NEW BUSINESS OWNER? Avoid These Common Mistakes
The start-up life can be exciting, and the learning curve is huge for many. Amid growth and opportunity, many entrepreneurs make costly and avoidable legal mistakes. Here are some of the most common legal missteps made by businesses in the start-up phase:
NOT DRAFTING A CLEAR FOUNDER AGREEMENT
A crystal-clear agreement between co-founders before you start making a profit (or losses, as the case may be) will prevent financial misunderstandings about who gets what and when. Decide how profits will be distributed early and losses made up to avoid much bigger future conflicts. Use the "Agreement Process" to determine how you handle the complex issues upfront before you make significant investments.
STARTING AS A SOLE PROPRIETORSHIP
Sole proprietorships are easy to set up but expose you to personal risk and potentially higher taxes. Consider an LLC or S-Corporation to protect your assets and possibly even reduce your tax burden.
IGNORING SECURITIES LAWS WHEN ISSUING STOCK
They say it takes a village to raise a child. The same adage applies to start-ups. If you want to issue stock to those who've helped you along the way, heed all state and federal securities laws. Contact us before you issue any stock so we can set you up right.
NOT HAVING ENOUGH EMPLOYMENT DOCUMENTATION
Every start-up should have comprehensive employment (or independent contractor) agreements. Avoid the high cost of resolving employee conflicts in court by ensuring your policies and agreements are clear and team members are correctly categorized as either employees or independent contractors. If you need more clarification, contact us.
NEGLECTING IP PROTECTIONS
Your intellectual property is an asset and should be protected from day one. That means trademarks registered and copyrights filed. Contact us to schedule an audit if you need clarification on what needs protection.
FAILING TO DEVELOP A TAX STRATEGY
Why worry about taxes if you're making little money? Think again. Work with a tax advisor to develop a tax strategy; don't wait until tax season! We meet with our clients and their tax advisor at least annually in the Fall to identify the tax opportunities that must be planned for before the year's end.
NEGLIGENT NAMING
Before registering your name or domain, ensure there aren't any trademarks or similarly named companies already using your name.
NOT HAVING CLEAR USER AGREEMENTS
Do not launch your website without terms of use agreement and privacy policy on your site. We can help with that too.
One of the most significant legal mistakes a start-up can make is not having sound legal counsel. Please don't wait until it's too late to hire an attorney to help you avoid sticky situations. Having a trustworthy and experienced attorney in your ring from day one will help you start your business with the solid foundation you need for success.
Start-ups can be risky ventures, but you can beat the odds with sound planning. If you want to avoid the costly legal mistakes many start-ups make, begin by sitting down with a business lawyer. As your business lawyer, we can establish a sound legal, insurance, financial, and tax system for your business so you can focus on running your growing start-up.
This article is a service of Shandell C. George, Business Lawyer. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a Business Start-Up Session or a Business Foundation Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.