How to Avoid These Common Legal Mistakes as a Startup

Don't Make These Common Legal Mistakes As A Startup

There are a variety of legal missteps that can derail your business growth if you don’t take steps to protect yourself.

Getting a business off the ground is a challenging and complex process that requires dedication, resources and a market-fit product. However, many entrepreneurs often neglect the legal aspects of their endeavor, which can lead to costly and lengthy proceedings and even shutdowns. In fact, 18% of startups collapse due to legal troubles, highlighting the importance of ensuring all legal bases are covered. In this blog post, we will provide an overview of five common legal mistakes that startups make and offer practical tips on how you can avoid them.

Failing to register the company

Failing to register your business may result in harsh penalties such as hefty fines, jail time or even the shutdown of your business. In some cases, it can make it difficult to raise funds or attract customers who may be unaware of your company’s legal status. In addition, you risk not being able to obtain a business license or take advantage of tax exemptions. To avoid these problems, make sure to complete all necessary paperwork to register your business.

Depending on where your business is located and what it does, there are a few different ways to register your firm. For instance, in India, one must fill out a form and submit documents by registering through Startup India; in Singapore, this is handled by the Accounting & Corporate Regulatory Authority (ACRA). 

If you’re uncertain how to incorporate your business, seek advice from local chambers of commerce or small business administration offices. You can also use online incorporation services like ZenBusiness to help you through the process.

Failing to get the necessary licenses and permits

To operate your business legally, you are required to obtain licenses and permits after registering. Startups often overlook this important step in the rush to get their business up and running, which can result in serious penalties

To avoid this mistake, do your research and make sure you know what licenses and permits are required for your business. For example, if you’re planning on opening a salon, you’ll need to get a state-issued cosmetology or beautician license before you can start operating. Second, work with an experienced attorney who can help you navigate the process. Third, don’t wait until the last minute to apply for licenses and permits—give yourself enough time to complete the process.

Not safeguarding intellectual property (IP)

Most startups are passionate about their product or service, hoping that they will change the world for the better. But in the excitement of launching their product into the market, many founders overlook one important detail—safeguarding their intellectual property (IP)

A business’ IP comprises trademarks, patents, designs, logos, inventions, trade secrets and any other material it has generated. Possessing IP gives startups superiority over their competitors and provides a distinguishing identity that customers will come to acknowledge. Without proper IP protection, your business is vulnerable to IP theft or infringement, resulting in lost revenue and a damaged reputation.

To safeguard your IP, conduct a thorough search to make sure no one has already patented or registered your idea. Then, you should file for patents and trademarks to protect your IP from being used without permission. Finally, you should include clauses in all contracts and agreements relating to IP ownership and usage.

Lack of formal written agreement between co-founders

Without having a legal, written agreement between co-founders, potential disputes and misunderstandings can arise. Issues like conflicting opinions on company direction, disputes over shares, disagreements on spending or whether to bring on new investors can put tension in the partnership and could ultimately hurt the company. 

To avoid any misunderstandings and subsequent legal troubles, draw up a sound contract to outline each co-founder’s roles, duties, decision-making processes, IP rights, equity breakdown, salaries and exit strategies.

Non-compliance with regulatory frameworks

When it comes to legal compliance, startups often make the mistake of assuming that they can do whatever they want. After all, they’re small and nimble, and they’re not used to being tied down by rules and regulations. However, this is a significant mistake, as non-compliance with regulatory frameworks can lead to serious penalties.

For example, failure to comply with securities laws in the U. S. can result in civil or criminal liability, and non-compliance with the region- or country-specific environmental regulations can lead to stiff fines of hundreds of millions of dollars.

Taking the time to ensure that your business is legally compliant from day one can save you a lot of hassle down the road, so don’t wait until it’s too late! With these tips in mind, take action now and make sure that your company is well on its way toward success with no major legal pitfalls along the way.

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Header image courtesy of Freepik

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