Legal Mistakes

(Image Credit: Dreamstime)

4 Legal Mistakes to Avoid When Launching a Startup

June 22, 2018 - 9:30 am

Launching a new business is exciting, but exhausting work. The myriad of details that demand your attention may leave you frazzled, and it is easy to overlook some basic legal issues. While your business may not require a lawyer to get started, you can save yourself a lot of aggravation and money by starting out on sound legal footing. Don’t set yourself up for problems by making these mistakes.


Casual agreements with partners and investors

If you formed your business as a partnership, be clear about the relationship in your agreement, and be sure to include a written agreement. In addition to the financial arrangements — contributions, distributions and allocation of losses — list the managerial duties of each partner. Don’t forget to include what happens when a partner leaves the business. How will your partner’s share be transferred?  

You may be launching your business with funds borrowed from family or friends. Document the relationship each of your investors will have with your business, even if it is someone you trust completely, such as your mother. Include any profits or repayment your lenders expect from the loan.


Labor law violations and lack of clear employment contracts

You are required to pay at least minimum wage and overtime, unless your employees are exempt or not employees at all, such as contractors. It will save you problems down the road if, from the start, you familiarize yourself with these different types of labor.

The legal issues surrounding hiring and maintaining your workforce becomes even more complex when you consider laws with specific considerations for people with disabilities, veterans, foreign workers and minors. You may not need an employment lawyer to sort through the red tape, but you definitely need to read up on the law. The Small Business Administration is a good place to start, and you may wish to check with the regulatory body in your state. It is also vital that your employees understand the terms of their employment — expectations, benefits, and behaviors that could lead to termination. An employee handbook and an employment contract will avoid costly lawsuits should you and an employee part ways in a less than amicable way. If your business deals with a unique product, you may need to include a nondisclosure agreement, which will give you legal recourse should an employee leak company secrets.


Inadvertent trademark infringements

Before you stick that eye-catching logo on all your products or add that witty tagline to your marketing materials, check that someone else hasn’t already trademarked your idea. As original as you may be, a quick search of the U.S. Patent and Trademark database may show your idea under someone else’s name. You don’t want to get bogged down in a trademark infringement lawsuit.


Failure to protect your brand

Conversely, you don’t want other businesses stealing your intellectual property. Protect the time and effort you put into creating and promoting your brand by licensing your trademark. The cost is relatively inexpensive, and you don’t need a lawyer to apply. With this protection, you can stop a trademark thief with a legal cease-and-desist order. Note that holding a trademark for your company name does not prevent someone from buying a web domain with your name. You may wish to purchase domains using variations of your trademarked name before someone else does.


At some point, you may need to bring in a professional. If you ever feel you are getting in over your head with legal matters, contact a lawyer. It is an expense, but compared to the cost of litigation, it will be money well spent.



This article was written by Gillian Burdett for Small Business Pulse