There are many reasons why you should start a business. There are many reasons why you SHOULDN’T start a business. This post is about why you SHOULDN’T start a business. Yet. To be clear, we don’t mean you should never start a business. You should start it as someone who is prepared. Here are five legal considerations to help you on your journey to starting your business. Each reason speaks to something you need to understand before being ready to start a business.
You shouldn’t start a business YET if…
You don’t know what legal structure to choose for your business
Before starting your business, it is necessary to choose a legal structure through which your business will operate. You could choose to be a sole proprietor or be in a partnership. You could elect to set up a private company. It is imperative to choose the correct structure for your business. Not having the right legal structure could open you up to personal liability issues or make it difficult to get outside investment. We have written a series on choosing the correct legal structure for your business. You can read post 1 here.
You have not agreed on ownership percentages with partners
If you plan to go into business with a partner, you need to discuss who owns what share of the business. Each partner will have expectations on this matter. Your partner might believe it should be a 50-50 split of the business. You might feel that your partner should own a smaller percentage. You need to discuss expectations early and decide what the ownership split should be. Then get the agreement in writing. Throughout the process of setting up your business, you now both have a clear understanding of how ownership of the business will look. Shattered expectations on the part of one partner can sour the relationship and break down the business before it even starts.
You lack adequate funding
Different business ideas require different levels of funding. You need to determine the unique nature of your business and how that impacts how much money you need to get going. It is no good to have enough money to build the skeleton of your business, but no money to operate it until you are profitable. Your business can’t get off the ground if you haven’t dealt with the financials properly.
A lack of funding might require you to bring on an investor. But the wrong investor might oppose your every move to run the business. This could leave your business in a static position. If you need to choose an outside investor, choose wisely. The identity of the investor is as important as the money they bring to the business.
You don’t have proprietary rights to your product
If your business involves any intellectual property, you need to protect that property. It is the heartbeat of your business. You need to get a patent, trademark or copyright. Don’t leave it until another business steps in to try and take your idea. If you start your business with unprotected intellectual property, a competitor can take your idea and sell your product or service at half the price and leave your business with an uphill battle.
You don’t know the law relating to the field your business will operate in
Sometimes, the area in which a business will operate is regulated. A good example of a highly regulated area is the food industry. Consider whether your business will operate in such an area. Consider the specific regulations you need to comply with in your business. How does this affect the cost to your business? The law itself (through penalties and other punishments) will prevent your business from succeeding if you do not follow the necessary regulations.
Want to start a business and need help?
If you need help regarding the legal processes involved with starting a business, please do not hesitate to contact us at [email protected].