8 Common Legal Mistakes That Startups Make : Under30CEO 8 Common Legal Mistakes That Startups Make : Under30CEO
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8 Common Legal Mistakes That Startups Make

| July 2, 2012 | 10 Comments

When you decide to start up a company it can be very exciting yet exhausting at the same time. You are filled with joy but at the same time you can’t wait to get everything started and going as well. Throughout the process there are some things that you may accidentally forget or even do by mistake. Some of the most common mistakes startups make are often the ones that they end up regretting down the line.

1) Failing To Incorporate

Some startups need to incorporate. Not choosing the right corporate structure, or failing to choose one at all, could put the company’s officers at risk. This is especially important if the startup is going to be doing business in a high-risk industry like the medical industry.

2) Incorporating Too Early

Some companies don’t need a corporate structure when they are first beginning. However, being new to the business world it is easy for one to think that they do and the consequences of incorporating to early are usually very severe.

3) Failing To Copyright Material

A company that publishes information of any kind should copyright everything it produces. Copyright protection ensures that no other individual or business may use the material in any form without the expressed written consent of the business. However, when first entering the business world many business owners have copyright out of their minds. They never think that it is something that they need yet as time goes on it is something that they wish they would have invested a little bit of time into.

4) Failing To Use Trademarks

When a business creates a unique logo or slogan, it’s a good idea to trademark it. This is especially true if the company plans on growing in size. The time to file a trademark is before any legal battles begin, not after they’ve started.

5) Failing To Use Patents

When a company invents something, it’s a good idea to patent it. It’s not always obvious, but that invention may later lead to other inventions that depend on the first invention. If no patents are filed on the first invention, then there’s no protection for the company. Anyone could run off and say it is there invention and then all of your hard work has basically been thrown down the drain.

6) Advertising To Investors

Startups are generally prohibited from soliciting investors. The SEC prohibits solicitation to investors unless there is a “substantial and pre-existing relationship” between the company and the prospective investor. While it’s tempting to advertise for startup capital to make business operations run more smoothly, this is not the way to go about it.

7) Forming a 50-50 Partnership

Partnerships sometimes seem like a good idea at first. However, a 50-50 partnership can make it harder to conduct business in the long run. If the partners cannot agree on the direction of the business, or they end up not seeing eye to eye on an issue, it can prevent the business from functioning. Because each partner owns half of the business, nothing can be accomplished.

8. Not Using Contracts For Business

It’s understandable that a startup would conduct business using “handshakes.” However, this is a bad habit. Contracts clarify what services and products will be provided to customers. They also make it clear what each officer in the company, and every employee, is and isn’t responsible for. Not to mention the fact that if for some reason your partner wants to file a lawsuit against you for something that was clearly stated in the beginning a contract is the only thing that is going to help you win your case.

Overall, these are the eight major mistakes that businesses make in the beginning but there are others. These eight are mentioned because they usually carry the most serious consequences. Just be sure that when you are getting ready to become a business owner you double check everything and know the laws. The process may not go as fast as you expected but in the end it is always better to be safe than to be sorry.

Guest post contributed by Hayley Spencer, on behalf of lawyers.com. Hayley writes for a website that provides consumer friendly explanations of major areas of law and also helps small business owners to understand business law. In her spare time she enjoys photography, walking and playing tennis.

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Category: Startup Advice

  • Jimbo

    9) Taking business advice from a lawyer

  • Jimbo

    9) Taking business advice from a lawyer

  • Jimbo

    9) Taking business advice from a lawyer

  • Skyy127

    Hayley, referring to your second point: what kind of severe consequences could you face for incorporating too soon?

  • Skyy127

    Hayley, referring to your second point: what kind of severe consequences could you face for incorporating too soon?

  • Frilly

    Yes, I want to know the same thing. You mention severe consequences on the 2nd point but don’t mention even one of them.

  • Frilly

    Yes, I want to know the same thing. You mention severe consequences on the 2nd point but don’t mention even one of them.

  • Frilly

    Yes, I want to know the same thing. You mention severe consequences on the 2nd point but don’t mention even one of them.

  • Pankaj Pathak

    Dear Sir/Madam,

    How do you assist International Students to promote their research work from India. I am a Student in a very renowned university in India. However, I belong to a very poor country. I have developed and written on paper few things on paper in pencil. Not confident with writing things even on Microsoft Word.

    1. objective & motivation
    2. figure
    3. description of the figure
    4. case
    5. conclusion

    this is the format i was told by my mentor. The institute turned me into a controversy. I am so sad. I am indian origin but born and brought up in a very small country neighboring India.  However, My Patriotism lies with my mother country where I am born and brought up.

    Please tell me if there is any way to get it Patent. If so, What is the procedure.

    sincerely,

    Pankaj Kumar Pathak

  • http://www.facebook.com/angel.brooks.522 Angel Brooks

    Thank you Hayley, your advice was well received. I would like to piggy back off of Skyy127 and ask the same question. What are the severe consequences that a new business may face for incorporating too soon? SSRBooklet LLC