5 Common Legal Mistakes To Avoid When Starting A Business

Starting a new business is challenging.  There are so many so many decisions to make before you even open your doors.  You want to start off on the right foot.

Here are 5 tips to avoid common mistakes when starting a new business.

Mistake # 1 – Not consulting an attorney and accountant

Starting a business is a team sport.  At a minimum, you need an attorney and an accountant on your team.  Why?  Because they have specialized knowledge about important legal and tax matters that the average entrepreneur lacks.

Yes, you can glean valuable knowledge from internet sources, such as Nolo and LegalZoom.  These, however, are general in nature and do not address your specific situation, industry, risk tolerance, budget, and long-term goals.

I have helped many businesses correct fundamental legal mistakes that occurred when they relied on fill-in-the-blank legal products.  Don’t fall into the trap.  My firm, Concerto Law, offers reasonably priced, flat fee services so you can find peace of mind when starting your business.

Mistake #2– Failing to put it in writing

If the business will be owned by more than one person, you need to have a written founders’ document.  If you create a corporation, you need a shareholders agreement.  If it is an LLC, you need an operating agreement.  If it is a partnership, you need a partnership agreement.

Why are these so important?   Because these documents define who owns the business, what their rights are, how much voting power they have, how they can exit the business, and much more.  When you skip this step and rely upon a handshake and a prayer, you put your investment and your personal assets at risk.

Concerto Law has seen the aftermath of entrepreneurs who skipped this step.  While it makes for very interesting legal work for the firm, it is very costly to your business.  Avoid future legal fees with a bit of preplanning.

Mistake #3 – Equal Voting Rights

Yes, it seems fair if everyone owns an equal share in the business.  But what happens when you disagree and there is a tie?

Here is what occurs in the real world.   X and Y decide form an LLC.  They have equal ownership and equal voting power.  Sounds good so far.  Business goes on smoothly for several years until X and Y have a serious disagreement about whether to launch a new product.  With equal voting power, no one vote wins and the new product never launches.  A competitor swoops in with a similar product and the market is lost forever for X and Y.

Don’t make this mistake.  An experienced attorney will develop a mechanism for dispute resolution that is right for your business.

Mistake # 4 – Ignoring intellectual property

Before you start a business, verify you will not infringe on another’s intellectual property.  Have your legal team search copyright, trademark, and patent databases.  You want to know whether someone else is already using the business name, logo, slogans, and other branding items you have selected.

Do not waste time, money, and emotional involvement developing a brand only to find you cannot use it.

Likewise, don’t forget about your own intellectual property.  Your brand is valuable.  Protect it by regularly searching for infringers.  Actively defend your copyrights, trademarks, and patents with cease-and-desist letters or legal action.

With so much occurring during the start-up phase, entrepreneurs often overlook intellectual property.  Unfortunately, the consequences can be devastating and expensive.  Do yourself a favor and make intellectual property a priority.

Mistake # 5 – DIY legal agreements

Yes, budgets are tight when starting a new business.  It is tempting to use DIY templates from the internet.  Unfortunately, these fill-in-the-blank templates are almost always not suited for your business.  I have seen clients grab a template using laws of another state.  Some have borrowed templates that leave out key provisions or ones that fail to address an unusual quick in Pennsylvania law.

Someone said an ounce of prevention is worth a pound of cure.  That is especially true in the world of start-up businesses.  Luckily for you, Concerto Law offers predictable pricing for most of your start-up business needs so you don’t receive a surprise legal bill.

 

 

 

Concerto Law is still open to help you! Call or e-mail today for answers to your legal questions (or just to talk to another human if you are feeling isolated!).

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