Starting a business can be an exciting-yet-scary venture in life. There are so many different factors to consider during the start-up process that go beyond simply picking out the perfect name, office space, equipment and amenities. With a multitude of loose ends to tie up, decisions to make and documents to sign, it’s not unheard of for new business owners and their partners to overlook some important details—especially when it comes to ironing out the legality kinks. For this article, we will discuss five of the most common mistakes new business owners make.
Business Law Mistake #1: Failing to Establish the Right Legal Identity
Deciding which legal entity to establish your business as is one of the most important decisions to make when starting a business. Failing to do so can bring about some substantial consequences as far as taxes and liabilities are concerned. Oftentimes, business owners will establish their business as LLCs, or limited liability companies, but other types of entities include sole proprietorships, professional corporations, general partnerships and limited liability partnerships. Read more about these business entities here.
Business Law Mistake #2: Not Putting Your Business Deal in Writing
Failing to clearly define responsibilities and dealings among business partners can lead to a lot of trouble down the road. Therefore, coming to an agreement during the initial stages of your business venture and putting it in writing is absolutely essential. All parties involved must agree on the answers to the following questions (and more):
- What’s the business’ mission?
- What common goal is the business trying to achieve, and how will the business strive to achieve it?
- Who has the final say in business decisions?
- How are operations and workloads to be carried out?
- How shall ownership be divvied up among the owners?
- How is the percentage of ownership shared (or is it shared at all)?
Business Law Mistake #3: Failing to Provide Proper Business Documentation
People expect the businesses they work at to provide them with proper, detailed documentation related to everything from company expectations to corporate benefits. Therefore, it’s important to write up and provide the following:
- Company (or Employee) Handbook
- Benefit documents for employees and/or their family members
- Non-disclosure agreements (if applicable)
- Important tax documents
Business Law Mistake #4: Forgetting to Address Tax Matters
When business owners first establish their businesses, it’s highly important for them to keep certain tax-related items in mind. These items include, but aren’t limited to:
- Sales tax – Businesses must collect sales tax on their products and services (or else have the State of Texas come knocking for an audit).
- Payroll tax – In most counties and cities in America, payroll tax is a must. These taxes can either be in the form of deductions from employee wages or funds the employer pays based on employee wages.
- Tax incentives – Not all business types offer tax incentives, but some of the most common include investment tax credits and energy tax credits.
Business Law Mistake #5: Inadvertently Causing Trademark Issues & Other Difficulties
Coming up with a business name may sound simple enough, but it’s highly important to make sure that what you choose isn’t already taken in order to avoid trademark infringement and domain name issues. Prior to setting anything in stone, be sure to do your research to see if your desired company name is already taken. Also, do a domain name search on sites like GoDaddy.com to see if your desired domain name is already taken online.
Keep in mind that the above are simply a handful of the possible mistakes new businesses can make. If you’re planning on starting a business, whether it be by yourself or with a partner, it’s vital to start out on a solid legal foundation. Contact the business lawyers at Hayes, Berry, White & Vanzant here or at (940) 387-3518 for superior business law services. We’ll be glad to help you avoid the common mistakes new business owners make!