By Attorney Christopher Brainard – California Business and General Counsel Lawyer
Running a small business in California comes with plenty of challenges—marketing, operations, hiring, cash flow—but one area that too many entrepreneurs neglect is legal compliance. And unfortunately, a single legal mistake can cost your business thousands—or even force it to close.
As a California business attorney, I regularly help small business owners clean up avoidable legal messes. Here are six of the most common legal mistakes small businesses make—and how to avoid them with the right planning and guidance.
1. Choosing the Wrong Legal Structure
Many entrepreneurs launch without thinking through their entity type. Should you be a sole proprietorship, LLC, S-Corp, or C-Corp?
Mistake:
Operating as a sole proprietorship or general partnership without personal liability protection.
Why It’s Risky:
If your business gets sued or goes into debt, your personal assets (car, house, savings) may be on the line.
Solution:
Work with a business attorney to choose and properly form the right entity (often an LLC or S-Corp), file with the California Secretary of State, and maintain corporate formalities.
2. Operating Without Clear Contracts
Handshake deals and informal email agreements may seem easy—but they’re a legal disaster waiting to happen.
Mistake:
Failing to use formal written contracts with vendors, clients, or partners.
Why It’s Risky:
Without a contract, you may have no enforceable rights if something goes wrong. Verbal agreements often lead to disputes and costly litigation.
Solution:
Use well-drafted contracts tailored to your business, including:
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Service agreements
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Vendor agreements
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Client intake forms
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Operating agreements (for LLCs)
3. Misclassifying Workers as Independent Contractors
California has strict rules on worker classification, especially after AB 5. Many business owners mistakenly treat employees as independent contractors.
Mistake:
Classifying workers as 1099 contractors to avoid payroll taxes or benefits.
Why It’s Risky:
You could face penalties, back wages, tax liability, and lawsuits under California labor law.
Solution:
Understand the ABC test used in California. If you’re not sure, consult a lawyer before hiring. Draft compliant agreements and policies to protect your business.
4. Neglecting Intellectual Property Protections
You’ve built a brand. You may even have a unique product, website, or invention. But is it protected?
Mistake:
Not registering trademarks or copyrights—or letting employees keep rights to IP they create.
Why It’s Risky:
You could lose control of your brand, lose your competitive edge, or end up on the wrong end of an IP lawsuit.
Solution:
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Register your business name, logo, and slogans as trademarks
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Use IP assignment clauses in employment and contractor agreements
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Register copyrights for creative works (e.g., websites, photos, designs)
5. Ignoring Employment Laws
California has some of the most employee-friendly laws in the country—and they apply even to very small businesses.
Mistake:
Failing to post required labor law notices, track overtime, provide meal breaks, or document terminations.
Why It’s Risky:
Employees can sue for wage and hour violations, harassment, discrimination, and wrongful termination. PAGA claims can trigger class-action-like liability.
Solution:
Create an employee handbook, use proper onboarding documents, and get legal guidance on HR policies—even if you only have a few employees.
6. Waiting Too Long to Call a Lawyer
This may be the most costly mistake of all.
Mistake:
Only calling a lawyer after there’s a lawsuit or crisis.
Why It’s Risky:
Legal damage is often preventable—but only if you act early. Waiting too long can limit your options and drive up costs.
Solution:
Work with a trusted general counsel who understands your business and can offer proactive legal support as you grow.
Build Your Business on a Legally Sound Foundation
At LawBrainard, we help California businesses avoid legal pitfalls before they happen. Whether you're forming a startup, hiring your first employee, or expanding your services, we provide practical, real-world legal guidance tailored to small businesses like yours.
📞 Call (310) 266-4115
🌐 Visit: www.LawBrainard.com
🗓 Schedule a consultation to review your legal protections and reduce risk.
Christopher Brainard is a California business attorney who provides general counsel services to startups, small businesses, and entrepreneurs across the state. His mission is to protect clients from legal risk while helping their businesses grow with confidence.
*This article/blog is provided for informational and educational purposes only and does not constitute legal advice. Reading this article does not create an attorney-client relationship between you and Christopher Brainard, Esq. An attorney-client relationship can only be formed through a written and signed agreement with Christopher Brainard. If you need legal advice about your specific situation contact us for a consultation. [Christopher Brainard, 651 N. Sepulveda Blvd., #2010, Bel Air, CA 90049].