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Even the most successful business can be undermined by poor legal arrangements. Failing to plan for the possibility of lawsuits or other problems may come back to bite you at the worst possible moment.

Here are seven tips for reducing your odds of hitting a legal pothole.

1. Avoid loose language and understandings. Doing business with friends, family, and lovers is a common practice for small-business owners. But the strength and depths of those relationships should not prevent you from signing a detailed yet flexible partnership agreement. With other types of partners, the need for such agreements is even greater.

All owners of a business should agree in writing on such issues as:

• Each partner’s time, effort, and capital commitment;
• The share of ownership each will relinquish if, as, and when more capital comes in; and
• How ownership will be redistributed when a partner leaves the business.

Before you sign any agreement, run through a wide variety of scenarios in your mind. For example, consider what might happen if outside forces turn against you, your partner has a change of mind, the business becomes wildly successful, and so forth. Evaluate how well the agreement protects everyone’s interests under those circumstances.

2. Provide good employee guidance. Whether you hire your in-laws or total strangers, it’s important to get all employees to sign an employment agreement. This document should set forth straightforward expectations and rules for everyone to follow. The agreement should make plain that employees’ working status is “at will,” meaning they may quit or be terminated at any time, for any reason. It’s also helpful to set forth rules forbidding employees from any form of discrimination, harassment, and other illegal activities.

3. Put everything in writing. Every business must document its formal activities, including hiring, firing, receiving income, and making expenditures, and most internal organizational decisions. If you don’t create and maintain the proper documents — including those covering shareholder meetings, stock transfers, and a host of other formal events — you will run afoul of regulators and fail the due diligence efforts of future investors or buyers.