As a seasoned entrepreneur, I’ve seen and experienced just about every business mistake in the book. As somebody who attended law school, I can also tell you that the legal mistakes are the most dangerous. I recently read an article where IP lawyer Rachel Rodgers, who has nearly 20 years of experience to her name, shared some of the legal mistakes she’s seen, and how to avoid them. Legal stuff seems difficult and frankly terrifying, and that’s because it is. But it’s a lot less scary if you’re at least prepared for it. Here are what Rodgers says are the most common legal mistakes entrepreneurs make. Pay attention, and they’ll hopefully save you a lot of headaches in the future:
Not vetting the name of your business/product/service: Conduct a thorough trademark search before you invest large sums in building your brand around a name that you can’t use. If your name is infringing on another trademark that you can’t use, then you need to change the name, lose your Google ranking and rebuild your website.
Not separating your business and personal finances: Especially in the early stages of a business, it’s easy for your personal and business finances to bleed into each other. Yet it’s extremely difficult to make smart business decisions without clear financial data, and commingling funds means you’ll lose the liability protection from your business. Set up accounts solely for business income and expenses.
Not keeping records: “Piercing the corporate veil” is when courts discover that a business entity and its owner are one in the same. It means that business creditors can come after your personal assets. To avoid this, record everything that happens with your business on a year-by-year basis, and submit your corporate filings with the state. Have corporate files with all of your insurance, contracts, leases and other legal documents.
Not making contracts: Business without a contract is a surefire way to get yourself sued or screwed out of money in some way or another. To avoid this, have proper contracts in place that outline exactly what’s being exchanged, who owns what, as well as any cancellation clauses or payment terms.
Not protecting your intellectual property: Imitation may be the sincerest form of flattery, but it can also hurt your business. The longer you’re in business, the more intellectual property you produce, and the more valuable it becomes. This includes logos, slogans, apps, e-books, classes and even blog posts. Register your intellectual property with the US Patent and Trademark Office and the US Copyright Office.
Not classifying your team as “employees”: The IRS has a very strong bias towards “employees” rather than “contractors”. Do a proper analysis to figure out if your workers are employees or independent contractors. All independent contractors need to sign agreements as well.