Startups - Avoiding Common Legal Mistakes

Starting a business is exciting, but overlooking a strong legal foundation can cost owners in the long run.  Here are some common legal mistakes we see startup businesses make, and how to avoid them:

1. Failing to Choose the Right Legal Structure

Choosing between a sole proprietorship, partnership, company, or society can have long-term tax consequences and affect liability.  Many startup businesses delay incorporating, for example, risking personal liability.  It is important to consult a good corporate accountant and lawyer early to select the best structure for your goals.

2. Not Formalizing Agreements Between Founders

Founders often skip formal agreements in the early days.  It is important to have documents in place that will define the relationship within a business before any issues arise.  A well-drafted shareholders' agreement can protect relationships and business capital.

 3. Misclassifying Employees and Contractors

Businesses often treat workers as independent contractors when they are legally employees, trying to reduce taxes and paperwork.  This misclassification can result in back taxes and lawsuits.  Properly categorizing team members is critical for compliance with provincial and federal labour laws.

4. Using Inadequate Contracts

Relying on generic or poorly defined contracts with clients, suppliers, or employees exposes businesses to unnecessary risk.  Personalized contracts help clarify duties and obligations and can minimize disputes.  A little more effort on the front end can save founders from complications later on.

Conclusion

Early legal missteps can cripple a startup business before it gets its momentum.  Investing in good legal advice early on can save costs in the long run and can help provide a strong foundation for growth.