While initiating a startup, it is very possible that you might face notable business and legal challenges. If you see from a legal perspective, you might see plenty of mistakes made by entrepreneurs and startup organizations.  

Here are some of the most common and problematic legal mistakes made by many growing startups. These kinds of made are made at the initial stage of businesses, in the early stages of growth, and when dealing with workers.

1. Making an unclear deal with a co-founder

Starting a company with a partner is very common, as it splits the load of work. But what if you are thinking about doing the same, you should agree early on details of the partner relationship. Avoid such details can drag you down to significant legal problems, a good example of such case is infamous Zuckerberg/Winklevoss Facebook litigation. Take such a deal as a prenuptial agreement. Here are some of the key deal terms that one should clarify before starting anything.

• Percentage of equity that will split among founders. 

• Roles and responsibilities.

• Restrains on outside commitment.

• The expected time commitment to the startup.

• Contribution of investment and assets.

• Declaration of a sale.

• What to do if one founder is not keeping up to the expectations.

• Goal and vision of the company. 

• Salary entitled to each founder how it can be changed. 

Somewhat the same kind of mistakes is often made with the employee, through email or phone call promises.  Saying that you get 7% of the company’s equity without specifying roles, work definitions, decisions regarding terminations aren’t specified in initial stages. 

2. Not making a well-researched brand Name

While choosing a company name, it is important to do the research work to help yourself in avoiding trademark infringement or domain name problems to ensure that the same you choose is actually available. You may be infringing on someone’s name, domain or trademark that can cause confusion among the customers as the source of goods and services. Here are some tips to avoid such naming issues.  

• Search the name on Google before actually buying the domain against that name. Look for any same or similar name.

• Do your research on any Patent and trademark office site for trademark registration on the chosen name. 

• Do research for LLC records in the state of business to ensure that no one is using the same name. 

• Search your name on GoDaddy or other hosting sites to see is that domain is not already taken. If “.com” is not available, this could signal the potential fo prior use and it, therefore a red flag. 

• Choose a unique and memorable name. 

• You can ask your intellectual property lawyer to do a more professional trademark search.

• Choose a name on which you can later expand your business. 

• Test the market with five names along with the perspective of employees, partners, customers, and investors.

• Always avoid unusual spellings of the name. Though Google and Yahoo have been successful with such unusual names, those are exceptions. It doesn’t mean that the same will happen to every second business. 

3. Not having legal consultancy

The misguidance of saving money leads startups to hire inexperienced legal consultants or lawyers who are relatives or friends or even the ones who offer fee discounts. While doing such things, founders often deprive themselves of having the advice of experienced legal counsel, who can help them in avoiding several legal issues. The executive should consider interviewing several experienced candidates. While hiring you should for a person who experiences in the following areas. 

• Securities and corporate law. 

• Contract and employment law. 

• Law to benefit executive compensation. 

• Taxation law

• Cybersecurity and privacy law.

• Franchise law

• Real estate and property law. 

4. Not giving attention to HR and Corporate paperwork

When it comes to maintaining proper corporate and HR-related documentation, many companies often become sloppy. Such ignorance can become problematic when the company pursue financings or become involved in litigations. Here is a compendium of the types of documentation that the company should consider maintaining carefully. 

• Job applications and resumes.
• Offer letters for employees.
• Benefit plans
• Paid time off tracking records.
• Anti-harassment policies.
• NDA signing.
• Emergency contacts of employees. 
• Employee termination notice.
• Compensation and bonus history
• Employee withholding allowance certificate.
• Privacy polities if you are using employee time tracking app
• Confidentiality and Invasion agreement. 

5. Asking Law prohibited questions while hiring

According to federal and state laws, it is prohibited to hire based on caste, color, creed, disability, and others. Not asking the right questions could lead to a discrimination claim against the organization. Even though hiring or not hiring is totally independent of such a basis. Here are a few examples of questions that one should avoid. 

• What is your age?

• In what religion do you believe in?

• Any medical condition to expose?

• Recent illness or operations?

• Do you drink or smoke?

• Any political affiliation?

• How long are you planning to work?

• Any discharge received from the military?

Final Words

A startup who manages to avoid such legal pitfalls and missteps have a higher chance of success as compare to those organization that fails to anticipate and plan for them right from the beginning. Do invest in planning and shaping the future and go for expert advice in order to avoid major problems late in business.