Top 5 Legal Mistakes Every Entrepreneur Should Avoid

Top 5 Legal Mistakes Every Entrepreneur Should Avoid

by Sherry Ciurczak, December 2009

Starting a new venture is an exciting event. It can be so exciting that sometimes people forget to consider some basic first steps. If you're starting a new business, congratulations! But make sure you take a moment to think about protecting your company in the long term. Here are some tips to consider.

Incorporate Early

There are many advantages to setting up a corporation or LLC, and some business owners see it as the first step in opening their enterprise. But others don't think about the advantages of incorporation until it's too late. That is, when faced with a situation in which incorporation provides invaluable protection. For example, if your business is incorporated, your personal assets have protection in the event your company is sued by a creditor or client. Incorporate early to take advantage of this protection.

Get a Business License

To legally practice many occupations or operate most types of businesses, owners are required to obtain local, state or federal licensure as applicable. This is true even for many home-based businesses. Zoning permits may also apply, especially if you see clients onsite. It pays to investigate the requirements at your local city hall or county office before you begin. In most cases, business licenses are relatively inexpensive. But operating a business without a license can be expensive—there may be costly fines.

Prepare Contracts, Including a Non-Disclosure Agreement

Even if you do most of the work yourself, eventually you'll probably hire some help or subcontract some work. Make sure you're ready when that situation arises by having standard contracts prepared ahead of time. Your contracts should state the basic terms of the job and the payment details. Contracts should also obligate employees or subcontractors to maintain confidentiality about your business—make sure you include a non-disclosure agreement to ensure people doing business with your firm know that all trade secrets and/or business plans are protected information. LegalZoom has a variety of downloadable legal forms to help you protect your business.

Protect Your Logo

A logo is more than just a graphic image—it's a unique part of your company's identity. As your business grows, your logo grows in value because it represents your company's promise to your customers. Make sure you build that value for your own business and not someone else's: If you don't legally protect your logo, a competitor can use it to gain business that you earned.

Also, make sure the contract you enter with your graphic designer specifies that you will own the rights to the logo and will be entitled to trademark it.

Get an Employer ID Number (EIN)

It's a good idea to obtain an EIN from the Internal Revenue Service. An EIN works like a Social Security number for your business. It's required under many circumstances—for example, if your business is an incorporation or a partnership, or if you have employees. But even if you operate a sole proprietorship, an EIN can be a good idea because you can use it to safeguard your personal Social Security number, which you might otherwise have to disclose for payment purposes. LegalZoom can help you obtain your EIN quickly and easily.

Are You Ready to Start Your New Business?

Remember, before you go forward with your business plans, it's a good idea to make sure you've taken care of the basics. Consider these steps, and you'll be well on your way.

Ready to Begin?