How to Avoid Common Legal Mistakes as a Startup Business

You might be a startup business, but that doesn’t mean you’re exempt from legal mistakes.

Startups face competition for resources and services, which can lead to making costly errors in your business’s legal affairs.

Here are the most common legal mistakes you’ll want to avoid.

Unclear Deals with the Co-founders

Don’t wait until after you’ve started your business to plan for the worst. Ensure all co-founders or partners are on the same page and know what will happen if there’s a conflict down the line. 

Draft an agreement with what each partner should do in case something happens, so it doesn’t turn into a legal battle.

Not Starting as a Corporation or LLC

It’s a common misconception that it isn’t worth the trouble to incorporate your company if you’re just starting out. However, incorporating can have many benefits, including protection from lawsuits and creditors. 

Shareholders can’t take over or sell their shares without the unanimous consent of other shareholders depending on how well things are set up.

In case you encounter a shareholder dispute when dealing with selling of shares, be sure to contact Wichita commercial litigation law firm for the best litigation services. 

Choosing a Company Name With Trademark and Domain Name Issues

Avoid choosing a business name that’s already been taken or is trademarked. This can confuse customers and may lead to legal claims against you. It’s essential to own your domain so it won’t be confusing for people trying to reach your website, which will lower the chance of being hacked.

Failure to Account for Tax Requirements

If you’re in the United States, there are many tax requirements to follow. Failure to do so could result in penalties or fines, which can be costly for your business and take away from valuable resources that should go toward running your company.

Lacking the Proper Legal Counsel

Without professional legal counsel, it’s hard to predict what can happen and how a law will affect your company. You must have someone who have a clear understanding of the law, which is why having an attorney on retainer is a must.

Failure to Maintain Corporate and Human Resource Documentation

Maintain all the corporate and human resources documentation including keeping a list of board meeting minutes, financial reports, agreements with partners or consultants (including any NDAs), employment contracts for executives, and more.

Not Getting the Correct Permits and Licenses

If you’re opening a new business, then you’ll deal with a lot of permitting and licensing. Register for the appropriate permits or licenses depending on what type of company it will be. 

Unfavorable Contracts

Make sure the contracts you sign are favorable to both parties. Always have a lawyer review any contract before signing it because they will indicate any potential issues with language or loopholes for one of the parties.

Failure to File Taxes and Pay Back Taxes on Time

Ensure all your tax paperwork is filed and paid in full. Consider having a tax accountant on retainer so they can help with filing taxes, paying back taxes, or even setting up an appropriate retirement plan for your employees.

Failure to Maintain Insurance Policies

Maintain insurance policies for the business including liability, property, employee benefits, medical and dental coverage, disability coverage (if applicable), and car or home office equipment insurance. 

Cover your employees with appropriate employment packages that include health and life insurance, so they’re properly taken care of.

Failure to Take Time Off

Take time away from work to avoid burnout and decreased productivity. Ensure your employees take enough vacation days, work remotely in some cases, or use their PTO.

Failure to Maintain Contracts with Partners and Vendors

Keep all contracts with partners and vendors safe in case things go wrong. This is helpful if you need to involve a lawyer or even sue them in the future.

Failure to Have an NDA

If you set up business deals, then you must always have NDAs. These include everything from confidentiality agreements for customer information to NDAs with employees.

Failure to Trademark Your Logo

Trademark your logo ASAP to prevent other companies from using a similar design, phrase, or slogan as yours and ensure your business is protected legally.

Failure to Have an Emergency Fund

As a business owner, you must have an emergency fund if anything happens, such as layoffs or natural disasters. This extra savings will prevent you from going into debt when you need money fast.

Failure to Maintain a Board of Directors or Advisors

It’s crucial to have someone from outside the business who you can bounce ideas off of when in doubt and has experience running companies. An advisor gives better advice about what should be done next for your own business. 

Failure to Have an Agreement on IP Coverage

Make sure your employees know what they’re allowed to use and what they’re not allowed to reproduce. You want them to work on things that will benefit your company, but you also need legal protection if someone decides to steal from you or infringe upon any of the IP rights.

Failure to Have an Employee Handbook

Many companies overlook this necessity when starting, resulting in disgruntled employees and a hostile work environment. Set up expectations of each employee, so they know what’s expected from them and how you’ll measure their performance.

Failure to Register All Domains

Don’t neglect to register any domain names you need for your company. Every time you take a domain name, it essentially costs more money to buy one later on or find another that isn’t trademarked or already claimed by someone else.

Not Having a Business Bank Account

Set up a separate entity for the business to be registered with the government. This allows you to keep your personal funds from being mixed or tied up in what’s happening with the company, which could happen if there was no separation.

Failing to Pay Employees on Time and Properly

It’s imperative to pay employees on time and properly because it can lead to quitting or even filing a complaint of wage violations. Make sure everyone gets their paycheck on time.

Not Having a Plan for What to Do After Fundraising

When you exhaust your funding, how will you continue to grow if there’s nothing in place? Have a contingency plan that includes multiple sources of revenue or a method for keeping the company running if you don’t have funding available.

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