6 common legal mistakes entrepreneurs make and how to avoid them, by Chas Rampenthal


Most seasoned entrepreneurs will tell you that starting a business is one of the most rewarding experiences in life. At the same time, many will caveat that getting a business off the ground is harder than most people think.

For founding startup teams, a bit of preventive care and planning can go a long way.

When it comes to legal issues, the natural reaction is to put them off and hope they never happen or go away. Hard-to-understand “gotcha” rules and regulations, the odd language of “legalease” and the high hourly rates most lawyers charge are just a few things that make the law intimidating.

To take the sting out of the law, below are a few of the most common legal mistakes entrepreneurs make — and tips on how to avoid them.

1. Incorporating at the wrong time

Forming a legal entity, like a limited liability company or corporation, is extremely important. These business entities shield entrepreneurs from personal responsibility for certain business obligations. But with the privilege of having the legal entity comes responsibility — and cost. An entrepreneur should be sure that his or her business is more than just an idea, and that he or she is ready and willing to invest time and money to maintain the business as a separate, legal entity.

Would-be entrepreneurs might find themselves with a lot of legal and tax fees — on top of government-imposed fees — just for having a legal entity, so they should carefully consider timing for incorporation. When the benefits of limited liability and having a real company outweigh the likely administrative costs, it may be the time to take action.

2. Accepting handshake deals

Too often, entrepreneurs value speed over accuracy when it comes to detailing relationships with partners, vendors, customers and even employees. They might accept “handshake deals” or verbal agreements.

Unfortunately, there are more than a few horror stories of novice entrepreneurs believing verbal agreements are set in stone.

Read more…