TIGER Talk Recap: 5 Legal Pitfalls Early Stage Companies Should Avoid
If you are starting a new business and find yourself overwhelmed with all the legal components that need to be dealt with, you are not alone. Most entrepreneurs aren’t lawyers, but could benefit from consulting with one to guide them through the legal best practices.
During Innovate New Albany’s TIGER Talk on August 25, “5 Legal Pitfalls Early Stage Companies Should Avoid,” Brett Thornton and Jack Gravelle of Porter Wright discussed the common legal mistakes new entrepreneurs make.
Pitfall #1: Formation Follies
New businesses will form as an LLC, S-Corp, or C-Corp and deciding which one depends on a variety of factors, including capital, investors, taxes, and more. Mistakes are made from an entity standpoint when a business owner is given bad advice or tries to do something tricky for tax reasons.
A lawyer can help you identify your financial needs and help your business form as the right entity.
Pitfall #2: Capitalization Catastrophes
Related to Pitfall #1, capitalization catastrophes happen when business owners don’t ask themselves the tough questions in the beginning that no one likes to think about or ask about. Questions like what you should do if an owner dies or wants to sell their part of the business. These types of details should be worked out every time new money gets added to the business.
Pitfall #3: Fundraising Mistakes
There are many regulations that apply to selling securities because there is a lot of room for fraud. If you’ve failed to comply with rules, you could face penalties, investors could get their money back from you, and potential investors won’t invest with you until you’ve fixed the problem. Fixing it can be time consuming and expensive.
Pitfall #4: Leaving Intellectual Property Unprotected
As a business owner, you will need to protect your intellectual property (IP) from the outside world by securing trademarks, patents, and copyrights. You also need to make sure whatever IP you and/or your employees create belongs to the business. Every business has an IP of some kind. Reputation, knowledge of the way you do business, trade secrets, and client lists are considered IP.
Pitfall #5: Signing Off on Third Party Contracts (Without Asking an Attorney First)
It can be tempting to read a third party contract and think you are covered, but all contracts are negotiable. Brett and Jack recommend having someone review contracts on your behalf, because there are benefits you can negotiate that you might not know to ask for.
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