Best Legal Tips When Starting A Business

Starting a business can be an exhilarating affair. You’re finally putting your dreams to work and bringing them to reality, one step at a time.

The journey can also be daunting. Especially when there’s still a lot to do before the business can stand on its own feet. You have funding issues. You need to find and hire staff, get ideal office space and deal with a host of other issues.

But in all this doing, many forget that some of the most important things to take care of first in starting a business are the legal issues. Sadly, with 22.5% of businesses failing within the first year and a further 50% fail after four years, most never get a chance to correct this error until it’s too late.

According to a survey conducted by CB Insights, where they conducted a post-mortem on 101 failed startups, 8% of businesses failed because the founders did not appreciate the potential legal challenges they would face.

Although your startup idea may seem simple enough, the truth is it can enter a world of legal complexities that will ultimately shut it down. If you’re to give your business a fighting chance, you will need to pay attention to these tips for giving your startup a solid legal foundation.

Every startup needs a mix of skills and professionals that will help nurture and position it for growth. When starting a business, that’s to be expected, since startup founders cannot possibly know everything. In fact, more than a third of founders have only a high-school diploma and just 9% have a degree in business.

Unfortunately, in a misguided effort to save on expenses, startups often try to figure it all out on their own or hire friends and family that will work at steep discounts.

If you’re doing this or thinking about it, stop right now. Going down that route will only starve you of experienced counsel that will help you avoid many costly problems later on. Amongst the important areas where you will need advice when starting a business are:

Don’t assume that you can get by with just enough for now and see how it pans out later. Retain experts that will help you lay a solid foundation for your business.

When starting a business a startup, another crucial foundational step to take is to draw up a clear founder’s agreement. The agreement should clearly define the roles and responsibilities of the founding team, equity and vesting ownership as well as assignment of IP ownership.

Startups often overlook this stage either because they’re all caught up in the rush and excitement of starting a business or because they feel the friendship of the founders will preclude disagreement.

Nothing could be further from the truth. In the survey conducted by CB Insights, 13% of the 101 startups surveyed confessed that disharmony amongst founders was a fatal issue for them.

Drafting an agreement ensures that your friendship remains intact and that possible disputes can be anticipated and clearly dealt with beforehand.

Choosing your business structure will be one of the most important decisions you make. This is because it will determine what strategies and advantages will be open to your business and the obligations that the business will have.

Do you want to go with a sole proprietorship, a partnership (whether limited or unlimited), start an LLC or corporation? Although sole proprietorships are very popular amongst Americans when starting a business ( 4 out of 5 ), the liabilities involved may be crippling. A sole proprietor may be personally exposed if the business goes bust.

Limited partnerships and LLCs provide a bit more protection in this regard. You can limit the extent of your personal liability through an LP or keep the business separate from yourself with an LLC.

Whichever you settle on should be the product of considered thought, taking into consideration your plans for the business and your circumstances.

Failing to satisfy all regulatory requirements from the start is a bit like building a sandcastle on the seashore. Regardless of whether you’re looking to cut corners on some licenses, or you failed to get them out of ignorance, the end result will be expensive for your business.

Businesses that operate without the required licenses may be open to hefty fines. Worse, however, is the damage your business may suffer by squandering your reputation with customers.

You should work with a trusted legal advisor who can keep you updated on all regulatory requirements as well as the changes you need to keep an eye on.

Written contracts are an absolutely essential requirement for any dealings involving your business. You must develop a culture of having written contracts for employment, investments, dealings with contractors and everything in between.

You may think contracts unnecessarily complicate transactions but it’s always better to be safe than sorry. If you had to choose between an expensive legal battle because of unclear terms and having to read through the contractual fine print that covers all the bases, you’ll pick the fine print in a heartbeat.

Having written contracts sets out your business relationship clearly. It will also help you insert important clauses (such as NDAs and non-competes) that will protect your business and your interests.

An important point though is to avoid ‘standard agreements’ found online. While you may think you’re cutting costs, you may only be digging a bigger hole for your business than you expect. Your contracts should be tailored to fit the specific circumstances and requirements of your transaction. Dealing with a qualified corporate lawyer will save you much more than the cost of their services.

In a study conducted to understand why businesses fail, Statistic Brain found that incompetence, at 46%, was the most common reason for business failure. These businesses failed because they did too many things poorly, including paying attention to their tax obligations.

Once you have set up your business, you are required to be registered for taxes and file returns with payments of all applicable taxes on a regular basis. But this is one task that business owners are ill-equipped to handle.

Except you are a tax professional, you have no business trying to handle the tax liabilities of your business. This is a task that is best left for professionals who will not only help you put your books in order but also help you find ways to save money on your taxes.

Eventually, your business gains much more than it will cost you to keep a tax professional on retainer.

With the increasing significance of the digital economy, intellectual property rights have never been more crucial to business success. If you want to secure funding, monetize your discoveries or have a shot at eventually selling your business for big bucks, IP rights are crucial.

Your business idea and its expression, your logo, unique designs, systems, and processes all form part of your business’ intellectual property. They contribute significantly to the value of your company and will eventually be the single factor most important to how your business makes money.

Huge brands like Coca-Cola, Google and Apple only became as big they are because they jealously protected their intellectual property. It will be vital for your business to also do so.

Draft clear agreements so your business IP will be protected in relation to the work of independent contracts, employees and even founders. Documents such as a deed of assignment or appropriately worded clauses in agreements will help ensure this protection.

Eventually, we cannot possibly exhaust all the legal issues you must keep an eye out for in this article. But you can access a never-ending stream of solid legal advice tailored to your specific circumstances when you find and retain a qualified business lawyer.

Regardless of what industry you function in, you will need a good lawyer to help guide you and ensure that your business is operating within applicable legal boundaries.

Even more important, having a competent corporate lawyer on your team will position your business properly to anticipate and swiftly take advantage of opportunities.

The Law Office of Rocco E. Cozza, PLLC has built up a reputation for providing a business-savvy approach to legal issues. We are not just content with providing legal advice; we are agile, efficient and creative lawyers that are keenly interested in helping your business grow.

To discuss your business needs or get our take on legal issues affecting your business, call us on 412-294-8444 or send us an email at rcozza@cozzalaw.com today.

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