By Ivy McNeill| Founding Attorney of Canary and Hedge
Starting a new business can be an exciting time for an entrepreneur. When done correctly, launching your new business can be empowering. But without proper planning and execution, first-time entrepreneurs can find themselves wrapped up in costly legal trouble. Here are five of the most common and costly legal mistakes made by entrepreneurs—and how to avoid them.
Mistake No. 05: Choosing the Wrong Business Structure
When launching a new business, registering your business with the Secretary of State is just the beginning of establishing your legal foundation. Many types of business structures exist so knowing which business structure is right for you and taking the steps to set it up legally can be overwhelming. But choosing the wrong business structure can put your financial assets at risk and limit your business growth. An LLC may seem like the most obvious choice (because it is the most familiar), but based on your brand development goals, another business structure may offer more tax advantages and better protection from lawsuits.
Tip: Avoid putting your business at risk by consulting with a business lawyer or CPA prior to choosing your business structure. Enlist them to assist you with registering your business entity so you can be sure it is appropriate for you.
Mistake No. 04: Failing to Trademark Your Brand
You might be surprised to learn how many entrepreneurs come up with the same idea for a business name. Trademarking your brand name not only protects you from entrepreneurs who may want to use the same business name you are using; it also protects you from unknowingly using a name that is already trademarked by another business. The cost of failing to trademark your brand could easily reach $50,000 or more depending on whether, down the road, another company demands you cease and desist from using your name, or worse you find yourself on the receiving end of a trademark infringement lawsuit.
Tip: Avoid a costly lawsuit, by starting the trademark registration process pre-launch with an intent-to-use trademark application to be sure your name can be yours alone.
Mistake No. 03: Conducting Business Without Business Insurance
Having inadequate business insurance (or none at all!) may not seem like a legal mistake until your business is the target of a lawsuit. Whether you did anything wrong or not, a client or customer can sue you and your business at any time. Your business insurance provides financial resources for your legal defense. Without those financial resources, you may not be in a position to afford an experienced defense attorney resulting in a negative judgment against you that could destroy your business.
Tip: Analyze your business insurance annually to identify any gaps in coverage as your business grows. Fill those gaps with additional or new insurance coverage and rest easy knowing your business is protected from the unexpected.
Mistake No. 02: No Written Agreements
When providing goods and services, business deals occur, whether they are written or oral. Without properly written agreements disputes are more likely to arise. Oral agreements are enforceable, but as you can image, it can be very difficult and expensive proving in court what exact terms were agreed upon. Having an agreement in writing will save you time, frustration, and money in the long run.
Tip: Avoid this mistake by collaborating with an attorney to draft reusable contracts tailored to your business needs. Put all of your agreements in writing and enforce the terms of your agreements.
Mistake No. 01: Thinking You Can DIY The Legal Stuff
As an entrepreneur, the biggest mistake you can make is thinking you can Do-It-ALL-Yourself. Business is the one place where what you don’t know can hurt you.Knowing when to delegate tasks to other professionals is the difference between a business that lasts a couple of years and a business that thrives for a lifetime.
Tip: At the early stages of your brand development, seek a legal professional who understands your business and your industry. Let them help you strengthen and protect your business by establishing brand protection strategies uniquely fitted to help you accomplish your business goals.
At Canary and Hedge our client-first culture is designed to nurture creativity and innovation, providing a trusted voice, fearless advocacy, and intelligent counsel for our clients. If you need assistance with making smart legal decisions for your business our approach is engaging, seamless, and collaborative. You'll feel supported and equipped for success through our clear, professional, and timely communication from beginning to end.
Oftentimes on our entrepreneurial journey, we get discouraged because we’re not exactly where we desire to be, but insight is what allows one to see the bigger picture, and what’s to come if we simply persevere. At 13, Dr. Mya Smith-Edmonds began working at her father’s McDonald’s where she developed her strong work ethic, accountability, discipline and focus. Today she is the proud owner of nine McDonald’s restaurants.