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TOP 10 LEGAL MISTAKES PEOPLE MAKE WHEN STARTING (AND GROWING) A BUSINESS

Starting and growing a new business is certainly a marathon and not a sprint. Maybe the fire inside to start that new chapter in your life is raging so much that you finally just decide to take the plunge. Would you run a marathon without any preparation or training? Of course not! You would be asking yourself questions before even committing to run the marathon. Do I have time to do this? Am I physically committed? Am I emotionally committed? Do I have a circle of influence around me that will support me as I work to achieve my goal? And, of course, a little bit of preparation and wisdom from those who have done it before you will go a long way in helping you reach the finish line.

It's the same for startup companies! You need to prepare yourself for success. The Small Business Administration says the following about the survival rate of new businesses:

"About half of all new establishments survive five years or more and about one-third survive ten years or more. As one would expect, the probability of survival increases with a firm's age. Survival rates have changed little over time."

According to Forbes, here are the top 10 legal mistakes people make when starting a business (with some added commentary from our firm on each):

1.     No incorporation. You need the correct legal structure in order to protect yourself personally and everything you have worked to create.

2.     No shareholder's agreement. If there are other shareholders involved and there are changes in circumstances or all goes south, having this agreement will help minimize the disruption. Without it, chaos will likely ensue.

3.     No human resource guidelines. Internal procedures need to be established and employment laws need to be followed at all times. Just one lawsuit from an employee in a new company can cause financial disaster.

4.     Talking trash about the competition. Although tempting, this can be a legal minefield. Before saying or writing anything about a competitor, consult your attorney regarding whether the statements could be considered libel or slander.

5.     Not getting a patent, copyright, or trademark. You have a great idea. Don't let someone steal it (or try to) without having the ability to stop them with an infringement action.

6.     Filing too many lawsuits. Sometimes it's more cost effective to negotiate than litigate.

7.     Not protecting the customer data on their website. Network and data security is crucial. Hacking is a big problem in today's business world - and it can lead to costly liability.

8.     Personal use of the internet at work. You can't block it all, but be as diligent as possible.

9.     Outside investors. Don't be so frantic for cash that you forget to vet the person writing the check. This could prevent severe trouble down the road.

10.  Not remitting payroll tax (or sales tax) to government agencies. Doing this yourself and getting it wrong could prove costly. Not only will you still owe the tax, but the penalties can be severe.

Most new business owners only think about legal problems when they are already smack dab in the middle of them. That surely doesn't mean it's "too late" to address the problems, but it will most certainly cost your business a lot more time and money (and worse, possibly damage the reputation of the business) to deal with a legal issue instead of preventing one. As we talked about earlier, you wouldn't wait until you are at the start line of a marathon to start preparing. Be sure to include a business lawyer in your circle of influence who can help you avoid the ten mistakes above. The relationship will be a great investment in the future success of both you and your new business.

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