Congratulations on starting your new business. However, like anything new, there are bound to be mistakes along the way. As a lawyer who represents business owners in all stages, I have seen the costs and legal problems from such mistakes. Therefore, I urge new business owners to get their lawyer involved as soon as possible. Preferably, before the launch of the business. By doing so, you can hopefully avoid these common mistakes.
Is a Business Divorce in Your Future?
If you are starting a business with another person, assume there will eventually be problems. Therefore, you should have the appropriate contracts in place. In the beginning, everyone is happy and optimistic with the same goals. However, the odds are that relationships will eventually strain. Maybe expectations are not clear, or somebody feels they are doing more work than the others. Or, one owner wants more money. Whatever the reason, these issues need to be considered and negotiated on the front end. Think about it like a divorce. A divorce is costly, emotional, and hard. Business divorce is the same. Hope for the best, plan for the worst is my advice to avoid this mistake.
Taxes & Liability
There are different types of entity choices. Each has some key advantages and disadvantages. It is very important to decide the best type of entity for your business at the formation stage. If you choose the wrong entity, you may get hit with a large tax bill or have exposure through unintended liabilities. Later, you can convert your business to a different entity type. However, this can be a costly and lengthy process. So, get it right the first time!
Contracts and Agreements
Far too many new businesses fail to use and appreciate contracts that will protect them in their business dealings. You should create an inventory of form contracts that cover a wide range of business issues. Such contracts can cover legal issues pertaining to employees, vendors, customers, contractors, partners, and other stakeholders. When utilized, these form contracts should be tailored and negotiated to fit the situation. Most commercial litigation involves some sort of breach of contract issues. Therefore, you can avoid this costly mistake (and litigation), and it will not cost you much money on the front-end.
In my experience, the above mistakes are the big ones. However, starting a business is fraught with other potential landmines. For example, make sure the name of your business is available and not being used by anyone else. Imagine having to change your name, website, logo colors, etc. after making a significant investment in it? Another common mistake is the failure to keep good records. In the beginning, keeping good corporate records may seem like a burden. But one day you may want investors or a loan. The money people will demand complete and thorough records.
Again, the above are some common mistakes that new business owners should try to avoid. While common, in no way is it the universe of potential mistakes. Therefore, get legal help in the beginning. At the end of the day, it will probably save you money and aggravation. I also recommend getting the advice of a good accountant before you launch your company.
We are happy to discuss your new business with you. We also offer business concierge services. We offer these so new business owners can get affordable and reliable legal assistance.