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Starting a Business On Your Own? 5 Legal Risks

By Deanne Katz, Esq. | Last updated on

If your New Year's resolution was to finally get around to starting your own business, we'd like to support you in your efforts. And even if your motivation isn't New Year's-related, we still want to give you a heads up on what legal risks to watch out for.

After all, when you create a company, you create an entirely new legal entity. That means it has responsiblities to the government and to other legal entities, both people and corporations.

For your company to survive and grow, it helps to stay out of legal trouble. Here are five of the most common legal risks that new businesses often face:

  1. Shareholder issues. If your company was created or initially funded by more than one person, each part owner is considered a shareholder. Without a clear shareholder agreement, it can be difficult to determine how to buy out part-owners who decide to leave the company. Not having one from the start can create trouble in the future.

  2. Employee v. contractor. When you hire workers, and you certainly will, you need to figure out if they're employees or simply hired contractors. The law defines the company's relationship and responsibilities to each differently. If you don't know the legal definitions, then it's hard to make sure your employment agreements hit all the right points.

  3. Contracts are confusing. Your business will be asked to participate in many contracts, including real estate, intellectual property, and employment. A well-written contract can protect your company, but a poorly-written one will increase your legal risks. If you don't know how to write a professional contract, it's best to just hire a professional.

  4. Real estate. Buying and selling property, or even leasing a building space, requires a large amount of paperwork that lays out each parties' rights and responsibilities. If you don't read it carefully and understand the terms, you may find yourself holding the short end of the stick when it comes time to build or make repairs.

  5. Taxes. Doing your own taxes is never fun, and doing it for your company is even more complicated. If you don't hire a professional for anything else, this is one are where you need an accountant, a tax attorney, or both to make sure that you have to pay more than necessary when the IRS comes to collect.

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