Business & Economy Startups The biggest legal traps startups fall into

The biggest legal traps startups fall into

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Don’t let Alice fool you, the rabbit hole isn’t a magical affair at all

With the economy roaring right now, it’s unsurprising that eager entrepreneurs across the nation are keen on announcing their ambitious startup companies to the world.

Before you think about finally going public and acting on your plans to start your own business, you need to do plenty of research to ensure that your company doesn’t fail from the get-go. More often than not, startups suffer because they lack legal expertise and the ability to properly plan out their future with a lawyer’s help.

Here are the five biggest legal mistakes startups make time and time again, and how you can avoid them when launching your own business.

1. Passing up on a founder’s agreement

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Many startups that are launched by a group or pair of similarly minded entrepreneurs feel that they can pass up on a founder’s agreement, which they wrongly view as an unnecessary expense that will take up time, money, and potentially divide them in the future.

While it can be appealing to launch your startup without feeling constrained by a founder’s agreement, such an agreement is absolutely necessary to the longevity of your business. Far too many companies failed because they mistakenly believed they could survive and thrive off the force of the personalities of those running them.

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Avoid letting a small conflict spin out of control in the future and destroy our startup’s chances of success. You should take some time now to read up on why founder’s agreements are so important, and what crucial details you should be covering when forging an agreement of your own.

2. Hiring a shoddy lawyer

In order to navigate all these legal documents without going crazy, your startup will likely be depending on the expertise of a lawyer sometime in its opening days. However, if you hire a shoddy lawyer, the consequences could reverberate and diminish your business’ ability to succeed for years to come.

Having excellent legal expertise isn’t cheap, and you may think this is the proper time to keep expenses low, but don’t hesitate to spend what’s necessary on acquiring a good lawyer who can give you solid advice in times of trouble.

What you should know about hiring a lawyer largely revolves around testing their character, credentials, and determining if their personality is a good fit for your startup. Keep focused on recruiting stellar legal experts to your team and your startup will be sailing in safer waters than many of its competitors.

3. Dismissing compliance as an unnecessary regulation

The bane of any new business owner is the dizzying system of regulations on false advertising he or she will soon have to grapple with as they attempt to wrestle a profit from the marketplace, but it’s a terrible mistake to dismiss compliance with industry standards as just another regulation to be ignored.

Cutting through red tape isn’t always worth it, and if your company starts cutting corners when it comes to making sure it’s compliant with all the necessary regulations you’ll soon land yourself in legal jeopardy. Unless you want to face an expensive lawsuit, you should be sure to make compliance a priority at your startup.

If you lack a compliance program, that says a lot about your startup’s ability to ensure a future for itself in a crowded marketplace where regulators are always looking to cull the weak from the rest of the herd. You may think a dedicated compliance professional on your team is expensive, but they may end up saving you a ton of money in the long run by avoiding stiff fines and legal nightmares that occur when you’re noncompliant with important laws.

4. Your startup and its roles are vaguely defined

You may think keeping the roles of your senior executives vague gives you some flexibility in your daily operations, but it’s a crucial legal mistake that could end up muddying the waters in the near future.

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Your startup’s founding partners may quickly find that the task they set out to accomplish was completed much earlier than they thought possible and try to foray onto another partner’s turf in search of additional work, overstepping his or her boundaries.

Making sure that everyone’s role is clearly defined, and responsibility is fairly dished out, is essential to success.

5. Remaining ignorant of tax laws

Finally, the biggest legal mistake that countless startups make is remaining ignorant of local tax laws and how they can be exploited for a profit. If your company isn’t properly incorporated, for instance, you could be saving yourself literally thousands of dollars a year in taxes.

Furthermore, knowing where to incorporate and where to base your business operations could end up being the difference between a startup in the black and one that’s struggling to make a profit.

Dig deeply into your local regulations and arrive at a comprehensive understanding of your nearby business environment before you create your startup, and you’ll be avoiding the biggest legal mistakes that countless other entrepreneurs have made before you.

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