top 8 legal issues for startup

Top 8 Legal Issues for Startups

In recent times, starting a business comes with thrills and excitement, especially at the outset. Sadly, many of the mistakes that can turn an early excitement into a horrific feeling that might end up sinking the business can be made in the early days of the company. 

While every startup is different, this article highlights the common set of legal issues that arises at the early stage of a startup that can jeopardize the existence of the company.

  • Non-existence of a co-founders agreement 

It is advisable to have an agreement that formalizes how the partnership works and what happens if it dissolves once you have other founders in your startup.

  • Not taking IP into account

At the earliest stage of your business, intellectual property (IP) is one of your most cherished assets and you should protect it religiously. Yet, many companies don’t take IP seriously. Trademarks, patents and copyrights protect against having your IP misused by others.

  • Treating contractors like employees

It’s important to remember that non-employees are non-employees and conversely employees must be classified as employees. Seek professional help from an attorney to understand these classifications.

  • Not seeking legal support from the onset 

The biggest mistake you can make is failing to seek out professional legal help. Consulting a lawyer from the onset of your startup journey would save you a lot of legal hardship in the future. A lawyer can help you to make the right decisions and sidestep any potential legal issues that might sink your startup in the future. 

  • Dismissing Documentation 

The surest way to find yourself in trouble is through slipshod documentation. Regardless of your sloppy lifestyle, endeavour to have efficient recordkeeping for your business.

  • Failure to choose the right government entity

While forming a company might sound like fun, the setup might be tricky, especially if you’re not familiar with the intricacies of corporate law and regulation. As an aside, it is advisable to consult an attorney for this purpose.

  • Not investing in insurance 

Startups need business insurance because it helps cover the costs associated with property damage and liability claims. Without business insurance, startup founders may have to pay out-of-pocket for costly damages and legal claims against their company.

  • Not considering taxes from the onset

Businesses that are paying employees, making sales and issuing stock options are looking at several tax liabilities. Without the right tax planning in place, you could face unexpected tax penalties or fines.

Lastly, while this list might not be exhaustive, however, it should serve as a starting point for founders. 

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