A Few Start-up Mistakes: Five of the Biggest Whammies to Address and to Avoid

Business
owners are successful by implementing their ideas through hard work, while
finding ways to save money. This is how the smart, the diligent and the prudent
make money and build enduring wealth. However, when a starting business feels
undercapitalized and attempts to be penny wise, unexpected costs can destroy
everything that has been built, and invested. 

A
business owner must put basic legal planning into his or her business plan, and
have this planning fit the goals and needs of the business.  Too many businesses are crippled, or fail, by
not thinking through their relationships and operations in terms of the legal
structures that will govern them.  No
matter where a business is, or what it does, there are very large risks that it
can avoid or significantly reduce at very low expenditure of time and
money. 

In
two decades of representing businesses, we have seen hundreds of the same
mistakes. Too many strong businesses and their leaders seek our help when it is
too late, and there is an expensive lawsuit that compromises the resources of a
successful business.  Here are just a few
of the biggest mistakes for a business to consider:

Mistake Number 1:  Thinking the Honeymoon will Last Forever

Your
partners are your friends, your family members, or other people whom you trust,
respect, or even love. Nothing will ever come between you.  No. 
Eventually you will disagree, and your disagreement will probably
involve money or operations.  Usually
this happens when a business has crossed its first hurdles and has become
stable and successful.  Other times
people with longstanding relationships have fallings out. Work (and hope) for
the best, but how do you prepare for the worst? 
Start by avoiding mistake number two.

Mistake Number 2:  Expecting Your Business to Fit Any Mold or
Not Incorporating Your Business

Articles
of incorporation, certificates of formation…just a form and a filing fee?  No.  It
is the power structure of your business’ life. There are all types of business
structures that can be used protect the most knowledgeable, active, or financially
at-risk, investor or simply the investor who is most prepared for the worst.  What is your position?  What are the positions of your colleagues and
teammates? How do you establish the rules and expectations from the beginning
and provide a means to manage the problems that will arise?  Whether you should have protection in place
to keep the passive investor passive – or to protect that investors’ right to
be active – the business owner must think through the power structure of the
business.

At
a more basic level, some business owners are slow to incorporate or never
incorporate.  Your corporate entity is a
separate person under the law.  This
legal fiction allows you and other investors to take risks and to grow.  It protects you from liability, and from
losing your personal property in litigation – property that has nothing to do
with your business, except that it is yours. Most business owners know that
they should incorporate. A surprising number do not incorporate until after
they have started their business, and a few face the perils of never
incorporating at all.

Mistake Number 3:  Not Protecting Your Rights with Key Vendors
and Suppliers

You
can build and maintain the best relationships in every vertical.  You can negotiate anything.  Get it in writing.  Get an expert to review or draft your
contracts to make sure that the words you choose have the effect that you think
they have. Consider all of your procedures in this contracting process, in
terms of all parties’ expectations and risks, just as you would value and
consider customer service and loyalty. You will have a better deal, with the
relationship underlying the deal protected, while knowing that you are
protected if (or when) there is a serious problem.

Mistake Number 4:  Cutting Corners Defining Employee Expectations
and Responsibilities

The
cliché is usually true. Your people are your best assets.  How do you protect your business from
unnecessary hardships caused by the mistakes, habits or poor choices of your
employees?  The short answer is to have
an employee handbook crafted to address your expectations in a way that will
protect you if (or when) there is a serious dispute with an employee. 

For
key employees, whom you may choose not to be at-will employees, consider all
aspects of the employee’s roles and responsibilities in the employment
contract. The pre-printed contracts widely available will not protect your
specific needs. Get an expert to review or draft your contracts to make sure
that it fits the contingencies you consider (or have not considered).

For
all employees, define their roles and responsibilities in writing. This can
help to protect you from claims that you have underpaid employees under the
federal employment law. Discuss these roles and responsibilities with an expert
to ensure that you have minimized liability against expensive wage and hour
lawsuits that can bankrupt a company.

Do
not call employees independent contractors unless they are truly independent.
Otherwise, the IRS, the Department of Labor, and other powerful agencies will
have an added tool to apply against your business through rules and regulations
that govern or rely upon employer – employee relationships. 

Mistake Number 5: Not Protecting
your Trade Secrets and Other Intellectual Property Rights

Your
business’ procedures make it efficient and unique.  Every day, the most basic collection of ideas
and information provide an edge that allows a business to surpass its
competition.  Every employment contract
and every employee handbook must protect your business’ manners and means of
conducting its business.  Texas law is
very complex in protecting these rights, and in recent years has shifted to
protect businesses that are prepared to take advantage of it.  Consult an expert.

An
amazing number of businesses never protect their trademarks and other important
pieces of intellectual property that allow a business to stand out and
grow.  Protect your business early by
simply following the procedures that protect your name and its likeness.

The Vethan Law Firm, P.C.

At
the Vethan Law Firm, P.C. we are focused on businesses.  We work only with businesses and business
people to protect their needs.  Most of
our clients seek our help early.  Most of
our time, however, is spent helping businesses and business owners who did not
prepare for avoidable problems, and face litigation.  From our offices in Houston and San Antonio,
we help all types businesses from all over the United States and countries
across the world save money and grow.

We
serve our business clientele by asking the right questions and by aggressively
attacking the challenges posed to business owners.

We
look forward to meeting with you, and discussing how we can help your business.  Visit our website at www.vethanlaw.com to learn more about how we can assist you today.