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5 legal mistakes startups make

On Behalf of | Oct 30, 2023 | Business Law

Startup entrepreneurs always have a lot to consider, from the most suitable business structure to finding skilled employees. The decisions made during the initial stages of a business are crucial, as they can significantly impact it in the future.

Below are five legal mistakes some startups make:

1. Not having clear agreements with co-founders

Startups that are founded by more than one entrepreneur should have clearly defined agreements. Some fail to do this and, in turn, end up dealing with expensive lawsuits, messy divorces, or even the involuntary shuttering of the business.

Co-founders should agree on each party’s ownership percentage, how to run the company, how to divide profits/losses, how to make crucial day-to-day decisions, each party’s duties, the goal of the business, how and on what terms owners can or must leave, and so on. These elements should be in writing.

2. Not having great contracts

Contracts are vital in a business. Business owners enter into agreements with every party they work with. Some startups develop agreements that are vague or don’t offer substantial protection, which can lead to legal issues. A contract should be clear and binding.

3. Infringing another business’s trademark

A business should have a name, logo, or color combination (trademark) that differentiates it in the market. But chances are the symbol an entrepreneur has in mind may already be in use by another business. Research is crucial to avoid infringing intellectual property rights.

4. Not keeping documents

Some startup companies fail to maintain proper documentation, This can prove problematic if facing a lawsuit or an audit. A company should keep all documents, from meeting minutes to employee complaints.

5. Not keeping assets separate

Too many small entrepreneurs have little or even no separation between business and personal assets. This can leave all of your personal assets exposed to the debts and liabilities of the company.

An entrepreneur starting a new business should be careful about every move they make. It’s essential to get legal guidance to avoid costly mistakes.