Structuring a business
Many entrepreneurs start a business without any formal business structure. Some select a trade name (e.g., doing business as (DBA)) while others may form a sub-chapter S corporation. Unfortunately, as too many entrepreneurs discover later, neither of these business types offer any type of personal liability exemption. This common mistake can be devastating if a business owner is sued - it can put personal property at risk.
It is also worth noting that the structuring of a business entity does have an impact on tax filings. Entrepreneurs should review both state and federal taxes for businesses before they decide which business structure works best for their needs. For example, not all states recognize a limited liability corporation for tax purposes which could create tax problems that can easily turn into legal problems.
Giving up too much control
Depending on the business, an entrepreneur may decide to being in one or more partners. This decision can be very good for a business, depending on how the agreement with partners has been established. Entrepreneurs should always structure agreements with fellow business partners in a way that allows them to maintain control over the business. Those who bring on two additional partners and give up 25 percent of their business to each may find they lose control over the direction or mission of the business. Entrepreneurs should try to maintain majority control over their business as much as feasible.
Many entrepreneurs who need financing to launch their business will offer equity in return for funding. While this is a good method for securing financing, it can be problematic making long-term decision for the business. Carefully consider all options when exchanging equity for services or financing. The wrong decision could have far-reaching consequences that may impact hiring, purchasing new equipment or growing a small business.
Bad brand research
One of the most costly and possibly ruinous things that a business can do a from a legal standpoint is not do their homework. One of the most important aspects of marketing is a business brand. Branding includes marketing a business as well as establishing a businesses reputation. Without proper research prior to getting started, a business owner may find that they have a trademark infringement suit on their hands. In addition to this possibly crushing legal blow, many small business owners spend thousands of dollars on advertising materials to discover later they are infringing on another company. Before starting any type of a business it is good sense to investigate to make sure that the name selected is not already being used.
Lack of clear agreements
There are two major players outside of the business owners and partners. They are suppliers and customers. Both entities can have a negative effect on the company's success if there are no clear agreements between the parties.
- Supplier agreements should be clearly written to include information impacting paying for materials or services including late fees and terms (such as due on receipt, net10, etc.). Quality considerations may also be included in these contracts to ensure that the products or services are appropriate for a business.
- Customer agreements must include payment information, but also must include specifics regarding what a business is offering. Without a clear agreement, some business owners may find they are not able to reach growth goals.
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