Avoidable Legal Mistakes to Know When Starting a Business


Starting a new business is certainly not easy. The pressure associated with starting a new venture can be overwhelming and can lead to poor decision-making. This probably justifies the U.S. Bureau of Labor Data that more than 20 percent of startups fail in their first two years, and half of the new businesses do not survive more than five years. While there is no certain foolproof strategy that ensures a startup’s success, being wary of the various mistakes to avoid can increase your chances of success. Below are the common legal mistakes to avoid when starting your venture.

Starting With an Incorrect Business Structure

Developing a business structure is important as it guides your startup functioning and overall protection. Unfortunately, most disputes arise from an improperly defined business structure. Therefore, you should lay out the right structure from the start to ease the identification of current and future business risks, set goals, and determine the venture’s financial and legal obligations.

Entrepreneurs can choose from various business structures. For instance, you can decide if you want to run the venture as a sole trader, partnership, or company. Regardless of your choice of structure, ensure that it aligns with both the short and long-term goals. You should as well review the structure continually based on the foreseeable growth of the business.

Thinking the Legal Problems will be Solved Later

Most people make the mistake of saving the legal aspect of their business for later. Entrepreneurs prioritize developing a business plan, raising capital, and other business operations to hiring a lawyer from the start. While this doesn’t mean that you should spend all your capital in hiring a lawyer, find excellent legal talent that can provide legal services with a percentage of the fees paid upfront. Legal decisions from a competent lawyer may cost less than having to pay for the mistakes made later.

Failing to Protect Your Brand

While this may sound simple, brand protection for startups is very significant. Common issues with brand protection that can undermine your business’s sustainability include not registering your trademarks, designs, and patents or ignoring the importance of securing confidentiality agreements.

Coming close to failing to protect your brand is infringing on other businesses’ trademarks. Infringing trademarks is probably the worst and most expensive mistake that business owners make. A startup needs to be aware of trademark registrations already granted to other parties. You should conduct a thorough search for brand clearance. Based on this issue’s importance, you should consider hiring a professional to sort your brand clearance. Brand clearance in business essentially means ensuring that your chosen business name and logo are available.

Starting Your Business While Employed by a Potential Competitor

According to the law, aspiring entrepreneurs cannot start parallel businesses that compete with their employers. Incorporating a competing business with your employer is a direct recipe for a lawsuit. As such, enthusiastic entrepreneurs should resign and inform their employers about their plans. You should also observe the inevitable disclosure doctrine, where you cannot disclose your former company’s secrets.

That aside, entrepreneurs should also ensure that they check their employees’ agreements with previous employers before hiring them. Under the same doctrine, an employee exposed to trade secrets in their place of work cannot share with another business. Therefore, if the new job responsibilities are similar to the employees’ previous position, the court can rule that they will use the trade secrets inevitably. As such, it can issue an injunction prohibiting the employee from working in your new venture until the known trade secrets are stale.

Ignoring the Fine Print

Despite the familiarity of the phrase “terms and conditions,” most aspiring entrepreneurs tend to ignore it. These terms and conditions are essential in protecting any venture. Entrepreneurs can undervalue the importance of fine print in the documents signed by their customers or documents signed with other entities. Understanding the clearly defined terms and conditions guiding the company’s operations with customers helps avoid legal consequences.

On the other hand, the fine print in business deals with other entities often contains tedious and seemingly confusing yet essential information. Without assistance, most startups find it hard to decipher. As such, getting professional legal help can help you understand what you are signing with other entities. Failure to observe the contractual terms can lead to hefty fines and consequences.

Bottom Line

Every decision is crucial for entrepreneurs looking to start their businesses. Unfortunately, amidst the exciting entrepreneurial spirit are legal mistakes that are overly easy to make. While the majority are minor and can be fixed with ease, others are costly and extremely damaging that they can determine the business’s success and failure. Seeking legal advice or expert recommendations from seasoned business owners can help you avoid these mistakes.