You have an excellent product, you’ve mastered the service you offer and you excel at running your business. But when it comes to the legalities behind the scenes, this isn’t exactly your forte. That’s what corporate lawyers and legal advisors are for but unfortunately, not every entrepreneur takes advantage.
Take a look at a few of the most common legal mistakes made by entrepreneurs.
1 – Choosing the Wrong Organizational Structure
Sole proprietorship, partnership, limited liability company, corporation – there are many organizational structures available to entrepreneurs. At their very core, companies differ in their composition and sometimes it can be difficult to determine the best structure for your business. Many entrepreneurs incorporate too early, too late or set up the wrong organizational structure altogether. Such errors can mean tax overpayments, and hefty accounting and legal bills.
2 – Hiring a Lawyer Who Isn’t Experienced with Entrepreneurs
It’s good business practice to surround yourself with the right people. A legal attorney referral from a friend or family member may not always be the best option. Does this lawyer engage in corporate law? Do they work with entrepreneurs like yourself? Are they familiar with the ins and outs of business from a legal perspective? Choosing an inexperienced or unspecialized lawyer can result in poor advice, wasted time and lost money in the long run.
3 – Disclosing Inventions or Proprietary Information Without a Patent or NDA
Just because you’re a trustworthy person, doesn’t mean everyone you come in contact with is too. Always put your own personal protection and that of your business first. No matter what the opportunity or what the circumstance, by no means give up innovative or proprietary information without legal backing first.
4 – Starting a Business Without Confirming Your Eligibility to Do So
Perhaps you’re still employed by a potential competitor within the industry, or maybe you’re bound by a non-compete clause in the employment agreement you signed way back when. Before you launch your company, be sure you aren’t in violation of any legal arrangements which may result in costly lawsuits down the road. If you address these issues prior to any formal business setup, you have options.
5 – Thinking Legal Problems Can Always Be Solved Later
Once you become self-employed, it quickly becomes apparent how little time you have to complete important tasks on a daily basis. This often leads to prioritization and you may find yourself putting certain items on the backburner while you focus on what you believe matters most: sales! While prioritization can work wonders for you and your business in the long term, legal issues are not the items you want to leave off your pressing list as they have a tendency only to grow worse as time passes.
6 – Getting into Business with the Wrong Team
A bad partner or a poorly chosen team can mean the difference between a failed or successful business. Before you rush into agreements and start giving up shares, be absolutely certain that the people you’ve decided to work with are right for you and your company.
7 – Failing to Put Business Deals in Writing
Stay away from “hand-shake deals” with clients, vendors, partners, suppliers – anyone for that matter! Any kind of business arrangement, no matter how insignificant it may seem at the time, is worthy of a written agreement between yourself and the other party.
8 – Rushing into Agreements
Business can be exciting and exhilarating, particularly when an incredible opportunity comes your way. But as an entrepreneur, you must maintain an impartial mind and think about things in a calculated and objective manner. Act with scrutiny, not naivety. Read the fine print, don’t sign anything you don’t understand and have all legal agreements reviewed by a corporate lawyer.
9 – Expecting too Much Value in Return for Sweat Equity
If you find yourself in a selling position, try to keep a level head about what your business is worth. Just because you put your blood, sweat and tears into your company for the last umpteen years, doesn’t mean potential buyers are going to put a huge dollar figure on your efforts. Know that when it comes down to it, selling a business is about assets, revenues, profits – numbers.
10 – Not Planning for the Unexpected or the Unlikely
As a business owner, you have a responsibility to protect yourself, your partners, your shareholders and your employees. A big part of that means planning for what you don’t expect or for what seems highly unlikely at the time. That might include business liability insurance, partnership and shareholder agreements, the consideration of your death or that of your partner, and so on. Think about the “impossible” and put written agreements into place to address those matters. You’ll thank yourself down the road.
Having a trusted corporate legal attorney you can turn to whenever the need arises is critical to running a successful business.
Who’s in your corner?