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Bringing your business dreams to life by venturing on your own is one of the most extraordinary acts of courage and ambition. Entrepreneurship is a bold step toward endless growth possibilities in the commercial marketplace. Still, like any journey, there will be bumps along the road to success. Unforeseen issues, including legal matters from trademarks, copyrights, or patents, will arise. Here we’ll touch on some of the more prominent examples of ethical and legal issues faced by startups and businesses of all sizes, how to recognize them, and what you can do to minimize your exposure.1

Examples of legal issues for entrepreneurs

While the following list is not comprehensive, it highlights some of the larger issues entrepreneurs frequently encounter. Knowing where to start and what to discuss with a lawyer will help prepare you for protecting yourself and your business. Check out the list below for some examples that deserve the attention of any aspiring entrepreneur.

  1. Neglecting to follow corporate compliance laws: Corporate compliance is a broad term covering internal rules, regulations, and procedures, as well as the federal and state laws governing your area of business. Regular compliance check-ups help ensure your business operates according to all laws and rules.
  2. Intellectual property, such as trademark and copyright infringements: Entrepreneurs need to take extra precautionary steps to ensure they’re not infringing on someone else’s intellectual property and to protect their own in the process.
  3. Non-disclosure agreements (NDAs): Making sure all relevant parties sign NDAs before sharing concepts ensures that you can maintain confidential trade secrets and works-in-progress.
  4. Separate business and personal assets: Using a separate bank account for business is a simple tactic that adds a layer of protection between your personal and business assets.
  5. Employment handbooks and contracts: Working on a propriety handbook and drafting a contract with a lawyer will help to ensure that employees are correctly informed, classified, and protected.
  6. Employee termination: Reduce your chances of legal retaliation by explaining employment terms in person and print within employee manuals. And employee manuals should clearly document rules, regulations, and disciplinary actions.
  7. Shareholder agreements: All small businesses should ensure that formal shareholder and partnership agreements exist and are legally binding, so there are no grey areas for any stakeholders.
  8. Correctly filing taxes: There are countless rules, regulations, and laws governing the operation of a for-profit business. Make sure you have the right processes and software to keep detailed accounts of all money coming in and going out; a small detail could potentially cause serious financial hardship.1,4,5

Common legal mistakes entrepreneurs make

The two largest missteps that entrepreneurs make include the following:

1. Hiring a lawyer with little to no experience working with entrepreneurs

It's critical to incorporate the guidance of a lawyer early. Before you start your business venture, and ideally while you're still in the planning phase, you should be researching to find an attorney who specializes in startups and knows the ins and outs of your industry and local laws.

Have proper legal counsel ready through your launch; it’s critical if you get sued. Finding a tax attorney may also be a good idea if your business is particularly complicated and you anticipate any issues with the IRS. Either way, an excellent legal council will help you navigate the waters, plan for the future, and cover your bases so you can grow with peace of mind.

2. Neglecting to use NDAs

Non-disclosure agreements are legally binding documents that protect industry secrets, sensitive data, propriety, and confidential information. These documents ensure that ideas and information will not be stolen by individuals close to the project(s) in question. Those who breach an NDA may be subject to lawsuits and financial penalties or may even face criminal charges. The aforementioned legal counsel should be more than happy to help you draw up an NDA.5,6

The importance for entrepreneurs to protect themselves from legal issues

Occasionally, the desire to get a new venture up and running as quickly as possible can lead to catastrophic losses that can cripple a business and land an individual in significant legal trouble.

The choice of legal counsel and the depth of their involvement is critical for any entrepreneur looking to make their way into the commercial market. Hiring a professional to assist in managing risk while helping to ensure your business gets off the ground is imperative.

It's recommended that the professional you hire be a lawyer rather than an accountant. Accountants may know plenty about corporate legal issues but need to be more familiar with some key nuances. Find a lawyer specializing in startups and new business ventures, as there can be subtle but critically important details that may need to be noticed by someone who does not focus mainly on entrepreneurship.3

Get a business insurance quote

Small businesses can't afford to take hits from lawsuits, especially for things that are avoidable with proper planning. Keeping these common legal issues faced by entrepreneurs in mind and having the right insurance for your small business are reasonable steps in the right direction.
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[1] “5 Common Legal Issues for Entrepreneurs,” MSL Program, https://sites.northwestern.edu/mslprogram/2022/07/27/5-common-legal-issues-for-entrepreneurs/, (Accessed November 16, 2022)
[2] "8 Legal Requirements When You Start A Business, Chris Porteous," Entrepreneur, www.entrepreneur.com/article/346713, (Accessed November 16, 2002)
[3] “Ten Legal Mistakes to Avoid as an Entrepreneur,” Elevate Contributor, https://www.forbes.com/sites/ellevate/2021/02/11/ten-legal-mistakes-to-avoid-as-an-entrepreneur/?sh=7ee1d1e3792e, (Accessed November 16, 2022)
[4] "What Corporate Compliance Is and Why Compliance Is Important,” PowerDMS, www.powerdms.com/blog/what-corporate-compliance-is-why-compliance-is-important/, (Accessed November 15, 2022)
[5] Council, Young Entrepreneur. "8 Legal Issues Most Entrepreneurs Don't Consider When Starting a Business, but Should," Young Entrepreneur Council, HuffPost, www.huffpost.com/entry/8-legal-issues-most-entre_b_6083894, (Accessed November 15, 2022)
[6] Beers, Brian. "Don't Get Sued: 5 Tips to Protect Your Small Business," Brian Beers, Investopedia, Investopedia, www.investopedia.com/small-business/protect-small-business-getting-sued/, (Accessed November 15, 2022)

The information included is designed for informational purposes only. It is not legal, tax, financial or any other sort of advice, nor is it a substitute for such advice. The information may not apply to your specific situation. We have tried to make sure the information is accurate, but it could be outdated or even inaccurate in parts. It is the reader’s responsibility to comply with any applicable local, state, or federal regulations and to make their own decisions about how to operate their business. Nationwide Mutual Insurance Company, its affiliates and their employees make no warranties about the information nor guarantee of results, and they assume no liability in connection with the information provided.