What If Your Business Exists in a Legal Gray Zone?

When you think of a business that operates in a legal gray zone, you may think of a medical marijuana business or a casino or some adult entertainment company. Perhaps you may think of a company that works with highly dangerous and regulated substances.

But even seemingly normal businesses can find themselves dealing with regulations and courts. Think of Uber, which is battling governments across the world like France and Brazil for providing rides.

So, what should businesses which could find themselves shut down by the government do? How should they operate? Here are some tips about what they can do to avoid the fate of companies like Aereo, an Internet streaming business shut down by the U.S. government.

Know Your Budget

First, a business owner needs to figure out how much he or she plans to spend on legal expenses—and then add much more to that, because business owners always budget too little. And in the case of companies operating in legal gray zones, business owners needs to add even more.

But the financial expenses are nothing compared to the time that a business can lose handling legal work. Think about how long it’s taken for marijuana to process to its current state; then think about how much longer it will take for full legalization, if that day ever comes.

As a result, companies should set aside a substantial amount of money to pay for legal expenses should the worst come to happen. While this is a burden that other businesses do not have to bear, it is necessary for when—not if—additional legal troubles comes up.

Have Good Representation

Second, a business in one of these areas must have a good lawyer. This may seem to be common sense, but owners sometimes forget that lawyers have different specializations which are all critically important when running a business.

Perhaps the most important lawyer is a tax lawyer. This is especially true for business owners who are planning to a start a marijuana business. A drug law written in the 1980s prevents marijuana business owners from deducting business expenses for nearly anything, unlike other businesses, and the result is that marijuana businesses face an effective tax rate of as much as 90 percent.

Other businesses in this legal gray zone face similar problems. Many of the battles Uber faces in court relate to taxes–, especially in France, where taxi drivers and Uber drivers clashed in ugly riots.

As many businesses in these legal gray zones are located in areas where taxes are poorly defined or outdated, they have to make sure that their profits are not completely seized by the IRS. Know the tax laws in your area and get a tax lawyer.

Follow the Law to the Letter

You should have a legal advisor for this one–, and while your lawyer can be your legal advisor, remember that a lawyer and a legal advisor are not necessarily the same thing.

In 2013, rising tech company Square was fined over $500,000 by the state of Florida for operating a payment service without a money transmission license. And if a respected tech company like Square can lose that much money over a simple legal mistake, what can the government do to a marijuana business?

Staying completely legal in these fields can be incredibly difficult, but that is why a business should have a legal advisor to whom they can constantly contact and trust with business decisions. If a business is ever the slightest bit unsure of anything, they should check with the advisor first. A little bit of leg work beforehand can prevent the government from clamping down on the business like a thousand bricks.

Looking to the Future

Hopefully, the day will come when government regulation will lessen and businesses will be free to run what they want as long as they do not hurt others. But that will not happen for some time.

And until that day comes, businesses that operate on a legally problematic plain must do everything they can to prepare and defend against government intervention, regulation, and taxation. This includes having money ready for legal troubles as well as people they can trust to give sound advice and lessen the burdens of regulation. With those worries removed, a business will be able to operate and provide the people with what they want.

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