How can you protect your startup from these common mistakes?

On Behalf of | Oct 2, 2021 | Business Law |

Starting your own business in Texas is exciting, and you are probably looking forward to your company becoming a huge success. However, as a new business owner, you want to be smart and protect your startup from these common legal mistakes.

Not forming your business as a C corporation

It’s wise to form your new business as a C corporation. You have to establish what type of startup your company will be, but many new business owners are unaware of that. This is usually due to simply starting a business without first consulting with professionals for legal or financial advice. As a result, businesses that don’t become C corporations at startup can face higher taxes and liabilities. Investors are also more likely to invest in your business if it’s a C corporation.

Not using formal written agreements

If you start your business with other co-founders, you should have formal written agreements with them. Strictly relying on oral agreements is risky because there’s no documentation of them that can serve as proof when disagreements arise. Oral agreements can also lead to confusion as people will have to rely on their memory. There are various issues you should address in your agreements, which makes having a formal written document so important.

Avoiding handling important tax issues

Business law requires you to ensure that your startup is compliant with all the federal tax laws and regulations. You must also be compliant with the state tax laws. You’re required to know what happens with taxes when you have regular employees versus independent contractors. Other areas where startups make mistakes with taxes involve claiming federal R&D tax credits, holding Section 83 (b) elections, not properly pricing stock options and writing off proceeds from selling shares at 50%.

It’s important to look into all the tax issues pertinent to your small business. You can save a lot of headaches and taxes when you’re well-informed.

Not using a good offer or agreement letter when hiring employees

When you want to hire employees, you should have a good offer letter sent to people you’re considering so that they can read it and sign it. This letter should be clear and explain a variety of things such as their job title and duties, whether they’re full- or part-time or considered an independent contractor, the start date, the salary and bonuses, benefits and more.

These are some of the biggest mistakes that startups make. Learning all about what can make or break your business may help you get an edge toward success.