3 common legal mistakes to avoid as an entrepreneur
Entrepreneurs should be wary of various business and legal challenges before launching new startups. Unfortunately, many entrepreneurs don’t consider legal aspects to be important for a successful business. However, legal mistakes can make the difference between succeeding and failing for new ventures.
Generally, startups have low success rates, with almost 50% failing within their first five years. Among the 50%, more than 23% close due to legal mistakes. Below are common legal mistakes you should avoid when setting up your business.
1. Not consulting a lawyer
Most startups and business owners ignore the importance of consulting an attorney as they set up their business. However, legal input is essential, and can boost a business’s competitive advantage, especially for entrepreneurs who balance potential risks and opportunities in the market.
Most entrepreneurs believe the misconception that getting legal advice is complicated and expensive. However, as the business grows, so do the legal requirements that should be adhered to. Running your business without proper legal advice can lead to several problems. Lawyers like Attorney Sarah S. Shepard help entrepreneurs and professionals start their businesses without legal pitfalls.
2. Incorporating their business
Most startups in the U.S are sole proprietorships, which means the owners and businesses have no legal distinction. However, using this business structure has several drawbacks, such as unlimited liability and difficulty in procuring financial credit.
Opting to incorporate your business means that it becomes an entirely separate legal entity that generates income and assumes tax and legal liabilities.
Along with reducing tax liabilities for entrepreneurs, incorporating the business eliminates the risk of exposing personal items, such as houses, cars, and bank accounts to legal processes if the business is sued.
If you decide to incorporate your business, make sure that you choose the correct business entity. You can incorporate your business as a non-profit, limited liability company, general partnership, C corporation, or S corporation.
Each business entity has varying legal liabilities, procedures, taxation measures, and expenses. Consider your present and future needs when choosing a business structure. You can easily choose by consulting an attorney and a tax advisor.
3. Protecting their intellectual property
Protecting intellectual property should be among the many things startups and small businesses should do in 2022. Startups should protect their intellectual properties, including patents, trademarks, copyrights, and trade secrets, as they are critical in fostering business innovation. Failing to protect your business ideas may prevent you from enjoying the benefits of these inventions in the future. Intellectual property also differentiates you from competitors.
Other common legal mistakes that starting businesses make include ignoring employment best practices, not formalizing their agreements, ignoring tax considerations, and not maintaining proper documentation. While these mistakes may seem minor, ignoring them may lead to serious legal consequences. Fortunately, you can avoid these challenges by hiring a legal expert.