Bennis Inc. | 5 Common Legal Mistakes That Can Ruin Your Startup (Contribution from Michael Deane)
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5 Common Legal Mistakes That Can Ruin Your Startup (Contribution from Michael Deane)

The following post comes to us from marketing entrepreneur, Michael Deane, who is the founder three businesses and currently working on his next startup venture. Be sure to learn more about Michael in his biography at the end of this article.


legal mistakes

Alan Moore once said that ideas can change the world.

And isn’t that what all startups start out as? An idea that we hope will change the world?

While we are busy brainstorming and developing theories and ideas, coming up with the next product that will shake the ground we walk on, the business side of our business creeps up on us, and lurks there in the dark, waiting to pounce at the most opportune moment.

As a business owner, I can tell you two things: there will be about a million things you would rather do than read laws and regulations, draft contracts, do your taxes and fill out all the finger cramping paperwork needed to register a company. However – and it’s a big however – without the dull stuff, the fun stuff will not quite pay off as you hoped it might.

In order to hopefully save you some of the potential trouble down the line – here are my five legal missteps to avoid at all cost.

Not Knowing the Difference between a Corporation and an LLC

One of the most common mistakes you can make very early on is not even thinking about the different options to register a company. Naturally, the choice you make will mostly depend on where you live in the world, but the actual legal structures are quite similar, no matter what name they go by.

You can go for a sole proprietorship, a partnership, a limited company, a limited liability corporation, or a full blown corporation. The reason why this is important is quite simple: taxes. There’s also the issue of personal liability, which is again more important than you may initially think.

Weigh your options very carefully before you actually start this process. Some countries offer the option of registering your company online, which involves less hassle than having to walk from office to office to do it. There are also very different fees involved, and the necessary number of signatures can also vary.

As always in business, research is your friend, so do it right, do it early on, and save yourself the legal trouble later on.

Not Bothering to Protect Your Intellectual Property

When I say intellectual property, I don’t only mean secret recipes, production secrets and unique service ideas. Your intellectual property may be something as seemingly simple as a logo or a brand catchphrase. And while it may not seem too important early on, it may become a game changer in later years.

Trademarking any unique designs can protect your assets and save you from intellectual property theft. If you’ve ever seen Dream Girls, you will have heard the two versions of the “Cadillac Car” song – don’t let that happen to you.

If you have also come up with a new production system or even a new blend – patenting it can turn into a valuable asset.

Failing to Grasp the Importance of Contracts

A contract is a legal document in place to protect all of the parties signing it. When you think about it, you would never consider working with a client without one, right?

However, as you are starting out, you may feel it is easier to operate without them. Having to get a client to sit down and read through a couple of pages can be more difficult than chatting about a deal online, and shaking a firm hand.

To save yourself a lot of unnecessary headaches, draft a contract that will protect you – especially in case a client fails to pay an invoice. This happens more than you can imagine, and a contract that ensures you will get paid is a lifesaver.

While there are thousands of ready-made contracts available for download – you will be much better off if you have a template contract drafted by a professional attorney. This way, you ensure that the specifics of your business and the service or product you offer are taken into consideration, and that you are not overlooking a very obvious clause that may not have made its way into an online contract.

Googling for Help

While Google is often our best friend – it is the worst place to go for legal advice. While there are countless blogs and forums that can offer some great business tips, productivity hacks and motivational speeches – don’t ask the internet to tell you how to get out of a particular legal issue.

You will undoubtedly find an answer you will like, an answer you will find helpful and an answer that seems right – but no one can guarantee it will actually do the job.

Take everything you read online with a grain of salt (including this very article) and think things through yourself. We have become so dependent on having all the information in the world at our fingertips that we can forget to use our own common sense to solve a problem.

Being Unclear about Company Roles

Knowing who does what and is responsible for which aspect of the business is not only important from the legal standpoint. The law will need to know who the legal representative of your company is, and who is liable for what. Thinking about this early on is very important.

While there may only be a handful of employees in the company right now – that is likely to change, if the idea I mentioned at the beginning was sound. Figure out who will be the face of the company, who will be responsible for the financial side, and who will be the liable one, in case things go south. This is where the type of company structure you choose comes into play again.

I hope these five tips will help you as you set out to chase your dreams. And that 400 years from now, your idea is still changing the world!


Michael DeaneAbout the Author: Michael Deane has been working in marketing for just under a decade, and has successfully launched three of his own businesses. Today, he runs a small business blog at Qeedle, and is working on his next big venture idea.

Stephanie Shirley

stephanie@bennisinc.com