So you’ve had your website designed, have an aesthetically pleasing Instagram page, and have all of your future posts planned. You might have already sold some of your products and have some orders lined up. The next big step for guaranteed growth and success is to cover your legal bases.
Mistakes will be made; it’s part of the entrepreneurial journey. The key is to have some legal and financial knowledge beforehand. That way, you can plan for any legal issues that could arise.
While this doesn’t constitute professional legal advice (we would advise you to engage a lawyer), here are ten common legal mistakes and how to avoid them:
Starting the business without making it a corporation or LLC
You want to avoid being one of the entrepreneurs who overlooks establishing the proper legal structure for their company. This can be costly per compliance and potentially expose you to personal liability. Choose between LLC, C, or S corporation and research establishing businesses in your city or country.
Not paying attention to EPR Compliance.
In order to comply with the law, it is imperative that as a business owner selling specific products, you prioritize being eco-friendly and adhere to Extended Producer Responsibility (EPR) regulations within your region. It is no longer sufficient to solely focus on having an appealing brand and superior packaging. By avoiding packaging practices that are wasteful and detrimental to the environment, you can guarantee that your product’s lifecycle and packaging will not contribute to unnecessary waste or environmental harm. To achieve this, it is essential to engage with companies that specialize in EPR compliance, as they possess the expertise to handle these requirements. Additionally, you should take proactive measures to ensure the safety of your packaging and its proper disposal, aligning with EPR guidelines.
Not having the appropriate documents, formalities and bank accounts required
You want to avoid mixing your personal life with the formalities of owning a small business. Have separate bank accounts to prevent the weight of business liabilities and possible debt on your finances.
Make sure you have human resource guidelines to guide your team on the conduct and proceedings of your business. Furthermore, keep any human resources-related documentation up to date. Some of the documents you will need to update and maintain constantly include the following:
- Contracts that have been signed (employees, loans, investors etc.)
- Board or team meeting minutes
- Stock records
- Tax files
- Job applications, resumes and employee offer letters and agreements
- Employee-related documents like benefit plans, bonus and compensation history, performance reports, complaints, compensation, emergency contacts, disciplinary proceedings
- Employee handbooks
Bad contract practices
You need to avoid three main things when writing contract agreements and managing contracts.
- Downloading a contract from the internet and using it as is. This can be worse than having no arrangement, as it may cause unintended problems. If you look for examples, reviewing contracts from established companies or those using artificial intelligence is essential, as no contract is neutral and may favour one side. Ensure your contracts are specific to your business and what you want from agreements.
- Not having clear and concise contracts. Most importantly, both parties understand what is required (deliverables, payment terms, pricing, payment deadlines and amendment allowances). Avoid straightforward contracts; long contracts might discourage clients or the other party.
Not protecting your intellectual property
You should protect your intellectual property to avoid infringing on third-party rights. Standard protective measures include patents, copyrights, trademarks, service marks, trade secrets, confidentiality agreements, and invention assignment agreements.
Patents protect new products, while copyrights protect original works of authorship. Trademarks protect the symbolic value of a word, name, symbol, or device that distinguishes a product from others. Trade secret rights allow owners to act against misappropriation through the theft of intellectual property that the public would not know ordinarily.
Non-disclosure agreements (NDAs) allow holders of confidential information to share it with a counterparty, who is prohibited from further disclosure to anyone else. Confidentiality and invention assignment agreements for employees ensure that any ideas, products, or services developed during employment belong to the company, not the employee. These measures are crucial for protecting your company’s intellectual property and avoiding potential infringement by third parties.
Bad tax habits
As an entrepreneur, you should be aware of several essential tax concerns that apply to your business operations. Without adequate planning, you may be responsible for unwanted and unplanned taxes, fines, and penalties on yourself or your companies. Avoid tax issues by educating yourself about taxes and paying the relevant taxes associated with your business.
Not acquiring and updating permits and licences
Make sure you have the relevant licences to run your business. For example, if you are a nail technician, you need a state-issued licence for cosmetology and a general business licence.
Some other examples of licences needed:
- Regulatory licenses for specific industries (farming, agriculture, alcohol, food)
- Sales tax permits
- If you are running your business from home, you will need a home-based business permit
- Seller’s Permit
Not having adequate data protection on your website
You have seen the lawsuits and data leaks that have come from hacking and data breaches of big corporations. The loss of confidential client information might also be a concern besides the website’s decline. Ensure your website is protected from hackers and risks using the best GDPR software.
Not having a formal shareholder’s agreement
Whether they are a family member, friend or outside investor, you need a shareholder’s agreement to set the boundaries of the actions of your shareholders. It would be best if you also had these agreements to make clear the obligations, rights, contributions and termination of contracts between you and your shareholders.
Not seeking legal counsel
One of the best things you can do for your business is to seek legal counsel. Lawyers know the ins and outs of laws concerning businesses and companies. Having a company lawyer or at least a lawyer you can contact when you need legal advice is good. Although hiring a professional lawyer with experience might seem expensive, it will help you to avoid legal issues that will be costly to your business.