For small and midsize businesses, working with an attorney may seem like something you can postpone to a later time, after the company is bigger or the business is more profitable. But too often, “later” turns into “too late,” and cleaning up legal messes can cost far more than simply preventing them in the first place.
Here are three of the most common legal missteps we see, and how to avoid them:
1. Ignoring Corporate Housekeeping
It’s easy to let corporate records slide when you’re busy running the day-to-day, but this is one of the costliest mistakes you can make. If your books, bylaws, cap tables, or board minutes are outdated or incomplete, a potential acquisition, investment, or partnership can quickly derail or disappear entirely. Buyers and investors will conduct due diligence, and when they find a mess, it undermines your credibility, increases your legal costs, and could ultimately kill the deal.
Must do: Keep your corporate records clean, current, and organized. What seems like busywork today will save you from a full-blown scramble tomorrow.
2. Failing to Track Open-Source Software and AI Tools Usage
Especially for software companies, understanding what technologies you use and how you use them isn’t optional anymore. In M&A deals, businesses are typically required to make specific representations about their use of open-source software and AI. That means knowing which open-source tools your developers are pulling in, how you’re modifying them, and whether you’re complying with licensing terms.
For instance, modifying open-source code typically requires you to publish those modifications openly. If you’re monetizing a product that incorporates open-source code without following those rules, you could be in breach, and that creates real risk for both you and your clients.
The same goes for AI. Are you training models on customer data? Did you feed sensitive or privileged information into public tools like ChatGPT? If you’re not tracking these practices now, your company could be exposed later.
Must do: Implement regular tech inventory reviews. Track every open-source and AI tool used and define boundaries around how they are allowed to be used. This can make or break a deal later on.
3. Avoiding Hiring an Attorney to “Save Money”
Attorneys hear it all the time: “I didn’t think I needed a lawyer for that.” Maybe you reused someone else’s terms and conditions. Maybe you found a contract template online. Maybe you figured using an attorney to help draft a contract or negotiate a deal could wait until the business grew a bit more.
But when you run into problems, you are likely to end up spending more to fix them than you would have by doing it right in the first place. Worse, some mistakes can’t be undone.
Must do: Obtain legal guidance early to help protect your growth, intellectual property, and potential deal value. If you’re looking to grow, raise capital, or simply operate with confidence, consider bringing in outside general counsel who understands your industry and how to balance legal risk with business goals. It’s one of the smartest and most cost-effective moves a growing company can make.
Ultimately, legal foresight today can help protect the future of your business. Need help getting your legal house in order? Contact a member of the Fortis Law Partners team.
