5 Common Legal Troubles That A Startup May Face

For any startup business, there’s always pressure to succeed in as little time as possible. But as soon as you enter the business world, you might find that challenges don’t seem to end. From gathering funds and building your brand to marketing to your customers and meeting their demands, it’ll take a lot of constant effort before you can even get a glimpse of success. 

Add to that the legalities involved in business, which is often tricky especially if you’re not familiar with the law. Legal problems can compromise the flow of your business in many ways. This is why for meticulous business owners, it’s ideal to consult with the experts first before getting started.  

Hiring a business law attorney Miami gives business owners peace of mind and allows them to focus on the business itself. If you own a startup, having someone you can trust to handle your business’ legal matters efficiently is an investment you’ll be glad to have when the going gets tough. 

But to help give you a better idea, here are five common legal troubles that you may face in your startup business: 

  1. Intellectual Property Issues 

Intellectual properties are ideas and materials that individuals or companies develop for their use, whether for personal or business purposes. These unique creations are ideally protected by copyright, which is defined as a legal term for the creator’s right to their original ideas. This can range from physical, verbal, digital, or other materials that are solely made by the individual or company. 

Using someone else’s intellectual property without permission will result in copyright infringement, which is commonly found in the form of copied images and designs. In the United States, you can face up to five years in prison and around USD$250,000 in fines depending on the state. To avoid this, always create your own materials with uniqueness in mind. If you want to use another person’s material, make sure to secure their permission first before anything else. 

  1. Unsecured Business Licenses 

Every country or state has its own rules regarding business licenses. However, it’s common for startup business owners to forget about it and not even consider it. This often happens because startup owners sometimes underestimate its importance, and think that they can just get it once their business expands. 

Moreover, meeting the right requirements to obtain a permit to operate legally can be a big challenge especially if you’re still starting. For new business owners, this takes up a lot of time and resources, which they may not be willing to put up with when their hands are already full from the demands of a new business. This is a mistake though. If your business operates without the required licenses and permits, the penalties will be either monetary or suspension, which will disrupt your business and may even tarnish your reputation. 

If you haven’t familiarized yourself with the process yet, check with the local office that handles business licenses in your area. They’ll be able to guide you in the process and even give you a checklist of the documents you need to complete to secure your licenses. 

  1. Contract Issues 

In any business setting, especially in transactions that involve third parties, contracts will be your shield from numerous legal troubles that you might encounter in the process. This written document will be your proof of agreement.  

A contract that details the agreement between two or more entities is not compulsory, but it helps to protect the interests of both parties in cases of disputes and unexpected events. In the absence of a legal contract, there’ll be no liabilities when the other party fails to fulfill their responsibility according to the agreement. For the aggrieved party, this may result in damage and loss. The same thing applies if there’s a contract but it isn’t legally binding or it has loopholes. 

For an agreement to be legally binding, it requires at least five elements: an offer, acceptance, consideration, mutual assent, and capacity. These essential elements can be difficult to complete if you don’t have a background in law.  This is why most business owners ask a business lawyer to draft their contracts to make sure they’re accurate and legally binding. 

Non-compliance to this legally binding agreement will result in a breach of contract. Penalties for this depend on the state, but usually, it’s compensation for the damages incurred by the other party. 

Fortunately, contract lifecycle management software makes it considerably easier to create and manage your contract obligations.

  1. Employee Issues 

As a startup, the hard work of your employees will be crucial. To help you retain loyal employees, you’ll need to provide mandatory employee benefits and incentives that may help motivate them.  

However, if you fail your duty as an employer, there are consequences too. This can happen in different instances. For example, you terminated an employee without a just reason, or your reason isn’t indicated in their contract. Another case is failure to give them their compensation as agreed upon in their contract. In cases like these, employees may file a complaint that could make you legally liable as the employer. Penalties range from fines to suspension of business depending on the state.  

To avoid this, before you hire anyone, check the labor laws in your state or country and take into account the requirements for proper compensation and just termination. Don’t forget to consider these when drafting employee contracts. 

  1. Shareholder Disputes 

Shareholders are individuals or entities that own shares in the company’s stocks. As a business owner, you’ll need them to secure sufficient funding for the expansion of your business. However, there are many things to consider when you have shareholders, as they’re considered your business partners for as long as stated in their contract. 

As stockholders, they’ll be able to receive monetary compensation from your overall profit. You also have to consider their opinions and concerns when it comes to the business process. Legal troubles may emerge when shareholder documents are mismanaged. For example, when brackets for stock ownership are improperly documented, it’ll cause major disputes when the compensations are given out. Stockholders may also disagree with the way you manage the business or may have conflicts of interest. In worst cases, these may lead to lawsuits. 

Resolving shareholder disputes can be tedious but not impossible. However, as much as possible, it’s best to keep them from happening in the first place. You can do this by creating a clear and detailed shareholder agreement and a provision for when disagreements arise so they can be addressed right away.  

The Takeaway 

Starting a business will always be challenging, but by continuously learning and knowing when to seek expert help, you’ll get on the right track in no time. If you can learn from experience and from the experts in business and law, you’ll eventually be able to handle the legal matters of your business with more confidence and independence.  

June McGown