1. Not involving legal counsel from the beginning.
2. Working with partners without registering a company.
3. Intellectual Property - Business owners need to own what they are selling. Mistakes include not obtaining the assignment of invention from co-founders, employees, contractors; failing to check employment contracts with former employers; investing in a brand without properly securing a name or logo and protecting it.
4. Founders Agreements - It’s vital to establish the allocation of the company’s interest early to avoid misallocation between workload and ownership share as well as to avoid disputes & protracted litigation later. Beware absent vesting provisions.
5. Assuming that raising capital from friends & family does not invoke security laws.
6. Equity Grants - Equity must be established as soon as the business is formed, cannot grant equity without proper documentation.
7. Early tax election - If founders or employees shares are subject to vesting and 83(b) is not filed, a business and the grantee will be taxed at ordinary income rates when the value of their share grows
8. Employment matters - Must be aware of legal hourly and wage requirements and understand the difference between the employees and independent contractors.
9. Using online legal forms like ZocDoc or LegalZoom – they are the simplest standard versions not suitable or adjusted for a present-day startup entity.
10. Failing to properly document customer, employment and other key third-party relationships. In the US oral contract is enforceable by the courts. Misunderstandings may result in the protracted and expensive litigation.
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