts with employees and contractors.

5. Not Keeping Proper Corporate Records

LLCs and corporations must maintain certain records, such as meeting minutes and various filings, to help preserve liability protection. Failing to follow these formalities can allow a creditor“pierce the corporate veil,” making you personally liable for business debts and liabilities.

How to avoid it: Keep detailed records of decisions, file required statements, and separate personal and business finances.

6. Neglecting Succession Planning

What happens to your business if you retire, become disabled, or pass away? Many small businesses fail because there’s no succession plan in place.

How to avoid it: Work with an attorney to create a plan that ensures your business can continue smoothly or be sold under favorable terms.

7. Not Reviewing Contracts and Leases Regularly

Business needs change over time, and contracts signed years ago may no longer be favorable. Auto-renewing leases, outdated supplier agreements, and one-sided customer contracts can hurt profitability.

How to avoid it: Schedule regular legal reviews of all agreements to identify risks and renegotiate terms when needed.

8. Forgetting About Local Permits and Zoning

Even if you comply with state and federal rules, local regulations can trip you up. Zoning laws, required permits, and health department requirements vary widely between municipalities in Western New York.

How to avoid it: Check local requirements before opening or expanding your business, especially if you’re moving to a new location or adding services.

9. DIY Legal Work Without Guidance

Online templates and DIY services may seem like a cost-saving shortcut, but they often fail to address specific state and local requirements. Fixing mistakes later can cost more than getting it right the first time.

How to avoid it: Invest in professional legal guidance for critical steps—formation, contracts, compliance, and dispute resolution.

Ready to protect your small business? Schedule a consultation with our team today.

Local Legal Support for Small Business Owners

Small business owners in Rochester and throughout Monroe, Orleans, and Genesee Counties face unique challenges. Partnering with a local law firm ensures your legal strategies align with regional requirements and industry trends. At Klafehn, Heise & Johnson P.L.L.C., we provide practical solutions for entrepreneurs at every stage of business growth.

Legal Disclaimer

This article provides general information about small business law in New York and is not legal advice. For guidance specific to your business, contact Klafehn, Heise & Johnson P.L.L.C. in Rochester, NY. Portions of this content may be considered ATTORNEY ADVERTISING under 22 NYCRR Part 1200. Past results do not guarantee similar outcomes.

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