Choosing the wrong entity
So, you’re ready to start a business! Congratulations! It’s time to get down to business. Before jumping into the entrepreneur world, you need to select the right business entity and ensure that it is properly set up. There are multiple business entities to choose from, such as sole proprietorship, partnerships, limited liability company (LLC), and a corporation. Each entity has their advantages and disadvantages, that’s why it is important to choose the right entity for your business. Selecting the wrong entity or setting up your business improperly, can expose you to being personally liable for actions against your business and may result in negative tax consequences. In other words, you don’t need or want those problems.
Choosing a Company Name that belong to someone else
Choosing a business name is exciting. It puts you one step closer to being a business owner. As a future business owner, it is important to do your research to avoid trademark infringement or domain name problems and to ensure the name you want is available. Creating a brand and building a successful business can go away quickly and become costly if it belongs to someone else.
Not hiring a Team of Advisors
Remember it takes a village! As an entrepreneur, you do not have to do it alone to be successful. Successful entrepreneurs have a team of advisors to support them, and you should too. On your team, you should at least have a bookkeeper and/or a CPA, a banker and a lawyer. You will want to secure a CPA and a lawyer who is business-savvy and understands your entrepreneurial spirit. Having a team of advisors will help alleviate risks and avoid pitfalls that could be detrimental to your success as a business owner.
Commingling funds
Money is key; however, you do not want to get into the habit of mixing personal finances with business finances. Open separate accounts, one for personal finances and the other for business finances. Mixing your finances could allow creditors or plaintiffs in lawsuits access to your personal assets. If this happens, you could lose your liability protections, and you will become personally liable for any debts or judgements that arise from a lawsuit or liability of your company.
Not protecting your intellectual property
As an entrepreneur, it is extremely important to protect your intellectual property. Are you wondering what is intellectual property? Intellectual property can be defined as creations of the mind. Intellectual property is usually divided into four categories: trademark, copyright, patent, and trade secret. As entrepreneur, you have intellectual property that is worth protecting; your logo, business name, slogan, website, presentations, books, etc. are things you can protect. If you want to maintain a successful business and protect your brand against infringement, then protecting your intellectual property is essential. Even as a startup or small business, you need to protect your brand.
Not Having Contracts in place
Having contracts in place are important and can save an entrepreneur a headache in the future. Although handshakes and oral agreements are binding, written contracts are essential to clearly define the expectations of all parties and helps eliminate doubt and uncertainty. As an entrepreneur, a few contracts you should have include: an operating agreement, client services agreement, website privacy policy, independent contractor agreement, nondisclosure agreement, and a copyright assignment agreement, just to name a few. Moreover, having a written enforceable contract is an effective way to protect your business and yourself. When in doubt put it in writing to protect your brand.
Improperly classifying employees as independent contractors
A common mistake among small business owners is misclassifying team members as employees or independent contractors. Misclassifying an employee as an independent contractor can affect tax implications, workers compensations, unemployment insurance, and other liabilities. As a result, you could face legal and financial consequences. When determining whether you want to hire an employee or an independent contractor, you must determine the level of control you want to have over this team member. As an employee, you will exercise complete control. As an independent contractor you have minimal control. Here are a few questions to ask yourself when determining what type of team member, you want to hire: Will the individual work under my control or direction? Will I provide training? Will I set work hours?
Overall, these are top legal mistakes entrepreneurs make. You are already taking the steps in the right direction by reading this article. For more information on setting up your business and protecting your brand, please contact the Law Office of Cathryn D. Gibbs or book a consultation online.
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