Avoiding Legal Missteps: Get Your Startup Started Right

5 Ways a Lawyer Can Keep Your New Business Out of Trouble

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Consult a Lawyer to Keep Your Home Business in Legal Order. Simon Battensby | Getty Images

When starting a home business, owners  often get caught up in a flurry of decision-making and excitement over growth. Unfortunately, the legal decisions that need to be made during these early days have long-term impacts and cannot be hurried or brushed over. If you want your business to succeed, it’s critical that you consult a lawyer to oversee the necessary legal requirements. In doing so, you can avoid many common mistakes startups frequently make.

Top Reasons for Consulting a Lawyer

“Although startup budgets are often modest, investing in building a relationship with a startup lawyer can unlock tremendous value, especially in your company’s infancy,” says Steven Buchwald, founder of Buchwald & Associates. “A startup lawyer may also be a resourceful mentor and a powerful ally.”

Many startups neglect consulting a lawyer because it can be expensive.  However, there are five important reasons to seek out legal help in the beginning stages.

 

  1. Forming the business. One of the earliest legal decisions you’ll have to make is which entity is right for your business. The type of business structure you choose can have financial and tax implications. A lawyer would recommend forming a limited liability company (LLC) or corporation, or if you’re starting a business with someone else, a partnership. The differences may seem subtle to the naked eye, but a lawyer can clearly explain the requirements, contingencies, and restrictions that come with each.
  1. Outlining co-founder deal. Regardless of whether you’re best friends with your co-founders or just met them a few weeks ago, the co-founder agreement needs to be specific and complete. Think of it like a pre-nuptial agreement that outlines what percentage of the company each member owns, what their responsibilities are, what time commitment is expected, whether salaries will be taken, who can determine the sale of the business, and other important factors.
  1. Navigating employment law. If you run your business alone, you may think you don’t need to consider employment law. However, most successful solo preneurs hire contractors, which can have ramifications if you miss categorize them or assign work in ways that the IRS considers makes you an employer. It’s important to know the difference between employees, consultants, and independent contractors. Employees must be paid a certain amount and are subject to hour laws. Independent contractors don’t get many of the benefits employees receive; however, you have less control over the work they do. You never want to misclassify a worker, so it’s important to clear issues up with a lawyer.
  2. Crafting a standard contract.  The type of business you run will determine types of contracts you need. Some examples include client contracts and contractor contracts. You can find sample contracts online; however, for clarity and full protection, it’s a good idea to hire an experienced lawyer to draft a custom contracts and agreement for your organization. It should be brief, yet thorough, and needs to clearly lay out requirements, limitations, expectations, and any possible warnings.
  3. Avoiding tax issues. Nobody likes to think about taxes, but startups have to fully understand and deal with tax issues. Depending on the type of business you formed, your tax burden will have unique requirements. For example, is your LLC taxed like a corporation or a disregarded entity? An attorney can guide you through these issues.

     

    Avoid the DIY Approach

    The rules, particularly tax and legal requirements, are different for business owners than employees. Because organizations in their infancy are more apt to make mistakes, it’s important to get legal help early in your home business startup to avoid having small oversights become big problems.

    While this article contains some of the top reasons for consulting a lawyer, it’s best to gain assistance any time you’re unsure of how to proceed. Don’t leave yourself vulnerable to outside threats – consult a lawyer today!