The Top 5 Legal Mistakes New Business Owners Make
Starting a business is exciting, but it’s also legally complex. Many entrepreneurs focus on branding, marketing, and growth, but overlook critical legal steps that can protect their business for the long term. As business formation lawyers, we’ve seen firsthand how avoidable legal mistakes can cost business owners time, money, and peace of mind. Below are the top five legal mistakes new business owners make and advice from our friends at Volpe Law LLC on how to avoid them.
1. Not Choosing The Right Business Structure
One of the first (and most important) legal decisions you make is choosing your business entity. Too many new business owners default to a sole proprietorship because it’s simple. But this can expose your personal assets to business liabilities.
Sole proprietorships and partnerships offer no liability protection. In contrast, forming an LLC or corporation creates a legal separation between you and your business, protecting your personal assets from lawsuits and debts.
Solution: Consult with a business formation lawyer to evaluate the best structure for your business based on liability, taxation, and growth plans.
2. Operating Without A Written Agreement
Whether you’re going into business with a partner or forming a single-member LLC, a written agreement is essential. Too many business owners skip this step, thinking they can work out issues later.
An operating agreement or partnership agreement defines how the business is run, who makes decisions, how profits are shared, and what happens if someone wants out. Without one, you’re subject to default state laws, which may not reflect your intentions.
Solution: Draft and sign formal agreements from the start—even if you’re working with friends or family.
3. Not Protecting Intellectual Property
Failing to protect your intellectual property (IP) early can be a costly mistake. This includes your business name, logo, slogan, and any proprietary products or processes.
If you don’t trademark your brand, someone else can register it first, potentially forcing you to rebrand later. Similarly, not using contracts to protect trade secrets or inventions could leave your business vulnerable.
Solution: Work with a lawyer to secure trademarks, copyrights, or patents as needed—and use NDAs when discussing sensitive information.
4. Ignoring Local And State Compliance Requirements
Many business owners focus on federal tax ID numbers and forget about state and local licensing, zoning, or registration requirements. Failing to file annual reports, renew licenses, or register for sales tax can result in fines or business closure.
Solution: Research your state and city requirements thoroughly, or better yet, have an attorney or compliance service manage filings and deadlines for you.
5. Using Generic Or Incomplete Contracts
Relying on free templates or DIY contracts often leads to vague or unenforceable agreements. Generic contracts may not be enforceable in your state or may leave out critical terms.
Solution: Have your contracts, whether with clients, vendors, or partners, reviewed or drafted by a lawyer familiar with your business and jurisdiction.
Protect Your Business From Day One
Starting a business without proper legal guidance can create serious long-term problems. Avoiding these five mistakes will give you a stronger foundation and reduce the risk of future disputes or liabilities, but it’s not substitute for the personalized advice of a skilled business formation lawyer practicing in your municipality.