Avoid These Legal Mistakes When Launching Your Startup

Gillian Burdett
July 31, 2019 - 2:46 pm

Launching a new business is exciting, but exhausting work. The myriad of details that demand your attention may leave you frazzled, making it easy to overlook some basic legal issues. While your business may not require a lawyer to get started, you can save yourself a lot of aggravation and money by starting out on sound legal footing. Don’t set yourself up for problems by making these mistakes.

Casual agreements with partners and investors
If you formed your business as a partnership, you unquestionably should have a written agreement and be clear about any relationship. In addition to the financial arrangements — contributions, distributions and allocation of losses — list the managerial duties of each partner. Don’t forget to include what happens when a partner leaves the business. How will your partner’s share be transferred?

It is common to launch a business with funds borrowed from family or friends. Be sure to document the relationship of each investors with your business, even if it is someone you trust completely, such as your mother or sibling. Include any profits or repayment your lenders expect from the loan.

Labor law violations and lack of clear employment contracts
Employers are required to pay at least minimum wage and overtime, unless your employees are exempt or not employees at all, but contractors. It will save you problems down the road if you immediately familiarize yourself with the different types of labor available and choose proper employee classifications from the start.

The legal issues surrounding hiring and maintaining your workforce becomes even more complex when you consider laws with specific considerations for people with disabilities, veterans, foreign workers and minors. You may not need an employment lawyer to sort through the red tape, but you definitely need to read up on the law. The Small Business Administration is a good place to stat, as well as the regulatory body in your state.

It is also vital that your employees understand the terms of their employment — expectations, benefits, and behaviors that could lead to termination. An employee handbook and possibly an employment contract will avoid costly lawsuits should you and an employee part ways in a less than amicable way. If your business deals with a unique product, you may need to include a nondisclosure agreement, which will give you legal recourse should an employee leak company secrets

Inadvertent trademark infringements
Before you stick that eye-catching logo on all your products or add that witty tagline to your marketing materials, check that someone else hasn’t already trademarked your idea. As original as you may be, a quick search of the U.S. Patent and Trademark database may show your idea under someone else’s name. You don’t want to get bogged down in a trademark infringement lawsuit.

Failure to protect your brand
Conversely, you don’t want other businesses stealing your intellectual property. Protect the time and effort you put into creating and promoting your brand by licensing your trademark. The cost is relatively inexpensive and you don’t need a lawyer to apply. With this protection, you can stop a trademark thief with a legal cease-and-desist order. Note that holding a trademark for your company name does not prevent someone from buying a web domain with your name. It could be beneficial to purchase domains using variations of your trademarked name before someone else does.

At some point, you may need to bring in a professional. If you ever feel you are getting in over your head with legal matters, contact a lawyer. It is an expense, but compared to the cost of litigation, it will be money well spent.