Avoiding The 5 Most Expensive Legal Mistakes Made by Entrepreneurs

This was how America was fundamentally built: entrepreneurship. Somewhere along the lines of the colonization and trips from England into the new land, people started having ideas. Those ideas turned into potential money makers. Those money makers made businesses. Businesses made continual revenue. Continual revenue made profit. Profit made an economy.

And the economy, well — that made America.

Statue of Liberty
photo credit: Ludovic Bertron

So forget any naysayers or glass-is-half-empty critics about the idea of starting up a business. Although the most recent recession we’ve been facing has put a dent on the prospect of small business startups, without a doubt the desire of entrepreneurship still burns brighter than any bombs bursting in the air as the American flag still waves proudly.

If you’re still skeptical, take a look at these facts —

  • There Are Currently 28MM Small Businesses in America

  • There Are Now 22M Self-Employed Individuals as Well.

  • Finally… You’re Looking at Over Half of the Entire American Workforce Pulling Their Weight With Small Businesses, Those Companies Creating Over 65% of the Newest Jobs Since 1995.

Those are pretty impressive facts. Undoubtedly, being an entrepreneur is the American Way. Even from a certain point of view, it’s the only successful way.

You Can’t Succeed as an Entrepreneur, Though, If You Don’t Watch Out For Certain Pitfall

Of all possibilities with work, no matter if you’re working for a company or for yourself, the most expensive errors you can make occur when you’re nothing more than the budding entrepreneur.

It can certainly make or break you, so be careful. While you might make it big as an entrepreneur for a lot of reasons, there are some serious possibilities for downfall, because you are on your own. You’re in charge. You call the shots.

For starters…

Don’t Forget About That Founder Agreement

Being a founder is basically being an entrepreneur starting a company. The entrepreneur has the ideas, tries to pursue them, creates partnerships and maybe even develops ideas for other businesspeople. When that entrepreneur, though, starts his or her own company, you don’t just get an entrepreneur, you get a founder.

You need to have that agreement in place, because undoubtedly you might have several other ‘partners’ involved, and everyone needs to be on the same page. Some aspects of a founder agreement you would need to include involve:

  • Divisional Ownership

  • Roles and Responsibilities

  • Share Purchases and Costs

  • Established Founder Salaries

In a way, it’s like a prenuptial agreement. You and your co-founders are agreeing to terms in the event some leave the company or the company dissolves by chance for whatever reason. Without this document in place, your foundation might fall from under you, and you’ll have no safety net.

Forgetting the Legal Structure

It’s not enough to just say “let’s start a business.” You’ve got to go through the legal motions. Consider your options under business law: you’ve got sole proprietorships, which are easy; and then general partnerships. You might even go big and start an LLC or “corporation,” and that’s fine.

Whatever you do, don’t forget to file for whatever structure might suit your needs. It’ll help you considerably when filing for taxes and saving you from liability.

So You Don’t Have Standard Form Contracts Suiting Your Needs?

This is your business. Your contracts should suit you, not just the customer or partner involved. The pitfall here is to know that there are ‘standard’ forms of contract, and you can easily get some examples from your skilled business lawyer.

Be sure, however, to tailor those forms — with the consultation of your attorney — to suit your needs. Be detailed. Define the way disputes are resolved, and most definetely make it very clear as crystal in your writing how liability will be limited on your end.


Your Creations Need to Be Legally Protected

Part of being an entrepreneur is the idea that you’re a creator. You’ve made something worthwhile, unique and sellable. The fear, though — and rightly so — is that anyone can steal it from you. That’s a fundamental truth.

However, not many think about that at all. You should. File for your copyrights, your trademarks, your patents immediately. Get it in writing. File multiple applications for multiple parts of your products and services to ensure no one infringes on them in other ways, drawing from your sales demographic and cutting down your business either intentionally or unintentionally. You want to succeed? Part of succeeding is protecting your business.

Lastly, Maybe You’ve Hired the Wrong Lawyer

We close out on this for good reason. The legal industry is competitive. Make sure you find the right counsel for your purposes. Especially in the case of sole proprietorships, entrepreneurs starting out and 1-man operations, the best counsels out there are the ones who’ve represented many in the past.

Do the research. Ask the right questions. Really get into interviewing potential lawyers for continual legal work.

If you can get all of that taken care of, the rest of your job should be a cakewalk. After all, you’re your own boss. Prove it by watching out for these pitfalls.