Five Legal Pitfalls to Avoid in Starting a Minnesota Business
Common legal mistakes small business owners should be aware ofBy Benjy Schirm, J.D. | Reviewed by Canaan Suitt, J.D. | Last updated on February 1, 2024
Use these links to jump to different sections:
- 1. Delaying Decisions About Business Structure
- 2. Failing to Codify Business Leadership and Conflict Resolution
- 3. Having an Unfeasible Payment Structure
- 4. Failing to Address Competitor’s Rights
- 5. Not Having NDAs or Intellectual Property Protections
- Find an Experienced Business Law Attorney
You’ve been talking about it for years: striking out on your own, hanging your own shingle, and being your own boss. If your stars are aligning—you have a business plan, the right partners, and the funding you need—here are some of the pitfalls you can avoid as you head out on your new journey as an entrepreneur.
1. Delaying Decisions About Business Structure
No matter what industry or market you plan to enter, in Minnesota, you must consider the legal ramifications of running a business. Aside from needing bank accounts, filing taxes with the IRS and Minnesota Department of Revenue, or registering your business with the state, the partners that you begin your venture with must be defined and agreed upon.
As much as it may not feel like it, you and your business entity are separate. A business can be structured to benefit you, or it could be designed to hinder you. Making informed legal choices from the outset about what type of business structure you need will ensure growth and a solid foundation from which to work. It will also give you the stability of knowing how much of the business you own.
2. Failing to Codify Business Leadership and Conflict Resolution
Most small businesses are started by family members or best friends. But no matter how long you have known someone, when business gets involved, a whole host of personal and interpersonal needs show up. This is why there are human resources departments in every business.
Disputes are usually unavoidable, so you should put down, in a legal document, how they will be resolved. You should also clarify other potential issues, like decision-making protocols, and how—and when—people are compensated.
3. Having an Unfeasible Payment Structure
Most disputes in new businesses are over work ethic or pay—especially because a new business often has many expenses and little-to-no money coming in.
The general rule is that a business owner shouldn’t expect to be paid for the first year and a half of a business’s life. So, how do you survive during that time? Well, if there is venture capital money, some of it can be allocated to salaries. And any business that does come in may be divided amongst the workers.
4. Failing to Address Competitor’s Rights
Non-compete clauses in contracts are the most negotiated item and are often the most overlooked by employees.
Non-competes must be examined and determined to be satisfied by your new business. Most restrictions involve geography and time. You must be certain your new business doesn’t run afoul of these constraints, or you may be walking into a lawsuit before your business begins.
5. Not Having NDAs or Intellectual Property Protections
When you have a new idea or business, the first thing you want to do is tell the world how awesome your product or service is. However, you’ll probably want to avoid doing so until your intellectual property is protected. After all, business partners or competitors can steal ideas; even family members bragging about your new successes can endanger a business’s future.
If you’ve got a really great idea, you need to protect it right away, or you may have an expensive legal battle over intellectual property rights. Consider having people sign nondisclosure agreements before you show them your idea.
Find an Experienced Business Law Attorney
Starting a new business is unimaginably difficult. Contact an experienced business attorney in your area for legal advice to help your fledgling company learn to fly. For more information on this area, see our business organizations overview.
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