Entrepreneurs are always looking for ways to maximize value and reduce overheads. Although there are many effective ways to do this, eliminating legal services from your budget isn’t.
The legal side of business is incredibly complex, especially for a newbie entrepreneur. Using DIY documents and reading legal advice online is a strategy that could cause trouble down the road. Even a single small mistake will result in huge costs, which could put you at risk of going out of business. With that in mind, here are ten huge legal mistakes all business owners must avoid.
#1: Not Knowing Legal Basics
The biggest legal pitfalls to watch out for are those you don’t even know about. Despite the adage, what you don’t know can hurt you. In fact, it could cause your business to go under. New entrepreneurs have a lot to learn, especially regarding legalities. Buying the right insurance, documenting agreements correctly, and following tax rules doesn’t happen unless you know your stuff. Although you should learn the basics, be sure you team up with business law experts too.
#2: Not Using Experienced Counsel
Many entrepreneurs try to avoid splashing out on experienced legal counsel. Instead, they turn to online resources or rely on the advice of friends and relatives. In doing so, these entrepreneurs deny themselves the legal expertise they need to avoid many legal issues later. Law isn’t something you can improvise on, especially where a business is concerned. To protect your new venture, you must conduct research to find experienced legal counsel you know you can trust.
#3: Not Leaving Your Employment
When you first launch a business, most people would advise that you remain in employment. After all, there are no guarantees that your business will be successful. Having a day job to fall back on can take away some of the pressure you might have felt. That being said, you shouldn’t start a competing business while still employed. If you intend to compete with your employer, you must review your employment contract and make sure that you won’t be sued as a result.
#4: Not Incorporating Early Enough
A forgotten founder is a partner involved in starting a business but subsequently drops out. This person then returns to the company as it launches, usually with bigger ideas of what their contribution was. They then demand equity for their contribution, causing problems for other founders. Thankfully, this issue can be eliminated. Incorporating early and issuing shares to each founder should keep forgotten founders at bay, as well as prevent potential tax issues.
#5: Not Writing a Will
No one wants to imagine what would happen if they were to die. However, as a business owner, you absolutely must do. Unless you prepare for the future, the business you’ve worked hard to build could end up in the wrong hands. You must write a will to ensure that your wishes are heard. In some instances, you might wish to hire a probate attorney too. Even when a will is present, probate must be used to prove its legitimacy, as well as oversee its proper execution.
#6: Not Documenting Oral Agreements
Documented agreements are crucial for all entrepreneurs. Although oral agreements and handshakes are binding in many cases, they are almost impossible to prove. Two well-meaning partners could easily disagree on what was decided during a meeting, which might result in huge problems later. The document you make doesn’t have to be complicated, but it must be detailed, explaining the parties involved and what was agreed upon. An attorney can draw contracts up for you.
#7: Not Having Adequate Filing
When a contract is drawn up, it must be taken care of. There should be a clear record of your venture’s activities from the very start. Losing or hiding a document would put the company at risk. This is because it’s usually very clear when something is missing. Because of this, you should make an adequate filing system. Make sure you also have several copies of important files. Storing documents on the cloud is not only more secure but more eco-friendly too.
#8: Not Protecting Intellectual Property
After developing a unique service, product, or technology, intellectual property should always be protected. This would ensure that your company earns the reward for your efforts. There are various protective measures inventors have to use. Most commonly known are trademarks and copyright, but there are patents, confidentiality agreements, and more too. An experienced lawyer can ensure that your intellectual property doesn’t infringe on another party’s rights.
#9: Not Following Employment Laws
It isn’t uncommon for entrepreneurs to launch ventures alone. However, you might eventually require employees to help carry the workload. Hiring your first employee is a huge milestone and a complicated one at that. Many business owners make mistakes that break employment laws. Misclassifying team members is a blunder you don’t want to make. By wrongfully classifying a staff member as an independent contractor, you might avoid paying taxes you’re required to. If you aren’t sure what category a team member belongs in, then ask an expert for advice.
#10: Not Dealing with Problems
Assuming that a legal issue can be resolved later is incredibly dangerous. By ignoring a problem, you not only fail to fix it but could make it much worse. Many legal issues get bigger over time, requiring more effort and a larger investment to be resolved if they can at all. Delay in addressing the hard problems can easily kill a business in its early stages. Because of this, you must have experienced lawyers by your side that you can turn to whenever you need legal help.
The legal side of business certainly isn’t simple, especially for new business owners. However, that doesn’t mean you can overlook it. While there are many ways to lower overheads, attempting to DIY business law, or, worse still, pretending it doesn’t exist, could ruin your venture. There are many legal mistakes that entrepreneurs make, but, hopefully, with the advice above, you can avoid some of the biggest ones.