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The Most Common Legal Mistakes Made By Entrepreneurs & How to Avoid Them

When starting a new business, most entrepreneurs focus on three things: product development, funding, and marketing. After all, these are what make the business—what drive it forward and allow it to grow into the next great success. When you are sure you have the next big idea, it’s hard not to just jump right in.

However, in today’s legal landscape, even the most basic startups face a host of potential concerns. Planning ahead can help avoid unnecessary roadblocks and sidestep issues that might otherwise result in expensive and time-consuming disputes.

Governing Documents: Planning for the Inevitable

Most entrepreneurs have heard that it’s generally a good idea to form a corporation or limited liability company (LLC) to operate their new business. There are enough books and articles on this topic to fill your reading list for the year, but suffice it to say that simply forming a corporation or LLC doesn’t get the job done.

The value comes from thoughtful preparation of the entity’s governing documents. This is where you will establish:

  • Owners’ voting and distribution rights
  • Managerial roles and responsibilities
  • Limited personal liability
  • Rules around sale of ownership interests
  • What happens when the owners have irreconcilable differences

These may not seem like priorities now, but when issues inevitably arise, your governing documents will provide the roadmap for an efficient resolution.

Trademark Clearance: Protecting Your Brand and Respecting Others’ Rights

One of the first things most startups do is choose a brand. In legal terms, your brand is a trademark—the source identifier that distinguishes you from your competition in the marketplace.

If you are going to remember one thing about trademarks, remember this: Your trademark needs to be unique; and, if it isn’t, ignorance isn’t a defense. Trademark laws are intended to protect customers from market confusion, and they preclude competitors from using “confusingly similar” trademarks.

To avoid infringing on another company’s rights and ensure that you are choosing a protectable trademark, it is critical to conduct trademark clearance research. This is an intensive process that examines the universe of existing brands to help you determine whether your chosen trademark is available for use.

Regulatory Compliance: Marketing and Raising Capital within the Rules

State and federal laws regulate both marketing practices and the process raising capital from passive investors. From using endorsements in social media to providing risk disclosures to potential investors, entrepreneurs need to follow the rules. The costs of compliance are far outweighed by the ramifications of failing to comply with the law.

Surveying the Landscape: Understanding the Laws that Impact Your Business

Entrepreneurs also need to be cognizant of any laws that might apply specifically to their business. Certain industries, such as personal injury law firms, have their own laws and regulations, and business concepts themselves often implicate unique legal issues. Consider, for example:

  • Uber – Uber has made headlines recently due to its constant legal struggles. From the liability issues inherent in providing transportation services to facing airport and taxi regulations, there is plenty to keep their lawyers busy.
  • Pinterest – With a platform built on sharing other people’s creative works, Pinterest is a breeding ground for potential copyright disputes. However, thanks to careful planning, Pinterest has been largely successful in avoiding any major issues in the public eye.

Of course, each startup is unique, and there are many more potential issues than we can cover in just one article. However, with at least these basics in mind, entrepreneurs will be better prepared to address legal requirements before they turn into legal issues.

Kurt Smith is a writer and business coach. He enjoys sharing his ideas and insights on various business and law blogs.

 

CEO Blog Nation

This is a post from a CEO Blog Nation writer. CEO Blog Nation is a community of blogs for entrepreneurs and business owners. Started in much the same way as most small businesses, CEO Blog Nation captures the essence of entrepreneurship by allowing entrepreneurs and business owners to have a voice. CEO Blog Nation provides news, information, events and even startup business tips for entrepreneurs, startups and business owners to succeed.

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