No one is perfect; we all make mistakes. However, there are 4 common legal mistakes that many startups make that you should know so you can avoid them:

1. Not making an explicit agreement with co-founders

It is absolutely imperative that when founding a company that you and your co-founders have a crystal clear understanding between you. Without it, huge issues could arise later on. A few issues that need to be addressed in the agreement are:

      • Who gets what percentage of the company?
      • What are the positions and obligations of the co-founders?
      • What happens if one the founders leaves? Can another founder buy that founder’s interest? If so, for how much?
      • What salaries are the founders entitled to? How can that be changed in the future?
      • If the business is to be sold, how will it be decided?

 

2. Choosing the wrong business entity

When starting a business, you need to choose a business entity; however, different business entities will suit your company better than others. Some different entities to choose from are LLC (limited liability company), Sole Proprietorship, Corporation, and General Partnership. All of these have different implications for how your business is run. The business entity that works best for your startup depends on what your business does, what your financing looks like, how you expect to get future financing, etc.

3. Improperly protected intellectual property

If you have created a new product, developed new technology, or established a unique service, you need to protect it. With the proper legal documentation you can protect your intellectual property from duplication and imitation from competitors. Some ways to do this are patents, trademarks, copyrights, and non-disclosure agreements.

4. Trademark Infringement

Some startups have legal issues when it comes to their name and branding. When starting a company, you need to do your research and make sure that you’re not infringing on another company’s trademark. Failure to do so could result in a lawsuit. One way to prevent violating any trademark laws is to search records from the U.S. Patent and Trademark Office site for any businesses registered under your potential business’s name.

When it comes to your business, you should avoid as many mistakes as possible. That’s why it’s important to talk with a lawyer about your startup to make sure that everything is as it should be. At Gathings Law, we have decades of experience with startups and small businesses. If you own a small business or are trying to start one, call us at Gathings Law. We work with our small business clients to be sure that their needs are met on a fee structure they can afford. We truly care about our clients and helping them achieve their fullest potential.