Smooth Sailing: 5 Biggest Legal Traps Startups Tend to Fall Into and How to Avoid Them


Starting a new business venture is a bit like spinning lots of plates at the same time and if you neglect one of these plates it can often be the catalyst for all of them falling.

Your aim is to try and hit the ground running and give your business the best chance of success by making sure that you have all of the practical and legal technicalities tied up.

Sites like lawmanaging often contain interesting articles about certain legal challenges and issues that affect businesses on a daily basis and it is one source that could alert you to some of the classic traps that lie in wait for startups.

Here are some key points to consider –

Start how you mean to go on

If there is one main legal aspect that can really set you on the wrong path or make life difficult as your business grows it is when you choose the wrong legal structure.

There are many valid reasons why you should take professional guidance and consider your options carefully when deciding on an appropriate legal structure for the business.

One example would be with regard to arranging funding for the business.

Your funding options will most likely be impacted by the legal structure and related tax responsibilities.

Get everything in writing

There are countless examples of business partners falling out and failing to agree on key decisions such as an exit strategy simply because an agreement wasn’t drawn up in the beginning.

A founder’s agreement is generally considered to be a wise move as it creates a legal infrastructure that the owners of the business can work with.

Even if everything is entirely amicable it is great to know that there is an agreed framework in place.

Compliance with regulations

Make sure you fully investigate which licenses you need to run your business legitimately from day one.

Legal protection

As your business develops you will develop intellectual property assets and there could be damaging consequences if you don’t arrange the right level of legal protection.

It is essential that you arrange copyright protection and take all the right steps to protect assets that are vital and valuable to the business.

Adequate employment documentation

As your business grows you will come to rely on employees to help you drive the business forward.

It is essential that you do the groundwork at the beginning to create contracts of employment that set out to define what each person’s role is and what the terms and conditions of their contract are.

It often pays to invest in legal help to draw up these contracts of employment so that your rights are protected and you have the right level of control over employees.

The bottom line is that amid all the excitement of launching a startup you should invest an element of your time and money in creating the legal infrastructure that will allow you to grow unhindered.