Entrepreneurs face many legal issues when they start a new business. Some of these issues can lead to costly lawsuits if not appropriately addressed.
Entrepreneurs need to avoid these legal pitfalls by working with experienced business lawyers. These lawyers can help them avoid significant problems that could derail their businesses.
Not Incorporating Early Enough
Harvard Business School professor Connie Bagley teaches an elective course for second-year students, “Legal Aspects of Entrepreneurship.” She says entrepreneurs who fail to incorporate early often face costly legal mistakes.
Incorporating early is essential for many reasons. For example, it helps founders settle issues such as equity splits and sweat equity before they get too far into the company. It also makes it easier for a company to attract investors as an incorporated entity.
Moreover, incorporation can help protect entrepreneurs’ assets from liability the corporation may accrue. For example, if the corporation is sued, the plaintiff can only take the company’s assets, not the founders’ personal property. Lastly, incorporation allows companies to issue stock at an implicit value rather than giving away cheap shares that could cause tax problems for the founders.
Not Having a Business Plan
Entrepreneurship is a rewarding endeavor, but it can also be a difficult one. If you’re considering starting a business, it’s essential to avoid common legal mistakes that can lead to failure.
A major mistake entrepreneurs often make is not having a business plan. A business plan can help you identify and mitigate problems and give you a roadmap to success.
Other common legal pitfalls include not setting up the proper business structure, failing to establish employee manuals, and infringing on intellectual property. Avoiding these mistakes can reduce your risk of lawsuits and other costly legal issues.
Lastly, it’s essential to be honest when creating your financial projections. Puffing up numbers will make investors less trusting and may lead to a fraudulent lawsuit.
Not Having a Business Licensing Plan
As an entrepreneur, you must ensure your business has the proper licensing requirements. Otherwise, you could face fines from government departments that will restrict your business operation until certain conditions are met.
Additionally, it would help if you paid attention to the importance of having a proper business insurance plan. This is vital in ensuring appropriate employee coverage, assets, and inventory. Many businesses in New York require that you have a minimum of liability insurance.
Although legal concerns are only sometimes at the forefront of an entrepreneur’s mind, they must be addressed as early as possible to avoid making costly mistakes. By seeking expert advice from a commercial lawyer from Linden Law Partners, you can avoid these common pitfalls and ensure your new venture’s success.
Not Having a Business Contract
There are a lot of legal pitfalls that can arise during the startup phase of a new business. If entrepreneurs are not properly prepared for these issues, it can lead to costly and time-consuming lawsuits.
One of the startups’ most common legal mistakes is needing an enforceable contract with their clients, vendors, and employees. Working with a seasoned business litigation attorney is essential to create legally binding agreements that afford all necessary protections.
Contracts play a crucial role in any business agreement. They help establish clear expectations for all parties involved, provide protection if those expectations are not met, and ensure that the agreed-upon service price is secured. There’s a saying in legal circles that ignorance of the law is no excuse. That’s especially true when it comes to business contracts.
Not Having a Business Insurance Plan
While it may seem easy to cut costs, skimping on business insurance coverage can cost a new company big time. Failing to secure adequate protection can expose companies to legal issues such as non-compliance with governmental regulations and intellectual property theft.
It’s also essential to have suitable types of coverage for each business activity, such as worker’s compensation, property and liability, business interruption, and professional liability insurance. In addition, many states have insurance requirements that businesses must comply with.
In some cases, failing to carry the required types of insurance can result in fines or even jail time. It’s always best to seek professional advice to ensure you have the right coverage.