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Common Legal Mistakes Entrepreneurs Make and How to Avoid Them


The majority of entrepreneurs will be sharing with you something about starting a business as something as rewarding. Similarly, many of them would advise others to take caution of running a business. And for those startup teams, they should take a bit of planning and preventive care. But when it comes to those legal issues, these may often be intimidating because of the rules and regulations that are quite hard to understand.

Below are some of the common legal mistakes that entrepreneurs make and how to avoid them.

Accepting those Handshake Deals

There are lots of entrepreneurs who often value speed than accuracy, especially when it comes to relationships with customers, employees, vendors and partners. They may also easily accept verbal agreements and “handshake deals.”

In almost all cases, agreements should be made in writing. You just need to visualize it and think of it as a prenup agreement. This may be something that you will never need but will prove to be important later on. When you have no written documents, it would be difficult to help other parties to settle.

And as per the contracts, they should be signed and well-signed by different parties involved.

Common Legal Mistakes

Taking the Role of an Employer without Preparation

For any interested business owner out there, it is a must to avoid being an accidental employer. Entrepreneurs need to familiarize themselves with the employee status and evaluate the things that are as follows:

  • How a worker does his or her job?
  • How is the worker reimbursed or paid?
  • Has there any written contract? Is the role of a worker important to the business?

The majority of companies today are fighting against the re-classification of contractors to all employees. They are also more likely to spend their money regarding the issue. For any of those business owners who are not one-hundred percent sure about it, they should take the advice of a legal expert.

Putting bad investment into the Intellectual Property

When it comes to intellectual property, it is mainly all about patents and trademarks. These are even more valuably considered as assets to new businesses. And thus, these all need to be protected. But then, maintaining and developing a portfolio for intellectual properties requires a lot of resources and time that leads to frustration and confusion among entrepreneurs.

Those entrepreneurs who are not really familiar of the law end up not protecting their intellectual properties. This can also lead to expensive legal consequences along the way. When you do not protect your intellectual property, it often leads to others stealing a secret sauce of your company.

When they also go overboard and try to best protect their intellectual properties, they may later on get overwhelmed and bogged down. They may also not able to safeguard their logos and “ironclad names”.

Before going overboard on their logos and trademarking names, making it sure that the branding will stick is essential. They should also remember that the government does not aim to give refunds. When the time is just right, a firm should pay attention to looping in an attorney in assessing the situation.

Business Management

Putting off Some Basic Admin and Legal Issues

After the initial information has been presented by a business, a business owner usually puts off some of the basic admin and legal issues. Among those basics often include of ownership ledgers, corporate formalities, administrative fillings, keeping business licenses updated and making necessary tax reporting and withholdings on 1099 or Forms W-2. Even though these tasks may seem a routine, these are still incredibly believed to be important.

As per all new entrepreneurs, they need to be familiarized with the requirements set by the state. It is also a good idea to create a business calendar that ensures all important dates do not slip by.

Incorporating Not at the Right Time

Establishing a specific legal entity such as a corporation or company is likewise essential. With this business entity, entrepreneurs are likewise protected from their personal responsibility and business obligation. But despite the privilege of having the legal entity, there will always be the cost and responsibility.

For any entrepreneur, his or her business should just be more than an idea. One should also be certainly ready and determined in investing money and time in maintaining the business as a legal and separate entity.

There may be a lot of tax and legal fees to pay including government-imposed fees for the purpose of having an established entity. Thus, they need to think about timing for incorporation. It may as well be the right time to take initial action when the benefits of a real company and limited liability outweigh the administrative costs.

Engaging Professionals by the Time that a Problem Arises

One of the biggest legal mistakes that entrepreneurs face is putting off legal issues until then that he or she is being sued. It is just right to talk to a professional when one is not yet threatened with a lawsuit.

Even healthy people are seeing their dentist or doctor for preventative care. And similarly, healthy businesses must take the same and usual approach. They must also carefully establish a good relationship with good lawyers. They should also learn more about the intricacies of a particular company including the tolerance of employees for risk. Some attorneys also offer low-cost and free initial consultations to be able to build a long-term relationship.

Legal plan options should also be on top of the priorities of new businesses. A lot of lawyers usually charge their service for an hour. They can also get coverage and a professional lawyer when it comes on a legal query.

By knowing all about the landmines and legal pitfalls, it helps further in keeping a business entity at its solid foundation. And thus, entrepreneurs can get focused on operating their business and growing their company.


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Common Legal Mistakes Entrepreneurs Make and How to Avoid Them

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