Legal Mistakes Entrepreneurs Make That Could Get You in Trouble

Written by Wesley Henderson

July 15, 2023


As an entrepreneur, you’re focused on launching your business, bringing your ideas to life, and achieving success. However, amidst the excitement and energy, it’s crucial not to overlook the legal aspects of running a business.

Failing to address these legal matters can lead to serious consequences. This blog post will discuss some common legal mistakes entrepreneurs make and how to avoid them, ensuring a solid legal foundation for your business.

Not Having an LLC

One of the first legal mistakes entrepreneurs make is failing to establish a legal structure for their business, such as forming a limited liability company (LLC). Operating as a sole proprietorship might seem more straightforward and more convenient initially, but it exposes your personal assets to potential liability.

By not having an LLC, you risk losing personal property, such as your house or savings, if your business faces legal or financial trouble. Forming an LLC provides legal protection by separating your personal and business assets, limiting personal liability, and safeguarding your personal finances.

Not Researching Business Names and Understanding Trademarks

Selecting a unique and memorable business name is critical, but entrepreneurs often neglect to conduct comprehensive research before finalizing their choice. Failing to do so can lead to trademark infringement and potential legal disputes.

Conducting a thorough search helps ensure that another business isn’t already using your chosen name, protecting you from costly legal battles and the need for rebranding down the line. This starts by going to the USPTO.GOV to see if there is a trademark on your chosen name but there’s also more research required.

Additionally, it’s essential to understand trademark laws and seek legal counsel to protect your business name, logo, and other brand elements.

Not Using Contracts and Being Clear on Expectations

Working on a handshake agreement might seem like a friendly and informal approach, but it leaves you vulnerable to misunderstandings, disputes, and legal complications. Entrepreneurs often neglect the importance of formal contracts that clearly outline the terms and expectations of their business relationships. Whether with clients, vendors, or partners, written agreements protect your interests and minimize the risk of legal conflicts.

Contracts should cover deliverables, payment terms, timelines, confidentiality, and dispute resolution mechanisms. Seeking professional legal advice to draft and review contracts can ensure their enforceability and provide peace of mind.

Working With People You Don’t Trust

In the pursuit of business growth, entrepreneurs sometimes make the mistake of entering into agreements or partnerships without thoroughly evaluating the other party’s trustworthiness. This can lead to serious legal problems, including fraud, breach of contract, intellectual property theft, or just a problematic relationship.

Conducting due diligence on potential clients, partners, and collaborators is crucial before committing to any business relationship. Research their reputation, review their track record, and consider seeking references to gauge their trustworthiness. Building relationships based on trust and integrity will help protect your business’s interests and minimize legal risks.

Failing To Comply With Employment and Labor Laws

Entrepreneurs who hire employees or engage independent contractors must be well-versed in employment and labor laws. Failure to comply with these regulations can result in penalties, fines, and legal disputes.

Understanding wage and hour laws, providing a safe working environment, adhering to anti-discrimination and harassment policies, and adequately classifying workers are essential steps to avoid legal complications. Consider consulting with an employment attorney or human resources professional to ensure your business remains compliant with all relevant labor laws.

Final Thoughts

While building a successful business is an exhilarating journey, it’s crucial not to overlook the legal aspects accompanying entrepreneurship. By avoiding common legal mistakes entrepreneurs make, you can protect your business, minimize legal risks, and ensure a solid legal foundation.

Remember to establish a suitable legal structure, conduct thorough research before finalizing your business name, use contracts to clarify expectations, be cautious when entering into business relationships, and remain compliant with employment and labor laws. By prioritizing legal matters from the start, you can focus on growing your business with confidence and peace of mind.

Partner With Drafted Legal

If you need help with establishing an LLC, writing contracts, or any other legal matters related to running a business, Drafted Legal is here to help. We provide legal templates and LLC filing services.

Drafted Legal will help you conduct your business the right way. Contact us today to get started.


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