5 startup legal mistakes to avoid
by Alex Williams
Running a business brings its own set of difficulties and obstacles, especially when running a startup business. Many startup owners are so focused on growing their business and developing a minimal viable product (MVP), that they tend to overlook other important business aspects. Most of these aspects are concerning legal rules and regulations required for a business to operate within the law.
These legal mistakes can be costly and may cause troubles that can even lead to business failure. Just because you haven’t launched your startup on the market, doesn’t mean you can avoid legal responsibilities for your business. As a matter of fact, the moment you decide to start a business is the moment you have to start taking care of those legal rules and regulations as well. Therefore, here are a few startup legal mistakes you should avoid.
Choosing the Right Business Structure
A business structure influences in many ways how your business will develop and grow. This is one of the biggest legal issues every startup owner needs to be aware of. If you choose the wrong business structure you may end up in legal trouble, and experience difficulties with hiring employees and growing your business. It’s possible to change a business structure later on, but it’s best to choose the right one from the start and avoid additional fees, paperwork and expenses.
For instance, many startup owners choose a sole proprietorship because it requires no formal documents or business registration. However, sole proprietorship brings a very high level of legal liability and the responsibility is solely on the business owner. That’s why you need to consider other structures such as a limited liability company (LLC), partnership, limited partnership, corporation and S corporation, and determine the best structure for your business. Aside from liability, a business structure determines licensing, permits and taxation as well.
Taxes are a common problem for many business owners. In fact, taxation ranks high on the list of concerns for small business owners in the U.S. each month. If you fail to properly register your business with tax authorities or if you miss out on tax payment you will experience severe legal issues and hefty fines. Moreover, avoiding taxes leads to tax litigation, which can result in your business being shut down for good.
That’s why you need to properly take care of your taxes and make sure you’re not late with payments. Also, make sure you understand tax payments and tax benefits that apply to your business structure so that you can organize your accounting processes and follow rules stated in the tax law.
Hiring employees is essential for your business, but hiring also brings new legal issues if you’re not careful enough. That’s why you need to clearly define the employer-employee relationship and define it in a contract. If you fail to do so, employees can make claims against you for various reasons, such as discrimination, injury, unfair firing, contract breach and so on. In addition, many business owners fail to obtain proper insurances for their business and, in most cases, workers compensation insurance is among them.
This insurance compensates employees if they get injured at work while, in return, employees forfeit their right to sue the employer. Without the insurance, you’ll face legal claims for every accident your employees have while working. If you do find yourself in such a situation, it would be a good idea to consult with a reliable expert in the field such as Bordas & Bordas personal injury lawyer to help you determine the extent of employee claims.
Every business owner is bound by federal laws and regulations to acquire licenses and permits for their business, including startup owners. Business licenses are necessary for your business to operate legally, while permits allow you to operate on the specific location under specific rules.
These permits and licenses can vary based on local jurisdiction and local regulations, but you’ll need to obtain them nonetheless. If you choose to operate without proper permits, you will find yourself in legal trouble. Furthermore, it’s important to know that licenses and permits have to be renewed occasionally and that if you forget to do so, you’ll also face legal issues.
Patents and Intellectual Property
The business world is a highly competitive place and many business owners struggle to protect their ideas. If you don’t patent your designs or forget to ensure your intellectual property (IP), you may end up losing everything to competition. This can lead to long-lasting and expensive court battles in determining who’s right or who stole what.
Moreover, it’s important to check whether your brand-new product design or idea is already a part of someone else’s IP. The main reason is that competitors often save their patents and IPs for later use and if you violate their IP with your product design they will sue you for a large financial compensation.
Legal mistakes can bring a whole lot of trouble to any business. If you fail to follow certain regulations or unknowingly forget to obtain a license for your business you’ll face legal issues that may cost you more than you realize. Reaching business success isn’t just about rushing to get things done, but about doing things the right way in order to avoid unnecessary risks and legal mistakes.
About the Author
Alex Williams is a journalism graduate and an enthusiastic blogger. She believes writing for blogs is the perfect opportunity for presenting herself to wider audience. She is a regular contributor at Bizzmark Blog. Follow her on Facebook and Twitter.
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