Thinking of launching your startup? Stop and Read! Here are the five most common legal complexities to watch out for when starting up.
Getting to the stage where you have your venture up and running can be a difficult task even with the greatest ideas on mind. New entrepreneurs are more likely to run into legal complications, but this can be avoided. Careful assessment of the legal procedures and comprehension of the long-term effects can save a fortune and even make one!
Here is a detailed brief on legal issues to be kept in mind.
1. Improper settlement between co-founders
To avoid a probable legal feud between partners in the future, a proper settlement needs to be made between co-founders right at the beginning. Most legal hassles stem from misrepresentation of agreements between partners.
This, however, can be duly avoided by having a detailed, documented and decisive agreement made between the co-founders before any further incorporation. It is advisable to get this agreement made before registering as a private limited company.
2. Legal hurdles when raising the first investment
A lot of questions and decisions must be dealt with in the investment phase. All the legal formalities must be taken care of with regard to taxation, employment laws, intellectual property, business licenses, and contracts.
Due diligence must be made, and guidance must be sought from experienced entrepreneurs, investors, and professionals. With everything in check, raising an investment can be a rewarding experience. The right investment company must be selected by keeping in mind the income tax, returns, and policies.
3. Enforcement and negotiation of contracts
Startups enter various contracts with third-party vendors almost right from their inception. Contracts, as we all know, are legally binding and may lead to possible trouble if not properly enforced and negotiated.
It is important to assess the hidden clauses, the terms and conditions, and other legal aspects of the contract before submission. It may be so that a contract made with a PR agency allows it to walk out of the agreement under certain circumstances and this clause was not negotiated by the startup.
The concentration of power, loss of money and larceny are some of the outcomes of faulty agreements. This, however, can be avoided by cautious evaluation and suitable negotiation of the contracts. Help can be sought by hiring an expert for the enforcement and negotiation of dealings.
4. Improper asset handling
Asset mingling is the most common mistake made by entrepreneurs. It is important to plan properly and sort all the investments. There is a fine line between personal money and company budget; they must never be mixed.
Business accounts must be properly managed to avoid legal issues with partners and investors. Documentation of every payment, purchase and investment are completely necessary. Negligence on this part may come back biting hard in the future. Startups suffer from murky court trials and even arrests in some cases due to asset and accounting faults.
5. Taxes! They must be paid on time!
Taxation is the most important aspect to be taken care of; tax payment done on time ensures the company stays up and running without any legal trouble. Startups need to be aware of the tax system and its implications.
There are just too many cases of tax frauds due to negligence. The results can be devastating, ranging from fines and incarceration.
So, this can be avoided by simply paying the taxes.