Entrepreneurship is a tantalizing option in today’s economy. The idea seems romantic and exciting: work for yourself, keep your own hours, and do something you actually want to be doing with your time. Entrepreneurs today either cobble “side hustles” together into a career or launch full-time into their passions, both of which are exciting.
But starting your own business is also a lot of work.
There’s an unglamorous aspect to entrepreneurship, especially when going it solo, that sometimes gets glossed over. If you’re a one-person operation, you’re doing everything yourself. Because of the sheer number of tasks involved in getting a business off the ground, it’s easy to let the less pressing tasks, including legal matters, slip away. But that kind of procrastination can come back to bite you.
Legal Mistakes Made by Entrepreneurs
The legal traps business owners fall into can be separated into a few distinct categories. Each usually comes down to a lack of preparation or understanding on the part of the entrepreneur. Unpreparedness even shows up in something as straightforward as crowdfunding, which brings us to our first point.
Mistake 1: Reckless Crowdfunding
A lot of first-time entrepreneurs see the activity around crowdfunding platforms like Kickstarter and get sucked in by the appeal of a successful campaign. It’s a great idea: People listen to your pitch, like your idea and help make it happen by providing the funding. It’s worked for a lot of businesses before, and it will work again. But blindly relying on crowdfunding can be one of the most dangerous legal mistakes of entrepreneurship.
When attempting to crowdfund a project, you need to understand your obligations to stakeholders or potential investors before you start the campaign. Since these people will be giving you their money, they’re going to want to know about you and your company.
“Any small business owner considering crowdfunding should be prepared to accurately answer investor questions. These may include company ownership, financials, the business plan and additional details about business activity and specifics regarding the who, what, when, where and how,” said financial services attorney Braden Perry in an interview with Fundbox. Having answers to all these questions at hand will let backers know you’re legitimate.
These questions are for more than just personal interest. The Securities and Exchange Commission has issued specific reporting requirements for crowdfunding campaigns. If you can, talk with an attorney specializing in startups to make sure you’re reporting everything you’re legally required to.
Mistake 2: Misunderstanding the Protection of Incorporation
Incorporation is more of a question of “when” rather than “if” — all small businesses will eventually have to take this step. Incorporating means you become a legal entity instead of an individual, and it does offer some protections, such as personal asset protection, brand protection, deductible expenses and more.
What most entrepreneurs misunderstand is exactly how much they’re protected from liability by incorporating. For example, if you personally guarantee a loan for your business, such as a bank loan or rental application, you can still be held personally liable for it even if you’re incorporated. Make sure you know when the right time to incorporate is and whether or not you’re ready to take on both the cost and legal burden of doing so.
Mistake 3: Not Obtaining Intellectual Property Rights
This should go without saying, but alas, it’s still a widespread problem. Some small business owners engage in the unethical practice of using another entity’s name, branding or logo as their own. Do your research when creating your branding to be sure you don’t accidentally copy someone else’s idea, and always be sure to stick to good ethical practices.
Not only is stealing someone else’s intellectual property the wrong thing to do, even attempting to do so is illegal and can leave you wide open to infringement claims. It will also likely force costly name or branding changes down the line. To avoid this, undertake due diligence. Search name databases for the name you have in mind for your business to make sure it hasn’t already been claimed.
In turn, you should also make sure you protect your own intellectual property. You worked hard to come up with your name and logo, so get your copyrights, patents and trademarks in order so you can protect them. If possible, speak with an intellectual property lawyer about the best way to do this.
Mistake 4: Postponing Your Legal Obligations
For anyone but a lawyer, legalese is intimidating. Trying to understand incorporations, liabilities and federal and state employment law can seem like trying to take an all-night crash course in Greek. Because they get overwhelmed, a common mistake entrepreneurs make is to put off dealing with the legal aspects of setting up shop.
To get started, make sure you’re communicating with an attorney early on if at all possible. They can keep you from the kinds of mistakes that might lead to time-consuming and expensive changes down the line.
Many of these topics are covered in online MBA programs, which focus on advanced business concepts and relevant emerging trends. The program at Virginia Wesleyan University gives you the flexibility and hands-on attention you need to get the most out of your education. Graduates are able go on to careers in entrepreneurship, management, public relations and more. Plus, it’s one of the most affordable programs in the region.