The 7 Biggest Legal Mistakes Entrepreneurs Make When Starting a Business | Small Business Law
Starting a business can be an exciting and rewarding experience, but it's important to make sure you're doing everything by the book. If you're not careful, you could make some costly legal mistakes that could come back to haunt you later on. In this blog post, we will discuss the 7 biggest legal mistakes entrepreneurs make when starting a business. We'll provide tips on how to avoid these mistakes, so you can rest assured knowing that your business is legally sound.
Mistake #1 Failure to Form a Legal Entity
One of the most common legal mistakes entrepreneurs make is not forming an LLC or corporation. This can lead to several problems down the road, including personal liability for company debts and lawsuits.
Unfortunately, a large number of small businesses in the United States are sole proprietorships, and while this business structure offers some minor tax benefits, it does not protect you from personal liability. If your business gets sued, you could be on the hook for all the damages. This means that your personal assets, such as your house or savings account, could be at risk. This is why it's so important to form an LLC or corporation.
For many small businesses, an LLC or Limited Liability Company is the preferred business structure. The reasons LLCs are so popular is because they offer the same limited personal liability for business debts and obligations as corporations while being relatively easier to set up and maintain.
Takeaway: While there are many other important legal issues to consider when starting a business, forming an LLC or corporation should be at the top of your list. These entities provide essential protection for you and your company and can help prevent costly legal problems down the road.
Mistake #2 Failure to Obtain Permits and Licenses
Not getting proper permits and licenses is another common legal mistake entrepreneurs make. Depending on the type of business you're starting, there may be different permits and licenses required. Failing to obtain the necessary permits can result in hefty fines or even having your business shut down. For example, in New Jersey, contractors are required to obtain a NJ Home Improvement Contractor's license. The Home Improvement Contractors Registration Act (HICRA) regulates home improvement contractors. The law requires all home improvement contractors to register with the state, and it sets forth specific licensing and insurance requirements. HICRA applies to all types of home improvements, including repairs, replacements, remodeling, and additions. Failing to obtain a license could result in serious penalties, including fines and in some instances jail time.
Another example of a profession that must be licensed is hair care. In order to operate a hair salon in the state of Florida (and in most other states), you must have a cosmetology license. The Florida Department of Business and Professional Regulation (DBPR) is responsible for issuing these licenses.
Takeaway: If you are thinking about starting your own business, it is important to make sure that you obtain the necessary permits and licenses. Depending on the type of business you are starting, you may need to apply for a general business license, as well as specific permits for things like selling food or alcohol. Failing to obtain the proper permits and licenses can result in significant penalties, including fines and even jail time. In addition, it can also damage your reputation and make it difficult to run a successful business.
Mistake #3 Not protecting Your intellectual property
Businesses that don't protect their intellectual property are making a big mistake. This can take many forms, but one of the most common is failing to trademark your brand name and logo. By doing so, you leave yourself open to having your trademark infringed upon by another company. This can not only lead to lost sales, but it can also damage your reputation and make it difficult to enforce your trademark in the future. To avoid these consequences, it is crucial that you take steps to protect your intellectual property from the outset.
IP Insight: Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. IP encompasses trademarks, copyrights, patents, trade dress, and industrial design rights. It also includes other rights, such as trade secrets, publicity rights, moral rights, and rights against unfair competition. Generally, IP is protected by civil law rather than criminal law. However, there are some limited exceptions. For example, copyright infringement is a federal crime in the United States. Trade secrets can also be criminally protected under federal law and the laws of some states. In addition, many countries have laws that criminalize certain acts of trademark infringement and counterfeit production. IP law has evolved over time in an effort to adapt to changes in technology and society. For instance, the rise of digital technology has led to new challenges in enforcing copyright and protecting against online piracy. As IP law continues to evolve, it will likely become increasingly important in our increasingly interconnected world.
Takeaway: Intellectual property is a valuable resource for businesses. By protecting your intellectual property, you are safeguarding the ideas and innovations that make your business unique. Without this protection, you risk losing everything you’ve built to competitors who may not have the same respect for your intellectual property. While taking steps to protect your intellectual property can be time-consuming and costly, it’s a vital part of any successful business strategy.
Mistake #4 Failing to Have Proper Contracts and Agreements
As a business owner, it is crucial that you have proper contracts in place with your clients, employees, and vendors. A contract establishes the terms of the relationship and sets forth each party's rights and obligations. Without a contract, there is a potential for misunderstanding and disputes. Having a contract in place can help to avoid these problems and protect your interests.
