Common legal problems startups should stay away from
Not just for startups but even for all the businesses that are thriving, staying legally sound and secure is of utmost importance. But like it always is, it is easier said than done and sometimes, the more we try and avoid the mistakes, the more we fall for it. And the other times you are not even aware if what you are doing is a mistake. below in this article, we will cover the Common Legal Problems Should Stay Away From.
In those troubling situations, it is unavoidable. But we as entrepreneurs must put maximum effort in order to avoid the mistakes. Below, I have rounded up a list of legal mistakes that you can possibly make, considering you are new to this world and a young entrepreneur.
1. Failing to have good counsel onboard
This is one of the most common and most hazardous mistakes among startups. The number goes up to 47 percent, who have NEVER consulted a lawyer! Well, it’s astonishing!
You have no idea about the opportunities you will be able to capitalize on and the potential risks you will be able to dodge. Plus, you will also be able to acquire a competitive edge over others.
If you believe legal advice is too complex and extremely expensive, well you aren’t alone! But this doesn’t change the fact that it’s a mere misconception. The reality is exactly the opposite.
Another reason why you must have good counsel alongside is that the world of business is dynamic, continuously changing, and every business would experience fortifying and significant changes in the very next quarter itself. Your legal counsel will help you experience a smooth change.
2. Not keeping a record of everything
Irrespective of the kind of business you have implemented or the stage you are at, there is practically no excuse for not keeping a proper record. You will never be able to transform your startup into a full-fledged business if you do not abide by the same.
And trust me, records can prove to be an asset in the times to come. If someday you wish to check your stance, there’s no better advisor than your own record. Just run through the pages (or online data) and you will be able to identify your way ahead. Hence it is always advised to get regular screenshots of your web page, just hand over this task to a third party web archiving tool like Stillio.
You will also have a detailed idea of your cash flow and current financial scenario. It will help you reckon your capability in customer service and your employees’ productivity.
Monitor your company’s profit rate and growth and at the same time know how your business is performing as compared to its competitors. You need to adapt to your industrial environment (which is constantly changing) and records will help you keep up with the pace.
3. Sticking around sole proprietorship
The majority of American businessmen stick to this form of business because it is easy and simple as compared to others, ignoring its disadvantages. You see, sole proprietorship means no distinction between business and business owner – both are one identity. This itself is very disadvantageous.
I have always preferred distributed risk and hence advised my readers to incorporate, creating a separate legal entity that conducts the business. This way, the business will itself generate its income and also assume its own tax and legal liabilities.
You will find that earlier your personal tax was extremely high since you were the only owner of an enterprise, which will be released after the incorporation. Plus, if any dispute arises in the future, all your personal assets are safe and secure.
4. Deciding upon the wrong business entity
Picking up from where we left in the last point: Once you decide to incorporate, there are high chances you make the mistake of choosing the wrong business entity. There are multiple options to choose from like Nonprofit, C corporation, S corporation, LLC and more. Practically there’s no right or wrong in the list.
Each one has its own implications, for instance, expenses, procedures, legal liabilities, taxation, fundraising, and similar stuff. You must take decisions while keeping your future requirements in mind. This is exactly when your counsel will come at your rescue acting as your attorney or tax advisor.
Over to you…
Remember, none of us make a mistake deliberately – we are all humans and mistakes are bound to happen. However, we can certainly decide to be cautious and not make blunders that can cost you your business in the long run. This was my attempt to create awareness so that you don’t make one. Hope you found it helpful!