5 Common Legal Mistakes Startups Make

Today I want to write about some very common legal mistakes that startups frequently make. These pitfalls aren’t exclusive to startups — many small businesses and even some larger businesses make some of these mistakes too. During the course of my practice at Spitz Business Law, I’ve had numerous clients come in with one or another these issues.

  1. Trying to do-it-yourself on legal matters — People frequently go to the internet to find a free legal document. The problem is, how do you know that it’s the right document for your situation? How do you know it’s a good quality document? And do you even know what it says, and what the various clauses mean? That’s what lawyers are for. We are trained to put together contracts and other legal documents, and we are trained to know what these documents mean. Getting a contract from a lawyer doesn’t have to be prohibitively expensive. Very rarely does a good, experienced lawyer start from a blank sheet of paper when drafting a contract or other document. We frequently take something we’ve done before, and use that as a template. This saves a lot of time and money for the client. The added value comes from the assurance that the lawyer is being thorough and knowledgeable, and also from being able to ask the lawyer questions about the document. You can’t ask anyone at DIYcontracts.com for help.

2. Not Getting It In Writing — Oral agreements can be binding, but it’s very hard to prove what the terms of the agreement are, when you have a “he said-she said” situation. By putting things in writing, you can find out very quickly if everyone is in agreement. And later, if there is a dispute, you’ll have one written document to refer to, rather than individual memories.

3. Playing Fast and Loose With Employees — Unfortunately, this happens a lot. Employers get in trouble by cutting corners when it comes to pay, hours, conditions of employment, withholding taxes. This can cause a lot of legal problems for the employer, but it’s also just bad business. People don’t want to work for an employer with a reputation for treating employees badly, and customers don’t want to do business with those companies. Plus, unhappy employees don’t represent the company very well when dealing with customers and the public.

4. When There Are Co-Founders, Not Having a “Buy-Sell” Agreement — a buy-sell agreement covers what happens when a co-owner of the business dies, or becomes disabled, or wants to sell, or is going through a divorce. There are some fairly standard methods of dealing with these situations, but it is important to map them out at the start, when everyone is happy and healthy. It’s a lot harder to put together a plan to deal with the situation in the heat of the moment.

5. Not Talking to a Lawyer About Your Business — this is something business owners should do once every year. Given the fast pace of change in a startup, it should happen several times a year. Think of it like going to the doctor for a regular checkup. The lawyer is able to get a good picture of what’s going on with your business, whether you’re moving into a new territory, or adding new products, or having issues with employees, regulators, etc., so the lawyer can do a better job of helping you. There are two sayings that apply here. One is that “what you don’t know can hurt you.” The other is that “you don’t know what you don’t know.” So take your lawyer to lunch once a year to talk about the business (pro tip — if you buy lunch, your lawyer probably won’t charge you for his time).

I hope you found this post interesting and helpful. If so, please recommend it so more people can read it. Thanks!

One clap, two clap, three clap, forty?

By clapping more or less, you can signal to us which stories really stand out.