4 Big Startup Legal Mistakes Entrepreneurs Tend to Make

startup legal mistakes

Learning from your own mistakes is one of the best ways to improve yourself. However, you would not like to fail a business due to some startup legal mistakes. Let’s see what those mistakes are and how to avoid them.

Not choosing a business structure is a startup legal mistake that some entrepreneurs make. Sometimes, people are so overwhelmed with the idea of a startup business that they forget to define its structure. However, choosing an LLC or a corporation might help save you money on taxes. Also, it’s always useful to clarify the ownership structure of a business. So, take your time to choose between the following:

  • Limited liability company (LLC)
  • Corporation (S and C types)
  • Partnership
  • Sole proprietorship

When starting an LLC or partnership, it’s vital to have member agreements too. Everyone should know their role and share in a business entity. You can read more about the types of business structure to see which one fits your business model.

Another common legal mistake that entrepreneurs make is not registering a name. Ideally, registering a business name should be your second step in starting a new business. Often, startups go quite a big path until they realize that there is already someone else with the same business name. And then copyright issues might arise. To avoid them, it’s necessary to conduct a name check, find a unique name that describes the business and register it. And only after doing this, you should start thinking about a website, a domain name, a logo, and a business card.

Not having a non-disclosure agreement in place is something really bad. When thinking about how to start a business you are most likely to meet different people. Of course, it’s OK to tell them about your ideas and to get advice or estimates from them. However, skipping a non-disclosure agreement (NDA) is a startup legal mistake you should not make. An NDA will help keep your business-related information secret.

One more legal mistake by startups is not hiring employees correctly. Since entrepreneurs rush to find the right team players, they often forget about proper documentation when hiring those players. However, it’s important to consider such documents as:

  • Employment agreement
  • USCIS Form I-9
  • IRS Form W-4
  • Offer letters
  • Employee handbooks
  • Benefit forms
  • Job tasks and related procedures

Also, it’s important to see the difference between an employee and an independent contractor. If you misclassify an employee, you might have to pay serious penalties.

As a conclusion

In fact, you will never make the aforementioned mistakes if you hire a business lawyer. Another benefit is that a lawyer will answer all your legal questions and review your documents when needed. Starting a business might be overwhelming at times, but you will be able to overcome the anxiety with an experienced lawyer by your side.

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