Legal pitfalls to avoid for startups

4 Legal Pitfalls And How Your Startup Can Avoid Them

Linkilaw Startup Advice & Tips

When stepping on unknown ground, especially if you have found yourself alone in the entrepreneurial jungle, it’s easy to fall into legal pitfalls. Luckily, this is the age of superfluous and readily accessible information that you can arm yourself with on your path to professional success. If you can experience all the benefits of learning from a mistake, without having to make one yourself, why wouldn’t you?


[tweet_dis_img]100 million startups are launched every year but only 500,000 succeed.[/tweet_dis_img]


We all need a little help every now and then; with that in mind, we’ve listed the four most common legal pitfalls young new startups fall prey to. Keep reading so you don’t have to be one of them!

Choose the Right Legal Structure

One of the pinnacles of legal guidance for startups is helping you choose the right type of structure or business entity. Do you know what the differences are between sole proprietorship, partnership, LLC, corporation… and which of these options is the right fit for your enterprise?

Picking the wrong structure is one of the most common legal pitfalls that causes things go awry for many startups right from the beginning. To put things into perspective, we have encountered a few ex sole proprietorship owners who had their personal assets exposed and eventually lost in a lawsuit filed by their creditors. Avoid this gloomy scenario by exploring the nitty-gritty with all the pros and cons of each legal structure.

Protect Your Intellectual Property

Overwhelmed by the idea to create, that is to transform your brilliant concept into a palpable product or service, you may forget about the necessary precautionary measures against the misuse of others. And hence, your intellectual property stands out there in the open, unprotected, free for everyone else to skim the results of your hard and unique work.

Be aware that everything that is created in your company is part of your intellectual property, and should be protected under a copyright, patent or trademark. In fact, all the work done by your employees or contractors has to be treated as “work for hire”, which then means it belongs to your firm.

Corporate lawyer Scott Edward Walker also notes that “some entrepreneurs make the mistake of creating intellectual property for their new venture while they are still working for someone else. They then quit and launch their startup, not realising that the IP is actually owned by their prior employer.” If you think this may be your case, review your prior agreements and contracts carefully to make sure there isn’t any potential infringement.

Regulate Your Stakeholders’ Relationships


[tweet_dis_img]Make sure you set up in advance clear legal terms on how the business will be run.[/tweet_dis_img]

Max Lesser, Head of Company & Commercial at Colman Coyle, said in one of our recent articles on some of the most common startup legal mistakes: “The biggest and most often recurring startup legal mistake that can come back to haunt a startup is the failure of its participants to properly agree and set out the terms upon which they will run the business.”

Indeed: building a solid and firm legal framework is absolutely indispensable if you want your startup to run smoothly, not just at the beginning – but for years to come, when the initial unbridled enthusiasm wears off. The duties, responsibilities, titles and equities of your partners, employees and other relevant stakeholders should be put in writing, i.e. in official contracts and agreements. Bear in mind this is your best guarantee and protection for all future and unforeseen events and possible complications.

Invest in High-Quality Legal Documentation

Many startup owners, in an effort to save a couple of quids in the early days of their business undertaking, decide to leave the making of their legal documentation to the cheapest and quickest provider. Some even resort to online legal technology companies like LegalZoom, a practice that can end up in flimsy, inappropriate or simply lacking legal documentation. The consequences can end up costing you much more than what you may have initially saved, and can even bring your personal liability on the line.

Accurate legal documentation not only provides you credibility, but acts as a shield towards malpractice and misuse of other parties. Invest in proper legal guidance to draft your legal documentation. A proper law firm will take into account your unique position and particularities, then create the documents that will follow and support your business needs accordingly.

Final Words: Avoiding Key Startup Legal Pitfalls

Tickled by the idea of taking your business idea to the next level, and setting up a startup? Our advice will take your through every aspect of it, from legal guidance through general matters, as well as practical tips on how to find the means for this undertaking.

The process of raising funding for your business venture can seem convoluted, if not intimidating, but don’t let that thwart your dreams and goals! Our great new eBook on startup funding will help you through every step of this process and make sure you get your startup where you want it to be while also helping you avoiding legal pitfalls related to getting funding.