When launching a new startup, owners often make mistakes that ultimately cost them a fortune in the future. Some of them can be fatal for the business as it prevents the company from raising capital.
But if you learn what these mistakes are? And how to overcome them? You will do yourself and your startup a great favor. Below, we have compiled some common legal mistakes made by a startup that leads them to a downfall.
1) Not registering the name
Even if you are a sole trader or a corporation, your business entity should have a name. Do make sure that no one else is using the same name as your company. In any business entity, your name should not clash with others in the market, as it can cause certain problems.
Having a unique name will help you avoid any trademark infringement issues and other legal concerns. So before you decide on what you will name your startup, consider the points below:
- Do a Google search and check domain availability to see if the name is not taken by anyone else.
- Look out for the US patent and trademark site to check for any trademark registrations similar to your proposed name.
- Pick a name that is easy to spell, unique and memorable.
2) Not choosing a business structure
Business owners are usually not focused on building a business structure and postpone it till the startup becomes operational. But your business must have a structure that will help you save money, taxes, and delegate tasks.
Take your time to consider all the options, including sole trader, LLC, Partnership, and Corporation. Choose the company structure that best defines your business. Do keep in mind that you should choose a structure that can accommodate growth. For instance, forming an LLC will prove to be more beneficial in terms of growth than sole trading.
Moreover, if you are working on a partnership, ensure that all the partners are happy with their roles. A detailed written agreement should be signed to prevent any type of problems in the future.
3) Hiring the wrong way
One it comes to hiring, every startup wants the best employees. But they often fail as they adopt the wrong hiring procedure that results in poor performance. You must have proper documentation before your hire staff. These documents include USCIS Form I-9, IRS form, W-4, and offer letters.
Take time out to prepare these documents when you begin your startup. It should contain job description, responsibilities, salary, and vacations detail so that candidates know what they are signing up for. It will help you avoid any legal problems that might harm your business or strain your relationship with employees.
4) Not having a business lawyer
There is going to be a lengthy procedure of sorting business documents, answering legal questions, and reviewing the contracts. You might not be aware of the business laws and rights that can put you in a difficult situation. But you can easily hire a business lawyer nowadays that will meet all your legal needs.
The lawyer will also help you out with decision-making and meeting legal requirements. Startups now see lawyers as an integral part of their long-term plans and consider them key for growth.
5) Failing to protect intellectual property
To save the company’s intellectual property, safeguards should be in place for patents, copyrights, and trademarks. Ensure that you have the patent and trademark for the service or product you are offering, otherwise, the weakness can be exploited by competitors.
Another protective measure is that you make the workers sign the Non-Disclosure Agreement before you bring them on board.
6) Not paying employees on time
Startups often ignore the obligation to pay employees on time or not paying at all. It can be due to the economic crisis, lack of funds, or management issues. These issues need to be addressed appropriately as they can disrupt the organization.
Most states have laws where the employees should be paid within a timeframe and according to the contract the company offered. Failure of compliance can lead to a high labor turnover. And not to mention, your business can be sued by the labor court.
Final thoughts
If you can avoid these common mistakes, you can easily enjoy a much smoother start. The chances of failing will reduce drastically, and you can operate your business without any worries about legal compliances.
