Words to Help Small Business Owners Understand & Speak Legalese

Legal Speak
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By , Small Business Pulse

Do you know all the different steps necessary to get your small business off the ground and running? For many individuals in this position, getting headed in the right direction can prove more difficult than expected. Along with needing the financial footing to maneuver a small business operation, one must also be adept at the laws of the state or states in which they do business. To do otherwise would be playing a high-risk game with one's finances.

As a responsible smaller business owner, it’s vital to know these terms of legalese and the concepts behind them.

Bad faith
Bad faith involves one or more parties not following through with what had been originally agreed upon. This has the potential to cause all kinds of problems in any business relationship. As such, it is very important that everyone involved in all partnerships stick to their end of the agreement.

Implied contract
An implied contract is established when there is a discussion between two or more parties involved in possible business dealings. If services are provided for someone, but pay is not received for time and effort for the performed services, legal action can be taken. The matter can be brought to court where a judge could decide there's enough evidence to show that both parties had a clear understanding of the agreed terms making it legally binding.

Indemnity
In legal terms, indemnity refers to an obligation by a business to offer protection to an employer, director or investor. In the event that a member of your partnership is responsible for a mistake due to negligence, the liabilities accrued will not be placed on all the partners of the business. Considered to be secondary liable, business parties can be saved from legal consequences brought on by another party's improper conduct.

Covenant not to compete
Employees can come and go all too often, especially as it relates to running a small business. Workers may decide that there are more opportunities awaiting them with a larger company. In many cases, business owners will draw up a covenant not to compete agreement to protect their company, which states that employees are not allowed to compete against your business for a set period of time. Also known as a non-compete clause, this can give peace of mind to entrepreneurs when losing any of their workers. Denying someone the right to work elsewhere could land you in court in some instances, but a covenant not to compete will have the law on your side.

Overtime
Having employees who work more than 40 hours each week means one of two things:

If employees are salaried (exempt), they are expected as part of their classification to work overtime without additional pay when required to meet company needs. If that is the case, the staff member may be offered comp time in return. For example, someone puts in a 50-hour workweek in order to get the job done. In return, he or she is granted 10 hours of comp time to use at a point in time when it's convenient for both your business and the employee to do so.

For those workers being paid by the hour, working more than 40 hours means paying them overtime. Many companies will do their best to try and get all the work done within in a 40-hour time frame each week as to avoid paying extra hours. In some cases, employers will decrease or remove overtime hours altogether.