Being a new business owner can be overwhelming. After all, it's tough to tell where to start when it comes to the legal requirements and expectations, financial management and day to day operations. The best thing you can do as a new business owner is to ensure that you are legally protected. It's important to have a corporate attorney on retainer, but you should also make sure that you understand some of the most common legal mistakes that new business owners make, many of which can land you in legal trouble. Here's a look at some of the mistakes that you'll want to avoid.
Overstructuring the Business
When you're starting a small business, it's easy to get lost in the structuring paperwork and create it with grand visions of your business growing rapidly. Don't try to structure your business as though it were a multi-million dollar enterprise if you're a sole proprietor. Instead, work with a corporate law specialist who can help you choose the business structure that's going to be the best fit for you. That way, you'll have the flexibility later to adjust the structure documents as needed when you grow without being bound to stringent regulations that you weren't really prepared for as a new business.
Not Completing Your Incorporation Properly
If you're incorporating your small business, you need to be sure that you complete the entire process. While there are some free resources online that may make it seem like all you need is just Articles of Incorporation, there are many other steps that you don't want to miss. If the incorporation isn't done correctly, you're likely to find yourself without the necessary liability protections that you need personally. And, if the IRS doesn't recognize your business as a legitimate corporation, that can lead to tax liabilities and penalties that could cripple the finances of your business. By having your Articles of Incorporation and other documents created specifically for your business, you'll have the confidence that they are correct, suitable for your operation and enforceable in court.
Thinking You Have to Incorporate
While incorporation may seem like it's the only option, you don't have to go through the legal process of incorporation just to own a business. In fact, incorporating is only really necessary if you're looking to legally establish a partnership or you have liability concerns and want to protect yourself. Otherwise, forming a sole proprietorship is likely to be sufficient.
Hiring Employees Unnecessarily
Another common mistake that new business owners make is rushing to hire staff that they don't really need. Hiring employees requires you to register as an employer, which means keeping track of hours, pay, taxes and employer liability. You'll also need to pay unemployment tax, withhold income taxes and pay for worker's compensation protection. Not to mention, you'll need to be sure that you're labeling your contractors and employees appropriately according to the IRS; otherwise, you're risking serious penalties.
Not Protecting Your Intellectual Property
Another thing that a corporate attorney is likely to encourage you to do is take the steps to protect your intellectual property. Whether you're dealing with product development, software creation, music, writing or any other creation, you'll want to file for copyright or patent protection for those things. You'll also want to consider protection for your business name and logo. Once they're protected legally, make sure you have a policy in place to monitor for infringement. Enforce your rights so that your competitors understand that you are serious about protecting your business.
Understanding these common mistakes and how to avoid them can help you to be a more productive, effective business owner. Talk with a corporate lawyer today about any other considerations that may be unique to your business operation.