10 Legal Mistakes That Can Shut Your Business Down

Protect your business and your personal assets by reviewing this top 10 list of legal mistakes made by many entrepreneurs.Starting a business is hard. There are hundreds of issues to consider, and often the legal ramifications of your actions can close your business before it is even open. 
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  • Not incorporating right away – most attorneys recommend that you set up your Corporation or create an LLC as the very 1st step of any business venture. Problems can often occur when individuals who consider themselves partners at the onset, and to leave the venture, come back when the company is prospering in demand there share. If this company had incorporated and clearly issued shares to all founding partners, this issue would have been avoided entirely.
  • Hiring a non-entrepreneurial lawyer – the landscape of business startups is very different than other types of legal services. Don’t hire a real estate lawyer to set up your venture capitalists contracts unless you are planning for trouble ahead. It is worth the time and expense to find a specialist to do the deal right the 1st time.
  • Setting up an LLC without proper research – many new business owners automatically create an LLC or limited liability corporation without properly determining if it is the correct legal structure for their particular situation. Depending upon the type of business, industry, whether you’re selling a product or service, a corporation either S type or C type might be more appropriate and helpful for your new business venture. Read more about which business entity structure is right for your business
  • No standard contract on hand – every business, especially new businesses, should have a standard contract template on hand to use at the ready. This contract should have been prepared and approved by a competent business attorney and should be the advantage of your business.
  • Favoring family and friends with company stock – of course, you love your family and want to give them the best, but be sure not to show favoritism when issuing stock, lest you run into federal and state securities laws. These rules require that shares sales must comply with disclosure and filing requirements. To avoid fines and penalties hire knowledgeable lawyers to document all share. Sales to be in compliance with the law.
  • Sloppy employment documentation – new ventures are often moving so fast and furious hiring new people that they neglect to repair the proper documentation that must be signed by all employees. These documents often include stock options, stock incentive plans, notice of stock options grant, and option agreements. In some particular cases, there will also be confidentiality agreements, and invention assignment’s to be executed.
  • Agreeing by handshake – most entrepreneurs will have a horror story or 2 about how they accepted a handshake deal of verbal agreement from partner, vendor or employee only to be burned later on in court. All-important agreements should be in written contracts and signed by all people involved. This extra step of formality only takes a short period and will save a tremendous amount of heartache, money and time in the long run.
  • Not protecting intellectual property – your unique company brands and trade secret could be the most valuable asset of your new business and requires adequate protection. Some business owners forget to take the time for a simple trademark application or search before proceeding with branding purchases such as signs, brochures, and business cards. This reckless move that could place you in both the position to be sued by others using the same brand name and waste money on marketing materials that are useless. Read more Primer on Intellectual Property for Entrepreneurs
  • Using Legal Services only in an emergency – too many entrepreneurs wait until they receive court documents to contact a business attorney when the time to hire services was many months prior. Instead of waiting for trouble. It is far wiser, and cheaper, to hire a lawyer at the onset to properly plan and protect your business from being sued. Legal plan options can be particularly useful for budget-strapped startups.
  • Getting legal advice from novices – in today’s Internet forum world some entrepreneurs get their legal advice from online forum buddies. This can be disastrous. What may have worked for one business may be the exact wrong legal move for another. Young millennial entrepreneurs are especially susceptible to this type of mistake. One person’s experience does not replace a licensed legal professional.

Avoid these legal mistakes by getting quality legal help at the onset of your new venture will ensure legal problems will not shut down your new business.


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Hi – I am a serial entrepreneur, after doing “time” in corporate America, who has learned about what products and services work well for entrepreneurs who want to start a business. You can learn from my experience and my associates as we shop from the internet for tools, supplies, and information to build our businesses and improve the lives of our family and ourselves. Read more …

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