Starting your own small business can have a lot of appeal. You make your own schedule, you can do what you love, and you’re now your own boss. You have unlimited growth potential and you can pursue your goals as an entrepreneur. But there are downsides, like legal mistakes. You are responsible for the success of your business, and there are always challenges you need to overcome. If you’re looking into how to start a business, there are many great resources online that can help.
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Avoiding Legal Mistakes in Business
Whether you’re just starting out or still in the planning stages, or maybe you’ve been up and running for a short while, make sure you avoid these five big legal mistakes that can sink your small business and your dreams along with it.
1. Incorporate Before It’s Too Late
One of the most common legal mistakes in business is not incorporating. In an age of constant lawsuits and rights grabs, you want to protect yourself and your personal assets. Don’t let your house or property or assets be seized in a legal dispute or lose all your savings to pay legal fees. While incorporating a business does involve a lot of paperwork and dealing with bureaucracy, it’s the safest option in the event of future legal battles.
Your personal wealth and business revenue should remain separate, which also helps with your tax situation when you own a business. Incorporating your business offers you protection from liability and corporate debt. In the event of bad investments or lawsuits, the company takes the hit instead of your personal assets.
2. Stick To Your Agreements
It’s important to establish solid, organized documentation for all business agreements. From a founder’s agreement that lays out what rights and responsibilities each partner in the business have, to contracts signed by independent contractors for goods or services, you want your paperwork in order at all times.
You will undoubtedly need to settle disputes between individuals within your business, including founders, so it’s vital to have a system in place that lays out each individual’s role, benefits, duties, and terms of contract.
If you use outside vendors, an agreement template will save you from having to reinvent the wheel each time you need to issue a contract for services rendered. Templates that are pre-vetted by a lawyer or legal firm, especially if your company requires NDAs for doing business, can prevent costly legal mistakes in business or misunderstandings later on.
3. Protect Your Intellectual Property Rights
Your IP is valuable, and you don’t want to carelessly let someone else — whether an individual or a corporation — take advantage or steal your intellectual property. Registering copyrights and trademarks for your patents, logo, designs, and other IP in any countries you intend to do business in will protect your company and can help settle disputes that might arise in the future.
This includes establishing your website’s terms of use, especially if you sell products or services directly from the website.
4. Guard Your Employees and Your Business Against Legal Action
You don’t want to get hit with fines or legal disputes filed by disgruntled employees due to breach of contract or misunderstandings in a small business relationship. Have every agreement put on paper and properly signed. This includes business contracts and hiring agreements, which may include non-compete clauses for an employee. Don’t rely on an oral agreement, since there is little way to corroborate this if one party disagrees with what was supposedly agreed on.
NDAs and waivers are documentation that needs to be formally signed and kept secure. If an issue arises much later, or after an employee has left the company, you are better prepared to protect yourself and your business by having all your files and documents available and organized.
5. Secure Legal Advice
When you look into how to start a small business, securing legal advice might seem expensive and intimidating — after all, if you’ve done your research and have all the proper documentation, why would you need additional legal counsel?
Because starting a business is a huge endeavor, and you want your venture to succeed. Retaining good legal advice at the onset means you won’t be caught unprepared in the future if legal trouble arises. Hopefully, this will never happen to your business, but unfortunately, it’s more likely than not. Having a legal advisor comb over your employee agreements, IP copyright and trademark filings, business contracts, and founder’s agreements will prepare you for challenges that arise.
Better to be prepared than risk losing money, time, or even your whole business to potential lawsuits. Securing legal advice now, when you’re just starting, is an investment that will pay off in years to come.
Becoming a small business owner or joining a startup offers fantastic potential and opportunities to do what you love. Take the time to secure your IP, solidify your business agreements and documentation, properly incorporate your small business, and you will be on your way to a successful venture where you can thrive.
