We all have to start somewhere, and if you are starting a business, then this article is a must-read. We will be tackling the most common legal mistakes business owners overlook for you to minimize loss and guarantee a smooth bump-free ride.
There are various types of businesses, but startups in particular should take steps to beware of common legal mistakes while running a business to prevent any possible troubles. Some of these mistakes include not focusing on legal documentation, finances, or intellectual property, just to name a few.
Legal issues that businesses may face include lawsuits, government investigations, and even bankruptcy (God forbid). If you are a business owner, you must promptly address and resolve any legal issues to avoid any negative consequences or penalties that could potentially harm your business.
Through this article, you will find steps on how to protect your business from common legal downfalls by following these steps:
- Determine a Company Identity
- Make Sure to Register your Company
- Do Not Underestimate Intellectual Property
- Get your Finances Straight
- Avoid Employee-Related Issues
It is very important to mention that each country has its requirements, rules, and regulations for starting up a business, so you must research and comply with these regulations where your business will be located.
1. Determine a Company Identity
The more unique your business identity is, the faster you will attract the targeted audience and reach your short-term goals and eventually, long-term ones as well.
The first step you should take to determine your company’s identity is coming up with a unique name that has not been used before and is not already registered, to avoid legal and rebranding hassles. You can check with your government’s business registration agency to confirm the availability of your chosen business name.
You will also need to develop an impactful tagline to be the catchphrase/slogan of your company. It should represent your brand’s core values and mission. It also should be catchy, short, and memorable.
Once you have your name and tagline, you need to create a logo that represents your business visually. This logo should be unique, easy to recognize, and evoke emotions that resonate with your target audience. You can hire a professional designer to create your logo or use online tools to design it yourself.
Finally, you should establish a brand voice that represents your business’s personality and values. This voice should be consistent across all your marketing channels, including your website, social media, and advertising campaigns. By creating a strong brand identity, you can differentiate your business from your competitors and build a loyal customer base.
2. Make Sure to Register your Company
The process of registering a company may vary depending on your location and the type of business you want to register. However, here are some general steps to follow:
- Choose a business structure: Decide on the legal structure of your business, such as sole proprietorship, partnership, limited liability company (LLC), or corporation. Choosing the wrong business entity can have several negative consequences, such as exposing you to personal liability, limiting your ability to raise capital, and impacting your tax liability.
- Maintain proper legal documentation: Most business structures require a combination of licenses and permits issued by governmental entities and agencies. The application requirements and fees differ according to the business location and activities, as well as the agency issuing the business license or permit. To avoid any unwanted legal hassles, ensure that your business has all the necessary legal paperwork, such as licenses, permits, and contracts.
- Choose a registered office address: Companies must have a registered office address where notices, letters, and reminders can be delivered. It does not need to be an address where day-to-day business is carried out; however, it could be your accountant’s address or a director’s address for example.
- Set up a company bank account: It is important to set up a dedicated business bank account that is completely separate from your personal account to avoid mix-ups and to be able to track business expenses for tax deductions.
- Consult the right attorneys: You will need to find a lawyer who can help you understand complex legal processes and provide you with advice on making sure your business is operating legitimately.
3. Do Not Underestimate Intellectual Property
Intellectual property (IP) is a crucial factor to be put into consideration when you are starting a new business. It helps protect intangible property that stems from one’s creativity, like your innovative ideas, products, and services from being copied by competitors, which can lead to loss of revenue and brand reputation.
IP infringement has cost businesses millions of dollars in damages, accordingly, when you are starting a business, you need to ensure that the name of your company, its concept, logo, or any other intellectual property is not the same as an existing, applied, or registered trademark.
Ignoring IP rights will leave your business vulnerable to copycats, diluting your brand’s value and market position. To avoid any infringement hassles (whether it’s from or to you) you should seek legal counsel to properly protect your assets, do the proper research in your ideation stage, know your IP rights (Trademarks, Patents, and Copyrights), monitor the market for any possible competitors’ infringements and finally, ensure that you comply with all privacy laws, including data protection and security.
It is also essential to consider how intellectual property can add value to your business by serving as an asset that can be licensed, sold, or used as collateral for financing. For example, if you have a patent for a unique product or process, you can license it to other companies for a fee or sell it outright to generate revenue. Similarly, if you have a trademark that is highly recognizable and associated with your brand, it can increase the value of your business and attract potential investors.
Overall, protecting and utilizing your intellectual property can help your new business thrive and succeed in today’s competitive marketplace. It is a crucial factor if you want to avoid legal mistakes.
4. Get your Finances Straight
Keeping your business and personal finances entangled is only a faster root for business downfall. For clear financial tracking and legal protection, it is crucial to keep accurate financial records and separate business and personal finances. When you create a separate bank account for your business it increases your credibility with your clients as they make payments directly to your business account instead of to you personally, making the business more professional.
What you can do to avoid legal financial trouble is:
- Set up dedicated business bank accounts and credit cards
- Maintain meticulous financial records for all business transactions
- Regularly reconcile and audit your business finances.
- Make sure you have adequate insurance coverage to protect your business from potential legal issues.
Having business insurance can give you peace of mind and help you avoid financial ruin in case of an unexpected event. It can also help you comply with legal requirements and contractual obligations, as some clients or investors may require proof of insurance before doing business with you.
5. Avoid Employee-Related Issues
When starting a new business, there are several employee-related issues that you should be aware of to avoid any potential legal issues. Here are a few examples:
- Hiring process: During the hiring process, you should ensure that you are complying with all the relevant employment laws and regulations, such as anti-discrimination laws. You should also have a clear job description and employment contract to avoid any misunderstandings in the future.
- Employee classification: It is important to classify your employees correctly as either employees or independent contractors. Misclassifying employees can lead to legal issues and penalties.
- Employee compensation: You should comply with all the relevant wage and hour laws and regulations, such as minimum wage and overtime laws. You should also have a clear payroll system and keep accurate records of all employee compensation.
- Employee benefits: If you offer employee benefits such as health insurance or retirement plans, you should ensure that you are complying with all the relevant laws and regulations.
- Employee termination: If you need to terminate an employee, you should ensure that you are doing so legally and fairly. You should also have a clear termination policy in place to avoid any misunderstandings or legal issues.
You can also read:
- Benefits of Hiring Across the Globe: 5 Motivating Factors to Hire Remote Workers
- How to Avoid a Bad Hire?
- 6 Reasons Why Employees Quit Their Jobs
Conclusion
To conclude, It is essential to be aware of any legal mistakes when starting a new business. This will help you ensure that your business is operating in compliance with relevant laws and regulations. By taking the time to familiarize yourself with these issues and seeking expert advice when needed, you can set your business up for long-term success. From there, you continue to prioritize legal compliance.
