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3 legal mistakes to avoid when starting a business

Starting a business is an exciting experience. There is nothing quite like the feeling of purpose, determination and fulfillment of entrepreneurship. However, there is plenty of room for legal issues to arise during the startup phase of your company. 

You should not neglect legal problems until later. To protect your business, you must deal with them right away. Here are some common missteps to avoid so you can successfully grow your new venture.

1. Failing to consider liability issues

When going into business by yourself, you may simply start conducting business as a sole proprietorship without filing any paperwork. The same goes for general partnerships if you go into business with at least one other person. While these entities are convenient, they are not ideal in terms of liability. Consider initially forming your business as a corporation or LLC to safeguard personal assets.

2. Not being clear with partners

When you start a business with co-founders, you need a clear and detailed founder agreement. Here are some questions the document should answer:

  • Who owns a percentage of the business, and how much percentage?
  • What are the responsibilities of each founder?
  • How much time should each founder commit to the company?
  • How are business decisions made (unanimous, majority or sole CEO votes)?
  • What cash or assets does each founder invest or contribute to the company?
  • How will the founders resolve disputes (litigation, arbitration or mediation)?

Failing to outline these concerns may cause complex issues later.

3. Inadequate employment documentation

When you hire your first employees, you may make the mistake of not prioritizing documentation. This can mean trouble if your employee ends up wanting to take legal action against you. Crucial documents you should have each employee sign include an at-will letter, employee handbook, IRS Form W-4, USCIS Form I-9 and benefit forms.

If you can avoid these errors during the beginning stages of your business, you will be on track to achieve success.

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