8 Legal Mistakes Start-ups Should Never Make

The risk factor is more when starting a new business. Along with financial hurdles, there are other concerns too that startups have to keep in mind. However, with a lack of experience and guidance often, startup businesses end up committing mistakes they should have avoided. One such common area of error is legal matters. Though adhering to business law is crucial; however, startups don’t pay enough attention in the beginning to legal issues and so commit legal mistakes that disrupt their smooth functioning.

Here are the eight common legal mistakes that every startup entrepreneur must avoid:

  1. Not Registering Company Name

Registration of your company name is an essential legal formality which often startup businesses avoid or delay. Before you start designing brand logos, website, and print business cards, you must lock the company name following legal procedures so that no else can use the same name. The name you select for your startup should be registered first before proceeding further with your business plans and other strategies. However, startups get busy with other stuff and often forget to register their company name legally.

  1. Not Finalizing Any Business Structure

While starting a business, entrepreneurs often pay more focus on what should be the concept of their business. However, what they miss out is selecting the structure of their startup business. It means they forget or avoid a crucial legal step that is choosing the company structure, which can be either an LLC, sole proprietorship, corporations (both S and C corporations) or partnership. This is where startups go wrong with their legal procedures.

Finalizing the structure of a startup business right from the beginning is a must as it helps to lay the foundation of future plans. Also, if starting a partnership business or an LLC, having the partner agreements clear and ready defining everyone’s role and share is equally important.

  1. Not Drafting a Standard Contract

Initially, as there is less number of customers, so startups don’t feel the need to have a standard contract that all its customers need to abide and adhere to while doing business. However, the scenario isn’t going to be the same. If you have future growth and expansion plans, then the need for having a standard contract that streamlines every aspect of the deal and legally protects your business arises. That is when startup businesses must connect with lawyers who can help them create a contract that will be fair and favorable for your business.

  1. Not Protecting Company Insights with the Nondisclosure Agreement

When starting a business, you are not alone to do everything. At various stages, you may have to work with a lot of people, including customers, employees, and partners. And while doing so, you may need to share valuable business insights with them. This is when the need for having a nondisclosure agreement arises. It helps you to protect the information you share with others and let it remain private as people signing this agreement is legally entitled not to disclose any information about your business to anyone. However, startups often miss out on drafting an NDA or nondisclosure agreement and later may face the consequences for the same. So, be wise and don’t let any loopholes stay back that may harm your business.

  1. Improper Documentation While Hiring

Every company is keen to hire the best and the right employee for their business. Employees are an integral and key part of successful business ventures, and so even startups invest more focus and time on getting the right people for running their business operations. However, equally important is documentation when businesses hire employees. The employer needs to collect all the necessary documents from the employee as missing out any may be a headache later. Startups in a hurry to get as many good employees on board as possible, they pay less heed to proper documentation procedures. This practice has to change as it may bring troubles in the coming days.

  1. Not Adhering to Securities Laws

When starting your own business, you may be excited and think of giving out company stocks to friends, family, and other investors. It sounds great, and you are eager to share your business plan with stockholders. But before issuing stocks, you need to make sure that documents in relation to securities law are a complaint. You may need to get filings, disclosure, and forms done. Search for attorneys and get in touch so that they can help you with the necessary documentation and strategic planning for the same. If you make the mistake of not adhering to securities law while starting your business, you may have to incur heavy penalties later.

  1. Not Taking Legal Help

Setting up a business requires you to fill important documents and also legal formalities. There may be time later as well when at different stages, you may need to answer legal issues and disputes. So, right from the start of your business, you must hire a lawyer who can help you meet compliance and adhere to legal commitments.

  1. Failing to Protect Intellectual Property

Copyrights, patents, trademark, and trade secrets are the four key elements of intellectual property. You need to protect all of these intellectual properties with proper legal procedures as failing to do so may threaten your claim over your business.

Author Bio:

Angelina Smith is a marketing consultant with 15 years of experience. Currently, she works for eSalesData LLC, a renowned database service company based in Fremont, CA.

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