Choosing to work as an entrepreneur is a great way to take control of your life and your career. Before you set out to start and build your own business, it is wise to learn from mistakes that other entrepreneurs have made. While the businesses may be different, the legal components remain the same. Many of the same issues occur time and time again with entrepreneurs, but if they had taken the time to research and take five key legal steps, they would never have run into these issues at all.
The tips in this article are best used when you are starting your business, but you can also implement some of them throughout the life of the business. Knowing what you should and should not do is the key to success for your business and a lot of these things have to do with the legal rules, regulations, and rules of thumb. If you follow these tips, you can save yourself from paying a lot of money in legal and accounting fees as well as preventing some major pitfalls that other entrepreneurs have encountered.
Often, when you are first starting out with your business it may be easier to use verbal contracts, but this can be a grave mistake. While an verbal contract can be enforceable, it is very hard to prove it in court. You never want to run the risk of someone going back on their word, so anytime you get into an agreement with someone or another business, you need to get it in writing. It may be an extra step, but it is one that you will thank yourself for later. It does not even have to be a formal document, but it needs to be written down somewhere like an email at the very least. This will solidify the agreement and you will no longer have to rely on memory or the memory of someone else who may change it later based on their needs.
A good way to think about this is from the standpoint of a dispute. If there was ever a dispute with a person or business over the agreement, would you rather spend your time in a disagreement about what was entailed in the contract or be able to show the proof of the agreement in writing? You do not want the argument to be based on what you say and what they say or leave it up to chance. If you have everything in writing, then you know what you agreed upon and it will be easier for you to come to an agreement. Also, if you cannot reach an agreement, you can use a third-party individual to interpret the document. While a written legal document is the best-case scenario, even if you have something in an email, it is better than having nothing at all.
When you are ready to bring on employees, you need to take the time to determine if you want them to be independent contractors or employees. It is more than just deciding which kind of worker you want; it is also about how they are treated. For many entrepreneurs, it is easier to have independent contractors on the books because then you do not have to go through the process of taxes. However, it is important to keep in mind that if you have an independent contractor that is acting as an employee, then they are in fact an employee. This can be a big mistake because you can get into some big legal trouble if you miscategorize your workers. Instead, make sure you do it the right way from the beginning. If you do not categorize your workers correctly, it could lead to the closing of your business. If you have workers that are miscategorized and they become upset with it, they may approach an attorney that can help them win a Labor Board hearing which will not end well for you. If you are not paying them correctly because of the misclassification, such as not paying overtime, you will likely have to pay penalties as well as legal fees to defend against the lawsuit.
This is something you will want to watch with interns as well. You have to be careful about how you use interns. You do not want to just try to save a few dollars on your overheads while risking losing your entire business. You can learn a lesson from the intern lawsuit that came up against Fox Searchlight Pictures in 2013. They ended up losing the lawsuit and it was ruled that they should have been paying their interns for the type of work they were doing. As a rule of thumb, an internship should be provided as an educational tool where the intern gets primary benefit and not as a way to get free labor. You should be very careful and make sure that the work they do is in line with an unpaid internship, or you should consider paying them if it is not.
If you do end up bringing employees on, a good way to protect your business is by creating an employee handbook. While this will not prevent a lawsuit or complaint from ever happening, it can help you protect your business when the employee handbooks are well written and comprehensive. You should make sure the employee handbooks are complete and that each employee signs something stating they have received it and understood its contents.
As you are trying to build a business and a brand, you should go ahead and register domain names that will identify your business brand. When you are choosing your company name, you should do a preliminary search to ensure that the domain name is available for your brand. If it is not available, you may want to choose another company name. Find some domain names that contain the name of your brand even if you are not sure whether you will use it or not.
Something that has been common for established businesses is finding a cyber squatter on a domain that you need. These squatters will try to extort you for money before giving it to you because they know that you will need it, but you can stay one step ahead of them by registering the domain early on in your business.
You also do not want anyone to get similar domains to your main one and make a mockery of your business. Some people will advise against spending money on this too soon, but if you know you will be needing the domain later, then it can be a good investment. Plus, it is not very expensive to register available domain names. It is worth looking into and can save you a lot of money in the long run. You may only want to stick with one or two domain names if you are not sure what you will be using, but you do not want to delay if they are available to you now.
Even if you are still building your business and brand, once you have a trademark you should go ahead and use it. In the US, first use of the mark is what is the most important. If you can prove that you used the mark first, then you can block other registrations of the mark.
After you have used the trademark, the next thing to do is register it. That is because a trademark can be the legal basis of your brand. It is usually a logo or name associated with your product or service that you are offering. If you choose to register your trademark as soon as it is created, it can save you from having recourse if someone later uses a similar logo or name for the same product without your permission. This is a step that is missed by many entrepreneurs early on because it is not always a cause for concern. However, if you are trying to become successful and build your brand, this should be very important to you for the long run. When you are successful, there will be many people coming from what may seem like anywhere to try to associate themselves with your brand. Ensuring that you have used it first is key, but then you will also want to trademark it.
To help you think of it in another way, imagine that you are trying to sell a product that you developed. In such a case, then you will want to register the name and idea. The last thing you will want is for someone to come and steal your product idea and name after you have spent months and years trying to build it up to something recognizable. If you fail to register it, then you are leaving it open for others to steal. There is no way to stop people from stealing your product idea or even your logo if you have not taken the time to register it. However, by taking this step early on, you can avoid it and you will have a way to stop it.
This may be the most critical and important step of building your new business, so much so that we have an entire section devoted to helping you make the right decision when it comes to your legal entity. You have many options to choose from when considering which legal entity to use, such as forming an LLC or a corporation. It is a big decision and not one you should take lightly. Even if you are not sure what you want to do yet, creating an entity is very important and you should do it as soon as you have made some big business decisions. The reason behind this is that there are many benefits to creating an entity for your business, such as keeping everything separate in terms of your personal finances and your business finances. Once you are successful, it can be difficult to keep all of these straight, so it makes sense to separate them before you have the chance to get everything confused and find yourself in a financial mess.
Another benefit of keeping these things separate is that you will not have to use your personal money to pay for business issues, at least in the legal sense, because they will be completely separate. This is called limited liability. There are also tax benefits; it allows you to file taxes as a corporation and you can gain access to tax breaks with this classification. If your business is sued and you end up having to pay a judgment, it will be the responsibility of the business to pay and not you as an individual, depending on the type of entity that you choose. If you do not separate these by creating an entity, then that person or business could collect your personal assets such as your car, home, personal money, and more to collect the debt. If you do lose in a lawsuit, then you only want to lose business assets instead of business and personal assets. There are many other reasons that you should consider creating an entity such as being able to raise funds for your business, various tax benefits, and even various worker issues.
There are many things that you will want to watch out for as an entrepreneur. Making just a few small mistakes can cause major problems for your business or even prevent you from getting it off the ground in the first place. You do not want the reason you cannot start or build your company to be because you did not do your due diligence during the beginning stages of your business. Take the time now to do everything right before it is too late. There have been too many great businesses that have failed or fell into other issues simply because they did not take the right legal steps in the beginning of their business. Do not be one of those entrepreneurs. Learn from the mistakes of others so you can continue to grow your business and thrive.