Establishing a business demands strategic planning, careful organization, and seeking advice from seasoned legal professionals. Entrepreneurs can mitigate potential crises and financial challenges by devising a comprehensive strategy for the initial two years. Although plans may evolve, proactive thinking is essential in navigating both significant and minor challenges that may arise.

Businesses vary in requirements based on size and industry. A tech startup might face more challenges without a solid nondisclosure agreement, unlike a small business. Establishing written agreements between family business owners is crucial for seamless operations, while preemptive discussions with legal and financial experts help founders avoid potential issues.

These are the basic 10 common legal errors business owners commit when setting up a business, along with steps to prevent them.

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Mistake 1: Forgetting to buy insurance

To evade this oversight, founders should collaborate with an insurance broker and attorney to comprehend standard coverage and beneficial add-ons. Neglecting to secure necessary insurance leaves the business susceptible to risk and may impede regulatory compliance. Moreover, the absence of insurance might deter potential investors. For instance, a new medical office should consider general liability, commercial property, and business income insurance, and if situated in a flood-prone area, additional flood insurance is advisable.

Mistake 2: Not taking help of attorneys for contracts

To steer clear of this error, founders should engage a business attorney early on. An attorney can provide invaluable guidance on crafting and maintaining contracts tailored to the specific state laws. Avoiding generic, one-size-fits-all agreements is crucial to ensure that all contract terms are legally applicable. Choosing a lawyer experienced in the industry and adept at drafting contracts related to the company’s goods and services is highly advisable for founders.

In a startup, it’s crucial for founders to collaborate with an attorney well-versed in crafting clauses relevant to the business’s niche, especially in industries where time sensitivity matters. Furthermore, founders need an attorney experienced in securing copyrights, patents, and trademarks, well-versed in the varied intellectual property laws across different industries.

Mistake 3: Faulty business structure

Avoiding this mistake involves founders learning about various business structures before establishing the company. Educating themselves on business operations and growth minimizes unnecessary expenses. Group discussions on the costs and benefits of establishing a C or S corporation help align everyone’s goals, fostering a deeper understanding of individual and collective objectives.

Mistake 4: Mixing business and personal finances

Avoiding financial and legal errors involves founders maintaining a clear line between personal and business expenses, and choosing reputable sources for investment. Startup founders should consider funding from accredited investors, steering clear of non-registered brokers. Documenting contributions, whether in the form of services, resources, or cash, and accurately recording their value within the business’s records is essential.

Mistake 5: Not knowing about Labor laws

To avoid missteps in hiring practices, founders should consult an attorney well-versed in local labor laws before initiating the hiring process. It’s crucial to identify and comprehend the specific employment regulations applicable to the business’s location, which helps in maintaining a positive image and adherence to legal standards during interviews and hiring procedures.

Mistake 6: Not keeping documents properly

Founders can prevent errors by implementing a standardized paperwork process for all applicants and new hires. However, they should ensure that individuals with specific legal requirements, such as disabilities, complete additional necessary paperwork. For instance, standard onboarding paperwork is essential for all new hires, with specific paperwork only for disability-related accommodation. Inadequate documentation might expose the business to legal risks, so founders must establish a system to maintain and replace any missing documents.

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Mistake 7: Not following rules

Founders can prevent this error by ensuring their business operations align with the state and local regulations applicable to their industry. Consulting with their attorney helps identify key legal obligations concerning areas like zoning, security, and transportation. Avoiding shortcuts and seeking insights from former agency personnel involved in law creation ensures compliance and a satisfactory relationship with the governing bodies.

Mistake 8: Not writing agreements in writing

To avoid this mistake, founders should follow up conversations with relevant parties via email rather than relying on verbal agreements or informal handshakes. Putting agreements in writing, particularly through email, is crucial for clarity and legal support. Texts are less reliable due to difficulty in tracking and potential legal issues. Collaborating with an attorney and communicating industry-specific practices helps formalize contracts effectively.

Mistake 9: Missing payments

To avoid this mistake, founders should maintain a regular tax payment schedule and keep detailed records of payments, including amounts, dates, and payment methods. Failure to pay taxes on time can result in penalties, incurring unnecessary costs and drawing attention from tax agencies. It’s advisable for a new business to stay clear of tax issues in its initial years of operation.

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Mistake 10: Not keeping your tax records

To avoid this error, founders must maintain and organize records essential for tax and regulatory purposes. Retaining necessary documents, both digitally and physically, in an organized and accessible manner is crucial. Creating a systematic filing approach and considering encryption or cloud backup for sensitive documents helps maintain record integrity.

These legal oversights can be addressed through consistent and respectful communication among founders. Working collaboratively, they can navigate emerging legalities or potential customer disputes. Ensuring all founders are involved in resolving issues helps in overcoming challenges and fosters collective problem-solving. As they work through challenges together, the recovery process becomes a memorable experience, diminishing the impact of any missteps over time.