Legal Advice for Entrepreneurs
Mark Zuckerberg, Gerard Adams and David Karp – some of the world’s most successful entrepreneurs. All of them have something in common – they are experts in taking calculated risk. These risks often pay off in the form of increased net worth, reputation, and prestige.
Calculated risks require taking inventory of your tangible and intangible assets, addressing red flags and leveraging resources to increase one’s chances of success.
However, the legality of a business and its operations remain a major pitfall that plagues burgeoning entrepreneurs. Common gaffes include choosing the wrong business entity, hiring malpractices, and tax errors. However, entrepreneurs must assume responsibility for being cognizant of government regulations. For example, tax codes, local labor laws, antitrust laws are absolutely crucial. For the uninitiated, the process of understanding and implementing certain laws can be intimidating. In most cases, it stifles productivity. However, at Austin LRS, we’ve got you covered. Read on to find out how.
Why Startups Are Prone to Failure
A major reason why many startups fail within their first few years is that they often overestimate the market for their good or service. There usually isn’t a big enough value proposition to lead the buyer and commit to purchasing.
Also, failing to implement and adhere to a business model is also another reason. Too many entrepreneurs are too optimistic about how simple it will be to acquire market share. While they may be intimate with the unique benefits of their products, that doesn’t mean they’re able to communicate them to potential buyers. If that is the case, the buyers won’t show enough interest, profits will tank, and the startup will fail.
An inability to follow local and federal laws when creating, operating, and maintaining a business also contributes to failing startup rates. Not being aware of legal pitfalls translates to fines, fiscal penalties, and a ruined reputation. These aspects have a direct impact on the bottom line and can disrupt cash flows. That’s where we come in.
Choosing the Wrong Business Entity
In their enthusiasm to register their businesses, entrepreneurs tend to overlook the significance of selecting the right entity. Taxes are largely affected by your business’s identity. For example, businesses who register as an S-corporation under the sub-chapter 5 of the IRS code will have profits and losses passed directly to the partners to report on their own individual tax returns. In a C-corporation, the business will also be held accountable for paying taxes on generated income. Not being aware of the business entity’s tax code and bracket can be a pitfall for investors, stakeholders, and partners in a corporation or partnership.
There is also the issue of liability. Some entrepreneurs could accept payments personally and operate under the sole proprietorship banner but choose not to due to a need to insulate against personal liability. It’s integral that the entity is able to protect the owners.
Inadequate Protection for Intellectual Property
Intellectual property is another challenge that entrepreneurs have to overcome, especially if they are inserting themselves in international trade. Inadequate protection means that eventually there will be a theft of rights, which can amount to significant commercial losses.
Not Having a Business Lawyer
A business lawyer will be able to streamline the bureaucracy of local and federal mandates and regulations. A business lawyer is particularly beneficial in the beginning stages of a business venture, or when you are on-boarding an investor or business partner. If you and your partners want to initiate special allocations, contribute appreciated properties to an LLC, facing environmental protection laws, or have a disgruntled employee, then you will benefit from having a conversation with a business lawyer.
Running Afoul of Securities Laws
You will need to be aware of issues surrounding securities, especially if you are going through public offerings. Securities laws affect how interests are issues in an LLC and a corporation. Speak to a lawyer to see how federal and state securities rules apply with your unique business identity.
To get in contact with a lawyer, or to learn more about how entrepreneurs can manage legal pitfalls, get an instant referral from Austin LRS today.