common startup legal mistakes

Common Startup Legal Mistakes And How To Avoid Them

Linkilaw Startup Advice & Tips

As a startup owner, you are probably over the hill about getting the wheels of your game-changing new business idea in motion. While this is absolutely fantastic, such unbridled enthusiasm can make you forget about some arguably less exciting, yet very important legal issues.

Negligence of the law (whether it’s intentional or not) can throw quite the wet blanket on your booming enterprise right from the start. It’s not enough to work hard, as we have stated in our recent post on the most common misconceptions about starting a startup; to make it big, you also have to play by the rules and best practices.

Here we list some of the most common startup legal mistakes which can heavily compromise your business’ health and success.

You Haven’t Chosen the Right Legal Structure for Your Startup

Sole proprietorship, partnership, LLC, corporation…Which of these structures is right for your startup? The terms alone can sound intimidating, especially if company law is not your forte. Nonetheless, it’s key you don’t bring any hasty or uninformed decisions. An unfitting structure can result in higher taxes, subjection to greater liabilities, or overly-restrictive legal limitations.

For instance, owners of proprietorships and partnerships expose their personal assets and can be personally sued by creditors of the business. On the other hand, LLCs and corporations offer greater liability protection, but are more expensive to register. To identify the best option for you, hire a competent lawyer who can offer legal guidance for startups. Not only will you receive a fair appraisal of your business concept, but the answer to which structure best fits your needs and goals will follow accordingly.

You Haven’t Protected Your Intellectual Property

Rebecca Howlett, partner at Mackrell Turner Garrett, recently revealed in one of our most popular articles that she has been involved in cases in which the sale of a company has stalled – solely because the company didn’t own the intellectual property it was selling.

Don’t have that happen to you – protect your intellectual property, regardless if it has been created by an external consultant or internally, and whether it applies to copyright rights, trademarks, patents, design, etc. You would hate for all your hard work to go in vain (or, worse, to someone else) because of a simple overlook, wouldn’t you?

You Have Taken a Sloppy Approach on Agreements and Templates

When you’re setting your promising new business afoot, you may not have a lot of initial capital, and your co-founders or partners may also be your friends or relatives. In such circumstances, you may not see the reason to “nitpick” or “fuss over” detailed contracts and agreements. However, all contract lawyers for startups will tell you one thing: it is quintessential you document each of your co-founders’ duties, responsibilities, titles and equities in a thorough and well-structured agreement. Well, at least if you want to steer clear of potential deal-breaking arguments and visits to court some time further down the road.

Same as with co-founders’ agreements, you should apply the same meticulous approach in developing contract templates for employees. You may think this is tedious extra-work, but more than anything else, it’s your best bet to avoid unpleasant complications and possible lawsuits once your company takes off.

You Do Not Have User Agreements and a Privacy Policy on Your Website

According to Richard Harroch, it is of paramount importance you develop two main documents for users of your website: a User Agreement, which states how your site can be used and in what way it is limited, and a Privacy Policy, which discloses what information your site is going to collect and how it’s going to be used.

Selected lawyers for your startup will undoubtedly put a lot of their effort and expertise in developing these documents and tailoring them to your company specifically. Your terms, conditions and policies can greatly differ from your competitors’ or other similar companies’, so a copy-paste approach from another website can get you in a serious legal pickle.

You Haven’t Had Your Name and Your Identity Thought Through

The latter isn’t a simple matter of aesthetics or branding, but can end up becoming quite the legal nightmare. Come up with a list of potential startup names, then conduct an all-encompassing search: are any of these taken? Does any name mean something else in a market I wish to operate in? Does it bear any negative implications, or could it be possibly offensive to someone?

Same goes for elements of your brand and visual identity: make sure your logo or tagline doesn’t come off as a rip-off of some other brand. Not only will it diminish your credibility, but it can get you all tangled up in a costly lawsuit. On the UK trademark office page, you can easily check whether any of these elements have already been taken.

Final Words: Common Startup Legal Mistakes

Anything we’ve missed? If your startup is past its growing pains, let us know what are some of the common startup legal mistakes you have made, and how you managed to fix them.

Obviously, being a startup owner and founder is not a stroll in the park, and we get that. That’s why we want to help. If you found this article useful, we’re positively certain you’re also going to enjoy our eBook that is bursting with startup funding tips. Enjoy the read and send us your feedback!

In the case you want to get a bit more familiar with startup law so you can avoid common startup legal mistakes then here’s a great post on startup law basics in ten quick steps.

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