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Overlooking IP protection, forgetting tax and other common legal mistakes start-ups make

Starting your own business is an exciting venture, but your entrepreneurial dreams can quickly turn into a nightmare if you fail to consider critical legal issues. Start-ups and small businesses make legal mistakes all the time – some of which can be disastrous.

By covering six of the most common mistakes made by business owners, this article will arm you with the knowledge to avoid making similar errors.

1. Not choosing the right Structure

The structure of your business is critical for a number of reasons:

  1. it affects risk exposure;
  2. it determines your legal and financial obligations, as well as reporting requirements; and
  3. it sets the scene for your growth prospects and ambitions.

There are a number of business structures you can choose from, including a sole trader, partnership, company or a trust. It is important you seek legal advice to help choose the structure that will protect your personal assets, minimise your tax, and enable you to take advantage of other benefits afforded by the law.

2. Not carefully considering Intellectual Property protection

If you have a unique product, technology or service, you need to ensure you have taken the appropriate steps to protect your intellectual property. By doing so, you can make sure others can’t copy your ideas and compete for your market share. Further, any business needs to protect its brand. Your brand can include aspects such as your business name, logo, slogan, product design or jingle. The main types of protective measures undertaken by start-ups include:

  • Patents
  • Copyrights
  • Trademarks
  • Registered Designs

These differ in terms of what types of assets they protect, how they are attained, and the rights and privileges attached.

3. Unclear Roles and Responsibilities

All of the owners of the business must be on the same page from the get go. You need to clearly define the roles and responsibilities each owner has in the business – who owns what, who does what, who controls what, how disputes are dealt with, etc. You will need a written agreement which sets out all of this information so if a dispute were to arise, there is no doubt as to what was agreed upon. This can help to avoid a big mess later down the line!

4. Forgetting about tax

When starting a business, you probably want to push tax to the side and worry about it later, but this will come back to bite you. There are a number of tax issues you should consider from the start, such as:

  • Choice of legal structure
  • Sales tax
  • Payroll tax
  • Stock option issues
  • Tax incentives
5. Not having a good Terms of Use Agreement or Privacy Policy for your Website

In the modern world, with business increasingly conducted online, it is essential that you have all the legals sorted for your website. A Terms of Use Agreement sets out the terms and conditions for people using your website. It should include the following:

  • How the site may be used and limits on its use;
  • Rights to refunds and returns;
  • Limits on liability; and
  • How disputes will be resolved, etc.

A Privacy Policy is a legal statement contained on your website which states what will be done with personal data collected from users and customers, and how it may be used, sold or released to third parties. It should also provide information such as:

  • A description of the use of cookies and other technologies; and
  • How the site deals with children, etc.
6. Legal D.I.Y

There are times when doing things yourself is worth the effort and cost-savings, and there are other times when it’s definitely not. Starting your own business, most times, falls within the latter category. Saving a few dollars upfront by not working with an experienced small business lawyer can cost you significantly more in the long run. There are so many steps involved with starting a business which require you to have an in-depth understanding of the law and business. Therefore, it is recommended that you get a professional on your team to give you peace of mind and ensure you are positioned for success.

About the author

Katherine HawesWith over 20 years’ legal and business experience, Katherine Hawes is the founder and principle solicitor of Aquarius Lawyers.  She previously wrote How to protect your IP when you have an online business for Dynamic Business. 

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Katherine Hawes

Katherine Hawes

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