Common Major Legal Mistakes Startup Owners Make

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Being a startup owner is about more than being good at making business-plans and micro-managing things. Think about it, your ability to produce and sell goods or provide services is important but it’s not all that it takes for you to become a businessman. In order to do so, you also need to learn how to do so in total agreement with the law. Even with proper legal aid, this can be quite challenging so here are several common startup legal mistakes that most first-time entrepreneurs make over and over again.

  • Not agreeing with other cofounders

The first issue that one absolutely has to address when starting a company is making an agreement with other co-founders. Unless you’re running a sole proprietorship or have a resounding majority stake in your LLC (limited liability company), the deal you make with your partners will make all the difference when it comes to the way in which you’ll run your company in the future. So, here are several tips you need to address as soon as possible.

First of all, comes the issue of money. Here, it’s on you to decide how big of a percentage each partner gets in the business. Then, you need to sort out everyone’s responsibilities, which is not an easy thing to do. Ideally, this would be distributed according to everyone’s strengths and interests but what if two partners are equally interested in the same department/field and are unwilling to let go? Next, you need to establish just how commitment is expected out of each partner, which is, yet again, subjective. You see, sometimes a person may be able to dedicate their full-time to the company, while in other situations this is only one of their many projects.

At the end of the day, you need to consider the ramifications of a single person failing to meet expectations set by the contract. If a single person fails to deliver, what is the way in which your business can resolve this? The last thing worth addressing, as well as the most important thing out there, is the fact that you and your partner share the same vision and goals for your business. This isn’t that easy to establish, especially not easy to mandate by a contract. Instead, try talking to your future partner candidly and decide on whether you should team with them, in the first place.

  • Ignoring industry-dependent contract-making skills

Another thing worth mentioning is the fact that when there’s an ambiguity in a contract, the court usually favors the party that didn’t compose it. Therefore, it’s always advisable to have a legal expert take a look at them before making things official.

On the other hand, you might also want to get a bit more in-depth when it comes to the needs of your own industry and the way automate this legal process once and for all. This also requires some knowledge of local rules and regulations. For instance, a building contract in Sydney does not have the same points and legal obligations as one in London.

  • Starting a company as a sole proprietorship

One of the simplest mistakes to make when starting a company is registering as a sole proprietorship, seeing as how this makes your personal assets vulnerable to any kind of mistake you make as an entrepreneur. For this reason alone, most entrepreneurs never recommend people this kind of corporate structure, even though this makes your tax scheme somewhat simpler to tackle. Another plus side of this lies in the fact that there are no legal documents or fees, apart from applying for permits and certificates.  

Instead, you should consider registering as a corporation (S or C), LLC company, limited partnership or at least a general partnership. Keep in mind that a structure you choose doesn’t have to remain indefinitely. For instance, you can start out as a sole proprietorship and upgrade to any other legal entity, which is a course of action that most startups take. Nevertheless, for the sake of transparency and easier transition, later on, it might be for the best to avoid this plan altogether.

  • Inadequate employee documentation

As a business, you’re responsible for your employees, as well as the documentation that they provide. For a new company, you might need some IRS and USCIS forms, as well as benefit forms for your employees. Finally, you also need an employee handbook, where you can set policies on vacations, internet usage and even conflicts of interest.

  • Protection of the intellectual property

Finally, you can’t allow others to capitalize on your good ideas, which is why you should trademark your logo, company name, marketing slogans and much more. The issue of intellectual property is one of the most important things for a present-day company, which is also why it needs to be addressed by skilled intellectual property lawyers.

In conclusion

Knowing how to tackle these legal issues may not be enough to get you completely out of the woods but it does have a potential to make your life significantly easier. This is especially true when we consider what’s discussed in the first segment. Ideally, you’d be able to agree on everything with your partners without any problems, yet, this is not a risk that you should be willing to take. The same thing happens with the intellectual property where you simply can’t afford to rely on honesty and lawfulness of strangers.