Avoidable Legal Mistakes Made By Startup Owners

When you’re running a startup, especially if it is a small one, you’re probably trying to “go with the flow” so you could stay on the budget while you’re building up your business. It can be a bit hard to keep track of absolutely everything, in these situations, and one of the worst things that can happen is to face unexpected legal issues. Dealing with something like that, on top of every other thing you have to think about is not only challenging, but also quite risky.

We did a bit of researching, and we’ve come up with this short guide through some of the most common legal mistakes and issues startup owners tend to make. Some of these mistakes are a bit more challenging to avoid, but with proper knowledge and organization, you can easily avoid them along the way. So, let’s dive straight into it.

Waiting to Get in Trouble without Legal Protection

One of the most important things that are commonly forgotten by numerous startup owners is protecting their assets.

One of the most important things that are commonly forgotten by numerous startup owners is protecting their assets. In the business world, this can lead to the end of their company. If you take a closer look at the legal system, you will notice countless lawsuits aimed specifically to cause a financial windfall for a number of companies. If you would like to avoid this, you need to implement your legal protection in your business plan at the very start.

You can protect your assets by not having them held in your name, but instead, they are considered as your company’s assets, you won’t lose them if you lose a lawsuit. Of course, there are always few exceptions, and you should talk with a legal professional before you make any decisions, but there are lots of benefits of protecting your assets legally.

Of course, if you get sued before you protect those assets, there’s nothing you can do. You can’t change the ownership of the assets once the lawsuit is filed so you will need to consider thinking ahead. There are various ways to adapt your business and ensure its protection, but you have to be prepared in advance.

Not Selecting the Proper Legal Entity

Another quite common mistake most startups go through is picking the wrong entity. This, in turn, affects the way how books are being kept, how taxes are being prepared and how much income their business will generate. This decision is probably one of the most important ones, so it should be made after a lot of planning. There are some general guidelines you should follow when deciding on what type of legal entity to select for your business.

When starting a business, don’t do it as a Sole Proprietor, as this can leave you quite vulnerable to unlimited personal liability. You should also avoid using C Corporation for any kind of real estate investing, as it costs double in taxes almost anywhere in the world. Another thing to keep in mind is that when you’re operating as a General Partnership your liability risks double, without any reward. Keep these things in mind when deciding how to handle your business. This step is essential for almost anything you do in the future, so take your time and make sure you’ve reviewed all of your options. Consult a professional and try to learn all the factors necessary for the success of your startup.

Having Improper Employee Contracts

When it comes to your workforce, it doesn’t matter if they are a couple of your friends helping you out, or they are full-time employees, their status has to be clearly defined by a contract. In order to minimize disputes, and ensure your workforce is fully focused and hardworking, you need to set the rules and make sure that they are followed.

Employee contracts define everything necessary for an employee to do their job. They specify working hours, salaries, all the necessary requirements, including leaving requirements. This allows both parties to know exactly where they stand at any given moment, without endangering the business itself. Without these contracts, employees don’t have to abide by any rules, and they don’t have to follow expectations. Another thing to consider is that having an employee with no employment contract can be considered illegal.

Employee contracts also clarify how you deal with the foreign workers. It’s not unusual to have an employee that comes from a completely different corner of the world. Whether he’s a specialist or a regular employee, there are some steps you simply have to follow to ensure the legality of this process. You should learn about the entire procedure, and what’s necessary to have a foreign employee in your workforce. Consult professional and licensed immigration agents, talk to legal consultants and find the best possible way to avoid endangering your business. Make sure you prepare in advance, as it can be impossible to get out of trouble once it has already started. Keep a cool head, make as many drafts as possible, and contact legal professionals to help you stay on top of your game.

Running a business has a lot of legal ‘speed bumps’ along the way and the only way to deal with those obstacles is to have a solid plan. You will need to find someone who can help you out with all types of legal issues if you want your business to grow and succeed. Keeping your startup safe and protected should be one of your priorities, so don’t be too proud to ask for help. Focus your time and effort into protecting your business, and you will avoid all of the mistakes we’ve mentioned in this article.


Nick Brown
Nick Brown
NICK is a blogger and a web developing experts whos search for knowledge does not stop 24/7. He is an aspiring street artist and does Audio/Video editing as a hobby.

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