Brand new, fresh-out-of-the-box entrepreneurs have this one thing in common – they are wide eyed and innocent, and are completely sold out to the idea that they are capable of fixing the world and/or making a lot of overnight money; whichever applies.
And while it seems like everywhere you turn, there seems to be a brand new, ground breaking idea, the world appears to be unaffected by the majority of these ideas.
This is really all that matters. But between developing a fail-proof delivery method, and establishing the business presence, it is easy to become so busy that a few things are allowed to slip through the cracks; one of such areas is establishing a solid legal foundation for your company.
Unfortunately, the impact the lack of making legal mistake in the early days of business has a dastardly effect on its establishment and lifespan in general, and so, lawyers are often tasked with outlining the most common legal mistakes that founders make.
While there is no tried and true formula for how much time and money you should spend on legal concerns – if you are as acquainted with startups as Lawyers in Clarksville TN ; you will find that providing Legal Services in Clarksville TN means hearing a few horror stories every now and then;
Here is a look at some of the most common legal mistakes which, if not avoided; are guaranteed to turn your entrepreneurial dreams to a real life nightmare –
Mistake #1: Not Being Absolutely Clear With Co-founders or Shareholders
Let’s be honest – it’s a tad awkward to discuss money. This is especially true for first time entrepreneurs and young co-founders, but establishing clarity on rights, decision-making authority and equity can prevent potential conflicts in advance, and most importantly, ascertain whether everyone is in alignment with the company’s vision.
For transparency sake, a well-drafted operating agreement or shareholder agreement is key. The agreement should include the right ownership percentage for each team member based on their relative contributions to the company.
Mistake #2: Incorporating at the Wrong Time or Failure To
Start up’s which are properly incorporated become a separate legal entity which conducts business, generates income and assume its own tax and legal liabilities. Even though you can always convert your business from a sole proprietorship arrangement, getting it done right away will save you time and money as well as protect your personal assets from any liabilities you incur in your business.
While it is important to incorporate your business, it is just as relevant to select the right entity. There are various entities available, each of which has different implications for expenses and procedures, legal liability, taxation and fundraising. Consider speaking to an expert to get counsel on what is most appropriate for you.
Mistake # 3: Not Getting Agreements in Writing
Accepting ‘hand-shake’ deals and verbal agreements in relationships with customers, vendors, partners and employees will set any entrepreneur on the high-way to business hell.
No matter the case – or the apparent triviality of the agreement, put it in writing. Most contracts are never disputed. They must be well defined and signed by all affected parties, and even if it ends up in a drawer somewhere, this ‘just-in-case’ document will probably have saved you a massive headache and wallet drain anyway.
Mistake #4: Hiring Just Anyone
The employees of any establishment are its life-blood. They can make or mar any institution, and are almost as important as the idea behind its establishment.
Before any hires are made it is important to first check for conflicts with their current or prior employers. Subsequently, they should be required to sign non-competition and non-solicitation agreements since legally, a potential new hire’s current or prior employer may have claim to intellectual property you would make accessible to them.
It is also important to be prepared to be an employer before taking the plunge; thoroughly consider their rights and entitlements and be certain you can meet them.
Mistake #5: Not Having an Exit Strategy
At the beginning of a business, the furthest thing from your mind would be how you or any of your partners would want to opt out of your business, after all – you should all grow old together right? Wrong.
Not to be pessimistic or anything, but anything could happen. As security, have an attorney prepare a buy-sell agreement that addresses these back-end issues up front to provide smooth future transitions.
The Worst Possible Mistake: Opting For Legal DIY
Perhaps we should have begun here, because having great legal counsel will save you the trouble of dealing with any of the above listed mistakes as well as a few others.
If you are serious about developing a solid legal foundation for your start up, a sit down with an experienced business attorney will not only provide you with a broad spectrum of the services offered by Clarksville Legal Services, but would help you identify your liabilities, mitigate legal risks and this would allow you the freedom to focus on your growing business. Just because you’re a startup doesn’t mean you have to be naïve.