STARTUPS: Avoid these 5 Common Legal Mistakes

By : |April 15, 2016 0

Enterprises don’t set up overnight. Years of hard work and perseverance turn your entrepreneurial dreams into success stories. So it is obvious that you wouldn’t want that dream go sour just because of some administrative or legal blunders.

Law is the part of any business deal. See it as a cumbersome formality or as a tool to set things rolling right for your business, the point is you cannot ignore it if you aim at building an enterprise.

Avoid these five common legal mistakes and you are all good to go:

  1. Corporate structure is a must
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A solo entrepreneur might see forming a corporate entity for his one-man ship as an unnecessary complication. The reality is that by establishing a corporate structure, whether an S-corp, a limited liability company, a general or limited partnership, or any number of specialized entities, you protect your personal assets from any liabilities you incur in your business. This will also minimize your tax liabilities, and you can take advantage of other benefits afforded by the law.

 

  1. Intellectual Property rights

Many businesses falter here. You have a world-changing idea, a name for your business that will stick in customers’ minds like glue, and an eye-catching logo. Before you invest your energy and cash on any of those, make sure that you are not infringing on someone else’s intellectual property. You or your intellectual property lawyer should conduct thorough searches and other due diligence to ensure that your company’s business and branding don’t expose you to infringement claims or force you to make costly and disruptive changes down the road.

 

  1. Loosely defined roles and responsibilities

Two or three of you might be friends or may be relatives but when you are in business, follow rules. You and your partners all have the same dreams of success for your new business, but while everybody may be on the same team, failing to clearly define the roles each of you has in the business – who owns what, who does what, and who controls what — is a recipe for conflict and confusion. You and your co-owners need to have a written partnership or shareholder agreement that makes clear the respective rights and obligations of each owner.

 

  1.  No exit strategy

No one thinks about a divorce on their wedding day, similarly how you or your partners would go about leaving your business behind may be the furthest thing from your mind as you start your new venture. But things might go kaput, business partners can grow apart or have different goals as the years go by and may ultimately want to say goodbye or cash in their chips. Knowing how and when owners can sell their stake in the business, how much they should be paid for their shares, and who can buy an interest in the company is crucial. Have your attorney prepare a buy-sell agreement that addresses these back-end issues up front to provide for smooth transitions in the future.

  1. Legal DIY

As an entrepreneur, you like to do everything on your own. This attitude combined with your laptop tempts you to believe that your duo is invincible. You can do it all and your laptop becomes your lawyer too.But saving a few dollars upfront by not working with an experienced small business attorney can cost you significantly more in the long run.

Filling in some blanks on preprinted forms that don’t address your specific needs, goals, and issues can leave you exposed to a number of problems that an attorney could have helped you avoid. With so much to do and so many other things to worry about as you try to get things off the ground, get someone on your team who can bring you peace of mind and ensure that you are positioned for success.

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