ENTREPRENEURSHIP / MAR. 28, 2015
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5 Common Legal Mistakes for Startups

Starting a business requires making very important decisions which have legal implications. The kind of choices you make at the onset will either make or break your business. Here are some of the common mistakes startups should avoid:

See also: 7 Business Funding Mistakes Startups Should Avoid

1. Selecting the wrong business entity

When starting a business, you will need to choose what kind of business entity to register. This business entity you select will determine the legal and tax implications you will have to deal with later. Some of the most common business entities are:

  • Sole proprietorships
  • Corporations
  • Partnerships
  • Limited Liability Companies (LLC)
  • Small Business Corporations (S-Corporations)

To avoid making the wrong choice, it would be advisable to consult an attorney for legal advice.

2. Failing to obtain registrations and licenses

The kind of registrations and licenses you will require will depend on the kind of business entity you are establishing. Some of the licenses you might require include a health and sanitation license, a state license, a municipal business license, and a fire inspection permit. Visit your local government office or chamber of commerce to find out what licenses and permits are required in your area. Failing to pay what is required could result in hefty fines or even the closure of your business.

3. Not protecting intellectual property

Intellectual property refers to ideas, inventions and formulas which have been originated by your business. Failing to protect your intellectual property means that someone else can steal your idea and make money from it. The three main ways of protecting intellectual property is through patents, trademarks and copyrights. A patent prevents others from creating and selling an invention which is originally yours. A registered trademark is a device, symbol, name or word that acts as a ‘badge or origin’ for your goods and services. Copyright is protection offered to creators of original artistic works such as paintings, film and music. It could also apply to other works such as databases, website layouts and software code. The copyright protects the expression of the idea, rather than the idea itself.

4. Illegal HR practices

Most countries have laws which govern how companies should handle HR matters like recruitment, pay and benefits, promotions, discipline and discharge, as well as training. For instance, it is usually illegal to discriminate employees on the basis of religion, color, disability, race, sex, and pregnancy. In addition, there are laws regarding employee benefits, insurance, and retirement programs. Failing to adhere to these regulations could result in negative repercussions for your business.

5. Not getting legal counsel

Many entrepreneurs find the cost of legal advice to be too prohibitive. As a result, they take the cheaper option of researching on their own and asking people for their opinions. As a result, some of these entrepreneurs find themselves making costly mistakes due to inaccurate or insufficient information. Therefore, it is very important to include attorney fees in your startup budget. In the long run, you will be grateful that you sought legal counsel from the onset.

See also: 7 Things You Need to Start a Business

Did you make any of these mistakes when starting your business? Please share with us in the comments section below.

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