Starting a business be accompanied by potential legal issues that are often overlooked by the first time entrepreneurs. Many details seem worthless in the start and don’t seem to be pressing at the start and can mean the difference between success and failure. As they say, ‘well begun is half done’. If there are legal issues in the beginning, it can lead to downfall in the later stages of the company.
Here are the 5 common legal mistakes entrepreneurs make:
1. Making handshake deals with clients and vendors
Never take anyone’s word for granted. Always put pen to your deals. Don’t naïvely assume that everyone will work in good faith and everything will go as per the plans. This is often not the case when things go wrong. The entrepreneurs and the vendors and clients are different people with different thought processes and different things might be going on in their minds. Keep a written record for every dealing you make.
2. Choosing the wrong business structure
Whether you choose sole proprietorship, LLP, LLC or any other kind of company, making a hasty choice can put your business to risk. Also, this can lead to humongous tax bills at the end of the year. For sole proprietorship, you are not required to register for the business and it is often chosen by startups on the shoestring. In this, there is no wall between your own business and personal assets. It’s less risky for a company to set up as an LLC as it is less risky if the company goes under or is the target of a lawsuit.
3. Bringing on partners without a detailed agreement
Many entrepreneurs don’t put pen to paper in the name of focusing on business. But several problems can arise in the meantime. No matter how much you trust your partners, you need a legally binding agreement to distribute the work and the authority. It shows the way your company is going.
4. Establishing a 50-50 partnership
In theory, this sounds, but ultimately when the issues arise, it will be a problem when the two people disagree on issues like bringing new investors or making executive decisions. This will lead to deadlock in the management. It is difficult to divide things after there is an equal partnership. The company is stuck in limbo.
5. Filing a trademark without doing enough homework
If you think an internet search or a scrutiny at the Patent and Trademark office is all you need before filing a trademark, you need to reconsider what you’re thinking. Before filing for a trademark, you need to do enough homework on it and find out if you can trademark what you want to.
Here are the 5 common legal mistakes entrepreneurs make:
1. Making handshake deals with clients and vendors
Never take anyone’s word for granted. Always put pen to your deals. Don’t naïvely assume that everyone will work in good faith and everything will go as per the plans. This is often not the case when things go wrong. The entrepreneurs and the vendors and clients are different people with different thought processes and different things might be going on in their minds. Keep a written record for every dealing you make.
2. Choosing the wrong business structure
Whether you choose sole proprietorship, LLP, LLC or any other kind of company, making a hasty choice can put your business to risk. Also, this can lead to humongous tax bills at the end of the year. For sole proprietorship, you are not required to register for the business and it is often chosen by startups on the shoestring. In this, there is no wall between your own business and personal assets. It’s less risky for a company to set up as an LLC as it is less risky if the company goes under or is the target of a lawsuit.
3. Bringing on partners without a detailed agreement
Many entrepreneurs don’t put pen to paper in the name of focusing on business. But several problems can arise in the meantime. No matter how much you trust your partners, you need a legally binding agreement to distribute the work and the authority. It shows the way your company is going.
4. Establishing a 50-50 partnership
In theory, this sounds, but ultimately when the issues arise, it will be a problem when the two people disagree on issues like bringing new investors or making executive decisions. This will lead to deadlock in the management. It is difficult to divide things after there is an equal partnership. The company is stuck in limbo.
5. Filing a trademark without doing enough homework
If you think an internet search or a scrutiny at the Patent and Trademark office is all you need before filing a trademark, you need to reconsider what you’re thinking. Before filing for a trademark, you need to do enough homework on it and find out if you can trademark what you want to.
This article has been contributed by Himanshu Jain, CEO, LegalRaasta, an online portal for Section 8 Company Registration , Nidhi Company Registration , IEC Registration , FSSAI License, Income Tax Return Filing.
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