5 Legal Steps Every New Entrepreneur Should Take

These five steps suggest that prevention is better than a cure. With a proper foundation and legal guidance you can minimize potential problems before they have a chance...

There are a number of responsibilities that new business owners are certain to face daily. This includes managing employees (even as the sole employee-owner), internal and external customers and stakeholder and growing a brand through strategic marketing and so much more.

All of these responsibilites can quickly become very challenging to manage alone. However, the good thing news is they can be managed, if proper care and attention is paid to each activity. Having said that, the one issue that founders will unlikely be able to handle alone without help are legal issues.

Legal issues have the potential to cripple a business if they are not dealt with properly. It is well known that the law can be very complex. A vast majority of people outside the legal profession know very little about it and how it operates. In the case of a business owner, a lack of knowledge on how laws and regulations relate to their business and the often exorbitant cost of retaining legal services can put hiring a business lawyer low on the priority list. However, given the critical nature of legal issues, it would be a mistake not to consult with a lawyer before potential issues arise.


Legal tips for new entrepreneurs

Here’s a look at 5 of the most important tasks every business owner should tackle in the early days to reduce and mitigate potential legal problems in the future.


1. Choose a business entity

If you plan to run a one man or one woman business with no intent to hire employees, then a sole proprietorship is very obviously the appropriate business entity to create. On the other hand, if you intend to hire employees, bring on investors, or partner with others, then each of these scenarios have a specific business entity that is appropriate.

 Whatever the case may be, it is very important to select an entity that adequately deals with issues arising from a potential bankruptcy, merger or acquisition, or bad debt judgement, among others.

For example, does your business entity protect you from being held responsible for the mistakes of other stakeholders in the business? The choice between a sole proprietorship, partnership, corporation or a limited liability company will also depend on your tax situation, plans for the future and the state where you primarily conduct business.


2. Draw up a solid business formation contract

Whatever type of business entity you choose will consequently determine the type of business formation contract you’ll need. A good business formation contract may prove critical to the survival of your business. Consult with a lawyer who is well versed on the type of business you intend to start, along with relevant state and local laws.


Photo: Helloquence, Unsplash/YFS Magazine
Photo: YFS Magazine


3. Safeguard your business, domain and brand name

It’s unfortunate when you hear of entrepreneurs who spent all their time and energy building a brand, only for someone to show up and accuse them of intellectual property infringement or to become a victim of IP theft.

In the U.S., you get automatic trademark rights in your brand just by virtue of using it. There’s nothing special you have to do. However it is wise to take necessary steps to enforce your claim to it. Given the litigious nature of the United States, entrepreneurs can easily be sued, which can cost even more in lawyer and court fees, and potentially, damages paid to the claimant, should you lose the court case.

For this reason, it is better to conduct due diligence before you actually take the first step towards starting your business. For example, check to make sure your business, website or brand name has not been trademarked by another person or company. Start with a simple Google search to find common usages of the name you want to use for your business or product. Next, with a few clicks, search through the USPTO trademark office database. However, trademark protection from the USPTO does not mean your trademark is protected overseas.

If you want to register your trademark abroad, consider using the Madrid Protocol, a system that allows an applicant to file simultaneous registration applications in any of the 90 nations that belong to the Madrid Protocol treaty. Meanwhile, you can also leverage the Community Trademark method and register for a trademark that is good in the 27 European countries that belong to the European Union.


4. Get a business license

Business licenses vary from state to city with specific regulations and requirements for each individual government entity. It can be time consuming to learn all of the necessary rules to get a license issued and remain in good standing to maintain it. Violations are sure to have negative repercussions for your business, which can be costly to rectify.


Photo: Ruthson Zimmerman, Unsplash/YFS Magazine
Photo: Ruthson Zimmerman, YFS Magazine


5. Get business financials in order

Running afoul of the IRS or other tax authority is not advisable under any circumstance. If your financials are not in order, you could be liable to pay penalties to the government, possibly with interest. It’s a good idea to create basic financial systems to track all the financials of the business, like profits and losses, and to ensure appropriate tax returns are filed.


These five steps suggest that prevention is better than a cure. With a proper foundation and legal guidance you can minimize potential problems before they have a chance to crop up to cause havoc in your business.


Tony Crighton is a practicing New York business lawyer at the law firm of Small Business Attorney NYC, who are specialists in all legal matters related to business law. He has been a practicing attorney for over 15 years and has a diverse and broad range of experience. Connect with @small_biz_law on Twitter.





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