When entering into a contract, it is important to make sure that all of the terms are clearly stated and that both parties understand them. Each party should also sign the contract to indicate their agreement. Once the contract is in place, it is important to abide by its terms. If either party fails to do so, they may be in breach of the contract. If this happens, the other party may be entitled to damages or other relief.
Entering into contracts may seem like a daunting task, but it is essential for any business owner. With proper planning and advice from an experienced attorney, you can ensure that your contracts will protect your interests and help your business run smoothly.
Takeaway: Contracts and agreements are a critical part of any business. They establish the expectations and responsibilities of both parties and can help prevent misunderstandings or disputes in the future. Unfortunately, many businesses don’t take the time to put together proper contracts and agreements, which can lead to all sorts of problems down the road.
Mistake #5 Failing to Hire a Business Attorney
Many small businesses make the mistake of not hiring a business attorney to assist them. This can be a costly mistake, as attorneys can provide a wealth of knowledge and experience that can help to avoid legal problems down the road. An attorney can help to draft contracts, negotiate deals, and resolve disputes. In addition, an attorney can provide invaluable advice on a variety of other topics, such as business formation, taxation, and compliance with government regulations. By hiring an experienced business attorney, small businesses can gain peace of mind and protect their interests.
Often, small businesses don't want to spend money to hire an attorney. However, the cost of an attorney is often worth it when you consider the potential consequences of not having one. A small business that doesn't have an attorney may be at a disadvantage when dealing with larger businesses or government agencies. In addition, if a legal problem does arise, the cost of resolving it without an attorney can be much higher than the cost of hiring one in the first place. Separately, when it comes to drafting contracts and other business documents, form documents downloaded from the internet cannot replace attorney-drafted documents.
Takeaway: Hiring a business attorney is one of the best things you can do for your small business. An experienced attorney can provide valuable advice on a wide range of topics and help to avoid legal problems down the road. The cost of an attorney is often worth it when you consider the alternative—dealing with legal problems without professional assistance.
Mistake #6 Failure to Have a Written Agreement with Business Partners
One of the most common mistakes that small businesses make is the failure to have a written agreement with co-founders or business partners. While it may seem like an unnecessary expense at the time, a well-drafted agreement can save a lot of heartache down the road. Without a written agreement, there is no clear understanding of the roles and responsibilities of each party, which can lead to conflict and frustration. Additionally, a written agreement can provide clarity on issues such as how decisions will be made, how profits will be divided, and what will happen if one party wants to sell their interest in the business. By taking the time to put together a written agreement at the outset, small businesses can avoid many potential problems down the road.
Takeaway: No matter how well you know someone, it is always important to have a written agreement in place. This document will help to protect both parties in the event of any disputes that may arise. If you are currently in the process of starting a business with someone else, be sure to contact an attorney and get a written agreement in place as soon as possible. Having this document can save you time, money, and stress down the road.
Mistake #7 Trying to Do Everything Yourself
Another mistake many entrepreneurs make is failing to delegate tasks and hire employees as their business grows. While it's important to be hands-on in the early stages of your business, you can't do everything yourself. As your business grows, delegating tasks and hiring employees is crucial in order to keep things running smoothly. Trying to do everything yourself will only lead to burnout and could eventually cause your business to suffer. When you delegate tasks, you can focus on the most important aspects of your business and ensure that everything is running smoothly. Hiring employees also allows you to tap into a larger pool of talent and expertise, which can only benefit your business in the long run. So if you're feeling overwhelmed, don't be afraid to delegate tasks and hire employees to help you out. It could be the best thing for your business.
Takeaway: If you want your business to grow, it's important to delegate tasks and hire employees. You can't do everything yourself, and by delegating tasks you'll be able to focus on the areas of your business that need attention. Hiring employees is a big step, but it's one that will help your business grow.
Making sure your business is legally sound from the get-go can save you a lot of trouble down the road. By avoiding these seven mistakes, you'll be putting yourself in a much better position to succeed. Have you made any of these legal mistakes when starting your business? If so, don't worry - we're here to help. Contact us today for a free consultation and let us help you get your business on the right track.
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As with any legal issue, it is important that you obtain competent legal counsel before making any decisions about how to respond to a subpoena or whether to challenge one - even if you believe that compliance is not required. Because each situation is different, it may be impossible for this article to address all issues raised by every situation encountered in responding to a subpoena. The information below can give you guidance regarding some common issues related to subpoenas, but you should consult with an attorney before taking any actions (or refraining from acts) based on these suggestions. Separately, this post will focus on New Jersey law. If you receive a subpoena in a state other than New Jersey you should immediately seek the advice of an attorney in your state as certain rules differ in other states.