Starting a new business can be a challenging and exciting venture, but it can also be fraught with legal pitfalls. Even the most well-intentioned start-up founders can make mistakes that can have serious legal and financial consequences. In this blog post, we will discuss the ten most common legal mistakes start-up founders make and ways to avoid each of them.
Failing to Incorporate
One of the most common legal mistakes start-up founders make is failing to incorporate their business. By incorporating, founders can protect their personal assets from business liabilities, and can take advantage of tax benefits and other advantages that come with operating a formal business entity. Founders should consult with an experienced attorney to determine the best legal structure for their business.
Failing to Protect Intellectual Property
Intellectual property is one of the most valuable assets of any start-up, yet many founders fail to properly protect their intellectual property. This includes registering trademarks and copyrights, filing for patents, and creating non-disclosure agreements to protect trade secrets. Founders should work with experienced attorneys to develop a comprehensive intellectual property strategy and ensure that their intellectual property is fully protected.
Failing to Create a Founders’ Agreement
A founders’ agreement is a critical document that outlines the roles, responsibilities, and ownership stakes of each founder. It can also help to prevent disputes and ensure that the start-up is set up for long-term success. Founders should work with experienced attorneys to develop a comprehensive founders’ agreement.
Failing to Comply with Employment Laws
Employment laws can be complex and confusing, but failure to comply with these laws can result in significant legal and financial penalties. Start-up founders should consult with experienced attorneys to ensure compliance with all applicable employment laws, including wage and hour laws, anti-discrimination laws, and immigration laws.
Failing to Create Contracts
Contracts are essential for any business, as they establish the terms and conditions of relationships with vendors, customers, employees, and other parties. Founders should work with experienced attorneys to develop comprehensive contracts that protect the interests of the start-up.
Failing to Comply with Securities Laws
If a start-up is seeking to raise funds through the sale of equity, they must comply with securities laws. Failure to comply with these laws can result in significant legal and financial penalties. Start-up founders should consult with experienced attorneys to ensure compliance with all applicable securities laws.
Failing to Create Terms of Service and Privacy Policies
If a start-up operates a website or mobile app, it must have clear terms of service and privacy policies. These policies are critical for establishing the rules of engagement with customers and ensuring that the start-up is compliant with all applicable data privacy laws.
Failing to Maintain Corporate Records
Proper record-keeping is essential for any business, as it can help to establish compliance with legal and regulatory requirements. Start-up founders should maintain accurate and complete corporate records, including board minutes, resolutions, and other important documents.
Failing to Establish a Strong Compliance Program
A strong compliance program is essential for any start-up that is subject to regulatory requirements. A compliance program should include policies, procedures, and training programs that help to ensure compliance with all applicable laws and regulations.
Failing to Work with Experienced Attorneys
Perhaps the most common legal mistake that start-up founders make is failing to work with experienced attorneys. By working with attorneys who specialize in start-up law, founders can ensure that they are in compliance with all applicable laws and regulations and can avoid legal and financial penalties.
In conclusion, start-up founders must be aware of the legal pitfalls that can arise during the start-up process. By avoiding these common legal mistakes, founders can increase their chances of success and build a strong, sustainable business.
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I am an attorney and Certified Public Accountant serving Southwest Florida.
Previously, I served in operations and finance with the world’s largest accounting firm (PricewaterhouseCoopers), airline (American Airlines), and bank (JPMorgan Chase & Co.). I have also created and advised a variety of start-up ventures.
I am a member of The Florida Bar, and I hold active CPA licensure in Florida and Texas and undergraduate and graduate degrees in accounting and taxation from Southern Methodist University in Dallas.
My practice emphasizes, but is not limited to, the law as it intersects small businesses and their owners. I also assist clients with insurance claims, estate planning, and other legal matters on an ad hoc basis. I live and work in Naples, Florida.
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