Small Business Guide: Legal Steps to Recession-Proof Your Company

Markets Are Flashing Warning Signs of a Possible Recession. It ‘s good time to batten down the hatches.

For Business Owners, there’s No “Magic Bullet That Wold Completely Protect You or Make You Recession-Proof,” Said Noel Roycroft, The Deputy Director of the Harvard Law School Transactional Law Clinics, Which Advisions Entrertepers and Small Business.

But there are steps in the legal realm that businesses can take to prepare.

Business Insider Spoke with Lawyers who Advise Small Businesses and Startups About What Advice They’d Give to Prepare for An Economic Recession.

Here’s what they Said.

1. Get Your Paperwork In Order

In the event of an economic downTurn, the business owners might want to consider a loan to help say through choppy water, Merging with another company, or selling their business to a Large one.

In any of the circumstances, small businesses want to have all their ducks in a row for the dulation process, Said Roycroft, A Former Attorney at Ropes & Gray.

Have you paid all your taxes yet? Are your fILIGH up-to-date with all the relevant state and federal agencies? Will you have all your corplate records organized? Do you have copies of the Executed versions of all your contracts? Have you read your company’s bylaws recently, and are you actually follow?

Roycroft Said Its Better to Prepare before the Storm Starts Rather than Wait Unyl Something Goes Wrong Before Realizing the Business is in Bad Shape from A Legal Perspective.

“You’re Playing Cleanup at that point, and that no fun for anybody,” Roycroft Said. “SO the most you can Kind of Pay Attention to Those Things Now, The Better.”

Some states-like massachusetts-automatically disesolve corporate entities if they Paperwork isn’t up-to-date.

“If you have haven’t done that for three years, you might be administratively disesolved and they don’t realize that happened,” she said. “And thatn they go to enter into a contract with someone and there’s no actual legal entity in place Anymore.”

2. Put up the firewall between you and your Business

Proper corplate Hygiene isn’t just important for loans and merso’s also important for liability.

For Small Businesses, A Hazy LINE BETWEEN CORPORATE AND THE OWNER’S Personal Finance Coulld Cause Trouble. Without A Firewall, Owners Could Become Liable for Debts in Potential Lithigation or Bankruptcy.

“If People are World About Lithigation Risks from Credits or Counterparties, Making Sure That You Following These Sorts of Maintenance Basquets that the Business is separate from the owners and can Help Maintain that Liability Shield,” Roycroft Said.

3. Get Your Personal Finance In Order

If a small business need a loan and haw few asssets, the owner will often be asced for a personal guarantee, Roycroft Said.

For that reason, they should have their Own Financial Life Organized for the permanent bonders, Said.

Roycroft warned that Such an arrangement COULDE RISKY, Especially During an Economic Downturn, Because the Owner Could Be Required to Pay Back the Loan.

“If you were a corporation or an llc and you Enter into one of these loans, they can not see to be paid back your personal assset and not just just just just.

4. Consider Trading Debt for Equity

Aside from Loans, Small Business Owners Could Consider Lightning Their Debt Load by Giving Up Equity to Existting Lenders.

That arrangement COULD GIVE The Lender “Skin in the Game” and Invigoralate the Business, Said Jonathan Askin, A Professor at Brooklyn Law School who overses the center for urban business entreneurship.

“You don’t have debts coming due, but you’ve got potential equity partners who want you succeed as much as Possible,” Askin Said of the Arrangement.

Some bonders – or tan contractors who are the owed Money – Might Also Accept Deferred Compensation During A Recession, Said.

“If we see light at the end of the recession tunnel, then anything you need to get over that hump through renegotating and getting People to see long-term vision, Think is helpful,” Askin Said.

5. MAKE SURE YOU OND YOUR OWN INTELLECTUAL PROPERTY

Small Businesses often overlook the Fine Print of their Agreements with Independent Contractors, Roycroft Said.

One Common Issue, She Said, is that Independent Contractors or Employees Don’t Transfer Over The Rights for What They Created for the Business.

That it is a headache if the business is looking to merge with another. The Contractor Might Have Leverage of their Own They Still Have Ownership of Important IP for the Business, Roycroft Said.

6. Check Your Lease

For Companies with Brick-and-Moretar Businesses, Rent is offen the Biggest Expens.

Roycroft suggestted checking that small business owners check away lease and make -up they are understand their obligations.

“MAKING SURE THAT YOU UNDERSTAND, ‘IF I MISS ONE RENT PERYMENT, WHAT CAN HAPPEN AND WHAT THE NOTE THE REQUIREMENTS IN IT? How to notice the landlord? How does the landlord to me?’” Sheid.

There may be Opportunities to renegotiate. While Big Corporate Landlords to have more Power than Small Businesses, No One Wants to See a Vacant Storefront, Said.

Askin ALSO Suggested negotiating rules about sub-ends, which can ease rent Liabilities.

Landlords Might Also Consider Lowering Rent for Some Equity, Said Askin.

“There May Be Landlords Who See the Long-Term Future of Your Venture and Might Want to Have Skin in the Game, Too,” Askin Said. “Maybe they’d be interested in giving you a reduced rate for a piece of the Business.”

7. USSE LEGAL ADVISORS WHO WILL SAVE YOU MONEY BY USING AI

The Age of Artificial Intelligence has Introduced Enormous Efficiencies in the Legal Industry. Asing recommended using it-Driven tools and law firms that pass some of the those decreed Costs along to their clients.

“AS A BUSINESS PERSON, I WAULD Take AS MANY FREE OR PRO-BONO LEGAL RESOURCES AS POSSOBLE,” ASIN SAID. “I don’t think it to abandon human legal counsel, but there are ways to automate processses so you can use users more legal supplier services.”

He Also Recommended Business Owners take a look at their process and see if he tools could automate Certain functions.

“If you’re not digging deep into he, you’re beened the eight ball already,” Askin Said.

8. Undersand Your Obligations to Employees

Recessions usually mean that busesses need to tighten their belts. RoyCroft recommended brushing up on states and federal laws that govern how employs are treated. Are they at-Will Employees? Will they have a union contract? Do they make a Certain Amout of Severance or Notice for a Layoff? Are Furloughs an Option?

“God forbid you have to start letting People go, but that can open in a recession,” Roycroft Said.