Starting a business is a complex process that usually involves many different steps that are necessary for the business to run it smoothly and legally. And unfortunately, it isn’t uncommon for first-time entrepreneurs in Texas to forget some of these steps, which can put their business at risk. Even something as simple as forgetting a legal document can result in serious issues later on.
So, if you are a first-time entrepreneur in Texas, you need to consult with a Texas business attorney before moving forward. An attorney can help you better understand Texas business law and the various business contracts and agreements you need to protect your business.
Keep reading to find out what the most common startup legal mistakes are and how you can avoid them.
Choosing the Wrong Business Structure
One of the biggest decisions you will need to make as an entrepreneur is to decide whether you are forming an LLC or a corporation in Texas. Generally speaking, these types of business structures are safer than a sole proprietorship or general partnership, as they protect you from unlimited personal liability by creating a separate business entity.
By establishing a separate business entity, you are better protected from being sued or held personally liable for things like business-related debt. However, you need to do your research into these different entities to ensure you choose the right one and understand the pros and cons.
In most cases, an LLC is suitable for small businesses that still want protection from personal liability. Corporations are normally formed for businesses that involve investors or that wish to go public.
A business formation attorney in Texas can help you better understand what these options entail.
Operating Without the Right Legal Documents
Before you ever begin operating your business, you need to have the right legal documents in place. The specific legal documents you need will depend on the type of business you are running, but there are some general legal documents which may be applicable:
- Operating agreements
- Founder agreements
- Partnership agreements
Failing to have the right governing agreements established can leave you open to legal issues in the future. These documents help to provide protection, as well as clarity for everyone involved in the business. If you plan to establish long-term financing arrangements for your business the banks will typically require you to produce these documents as well.
Failing to Protect Intellectual Property
As a first-time entrepreneur in Texas, it is easy to forget about the need for legal protection for intellectual property. However, this is something you need to prioritize from the very start, as any intellectual property is at risk.
You can usually choose to register a state trademark specifically with Texas, or you can apply for a federal trademark. You can also get a copyright, which grants you, as the creator, exclusive rights for use and distribution. Or, you may wish to apply for a patent, which gives you protection for inventions so that others cannot make, use, or sell them.
It’s also a good idea to have confidentiality or non-disclosure documents established with other partners and employees so they cannot share confidential information.
Skipping Document Reviews and Updates
It isn’t enough to simply have the right legal documents in place. Startup founders also need to regularly review and update these documents. Particularly in the beginning phases of the business, you never want to simply draft documents without thoroughly reviewing and finalizing them. Ideally, you should have the help of a Texas business law attorney, as they can act as a second pair of eyes to protect your investment.
Also, you need to regularly update all business-related documents so that they accurately reflect the business. You should do this annually as well as anytime there is a change in business structure.
Ignoring Regulatory Requirements
Before you actually begin running your business, you need to make sure you are compliant with Texas law. Keep in mind that this can vary depending on the industry, as well as the city or county where your business is located.
Keep in mind that you may need to obtain specific licenses or permits depending on your industry and where your business is located. You may also need to register for specific types of taxes in Texas.
A startup attorney in Texas can help you better understand the regulatory requirements that apply to your business. They can also help you stay up-to-date with any changes, as many of these requirements are subject to change year to year.
Not Separating Business and Personal Finances
When you are just starting your business, it’s very tempting to keep your finances all in one easy to manage place. However, this is one of the biggest mistakes Texas entrepreneurs make, and that mistake can have serious consequences down the road.
From the very beginning, it is important that you clearly separate your personal and business finances by opening a separate business bank account. You should also apply for a business credit card and establish a financial software system to help track revenue, expenses, taxes, and payroll.
Failing to take these steps could result in personal liability and issues with business and personal taxes.
FAQs
What is the biggest legal mistake new business owners make?
Not choosing the right business structure, failing to establish legal documents, and not following Texas business law.
Should I hire a lawyer before forming my business?
Ideally, yes. If you have the help of a Texas business attorney from the very start, you can avoid many of these first-time business owner mistakes.
Do I need contracts even if I trust my business partners?
Yes. No matter your relationship with your business partners, you always need to have the correct legal documents in place that govern how the entity is to be run and the limitations on business partners’ actions involving the entity. This provides protection for all parties as well as clarity regarding each individual’s role within the business.
Get the Help of a Texas Business Attorney Today
As a first-time entrepreneur in Texas, you may feel overwhelmed by the sheer volume of decisions you need to make regarding how your business will run. Because of this, it’s strongly recommended that you work with a small business lawyer in Texas, as they will have extensive experience in this area. Contact us today at Sewell Sewell Beard LLC by calling us directly at 972-777-5390 to discuss your situation with one of our Texas business attorneys.