Starting a business is an exciting and hectic time, so it’s easy to see how mistakes get made in the early days.
You’re probably aware, but it’s important to get your legal foundation in place at the start. The right preparation and advice will help you avoid trouble further along your business journey.
Are you ready to start your own business? Or perhaps you’ve been in business for a while but may not have your legals in place? Here’s how to avoid some of the most common legal mistakes for start-ups.
Choose the right business structure
Selecting the right business structure is one of the first and most important decisions you’ll make.
The main options include sole trader, partnership, company and trust-based structures. Depending on your business, you may also look at not-for-profit or charity structures.
Each structure has different tax implications, legal responsibilities, and levels of personal liability.
Many new business owners opt for sole trader status because it’s easy to set up. However, this means you are personally responsible for any debts.
For example, if you are working as a sole trader and a client claims you caused damage to their business through your work, you will have to cover legal fees and damages from your own savings.
A limited company offers greater protection, as it is a separate legal entity. In the scenario above, the company would have to cover legal fees rather than the individual. While more complex to set up, the long-term benefits of liability protection often outweigh the initial effort.
Protect your brand with a trademark
It’s important to register a trademark so that you own your brand.
Many business owners assume that registering their business name means they own it, but this isn’t the case. The only way to secure exclusive rights is to register a trademark.
Imagine spending thousands on branding, signage and marketing and then discovering another company in the same industry had a similar or identical name – and they’d registered the trademark. They could demand that you rebrand, incurring financial, time and effort costs.
By registering a trademark early, you can avoid these costly disruptions. The cost of registering your trademark starts at $250, and you can do it online on your local IP government website (for example IP Australia).
Trademark registration takes time – a minimum of several months – so you should get on that as soon as you can.
It’s a small investment for long-term security.
Don’t overlook your intellectual property (IP) ownership
Intellectual property (IP) refers to the legal rights that protect creations of the mind. This includes your inventions, brand names, logos, designs, and written or digital content.
Another common mistake among start-ups is not properly securing ownership of their intellectual property. This is especially common when working with contractors or freelancers.
If you hire someone to design your logo, develop your app, or write your website content and you don’t have a written agreement transferring ownership of that work to your business, they may legally retain the rights to it.
This can become a major issue down the line. Especially if your brand or product gains traction and you want to licence or sell your business.
A simple clause in a contractor agreement can ensure your business owns the IP from day one. It’s a quick fix now that can prevent a lot of pain later.
Use custom legal documents
Make sure your contracts and agreements are written by a lawyer specifically for your business.
Many businesses attempt to cut costs by using free online templates for contracts, but these often lack the necessary legal protections.
For example, an online fitness coaching business using a free client agreement template might fail to include a clause protecting them from liability if a client was injured following their advice. If a customer gets injured and takes legal action, the business has no protection.
Professionally drafted contracts can prevent these situations. A small business lawyer can ensure agreements are tailored to specific risks, industry regulations, and customer expectations. While there is an upfront cost, it prevents significant legal trouble later.
When DIY legal solutions might work
There are some cases where templates will do the job. For example, a hairdresser setting up a simple website may be fine using a standard privacy policy. However, a tech start-up handling customer data should invest in a customised terms of service agreement.
If you’re unsure, you should consider consulting a legal expert who can help you decide which legal documents need professional input and where you can use templates to save costs.
Get legal matters right from the start
Legal oversights can be expensive and stressful, but they are avoidable. Choosing the right structure, protecting your brand and using professionally prepared legal documents can save you time, money and future legal trouble.
Investing in legal advice early on provides long-term security, making it a worthwhile step in building a strong foundation for your new business.
Key takeaways
- Choose the right business structure, considering the different tax implications, legal responsibilities, and levels of personal liability.
- Register a trademark to secure exclusive rights to your brand, and protect your IP.
- Ensure contracts and agreements are written by a lawyer specifically for your business.
Author: Marshall Thurlow is Director and Founder of Orion Marketing Pty Ltd. He is a digital marketer with expertise in SEO, website design, content marketing, and project management.
