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How to Get the Drop on Legal Mishaps When Starting Up

How to Get the Drop on Legal Mishaps When Starting Up

Legal mishaps aren't just for "perps" in TV's Law & Order.

Even straight-laced entrepreneurs can run afoul of the law. And while you may not end up in prison, succumbing to legal no-no's can have deleterious effects on a fledgling company. For some, it could even cause their demise.

Here, then, are some friendly words of advice: No matter how snooze-worthy leafing through legal documents can be, don't let them fall to the wayside. If you're thinking of launching a startup or your company is already up-and-running, here are four ways to avoid major setbacks:

1. Run your business with integrity.
One of the simplest tips to avoid being embroiled in a legal mess is to operate your startup with integrity. It is nearly impossible to get others to follow you (or for very long) if you are dishonest. In fact, rock-star investors like Mark Suster will only invest in entrepreneurs who possess high integrity.

Related: 3 Hacks to Save on Startup Legal Fees

Have solid, ethical principles and abide by them. That being said, at some point in your career you will face a tempting short-cut that puts your integrity (and potentially your business) into jeopardy, like selling user data without permission. When this temptation occurs, keep in mind entrepreneurs who lie and cheat are often the ones who find themselves in the most legal hot water with employees, customers and investors. Stay true to your principles.

2. Put things in writing.
Every formal relationship your business has should be in writing. Written contracts may seem unnecessary in the beginning of a relationship (when everything is friendly), but one of the purposes of a contract is to navigate the relationship when things don't go as planned.

Without a contract, when something goes even slightly awry relationships often crumble, turn contentious or possibly snowball into a lawsuit.

I see this happen most often in oral arrangements between founders. One of the easiest ways to resolve this issue is to have a founders' agreement from the get go.  Make a habit of putting your relationships in writing -- even when the other party insists no contract is needed. You will save yourself a number of headaches down the road.

Related: Patent vs. Market Penetration: Where Should Your Focus Be?

3. Learn to read like a business lawyer.
More often than not, entrepreneurs will agree to a contract without fully reading it, let alone understanding it.

Many contracts require a sharp eye more than they do a lawyer. One of the key habits taught to attorneys in law school is to read contracts meticulously and extract key concepts. Think like a lawyer. Even understanding 75 percent of a contract puts you ahead of the game. At a minimum, entrepreneurs should understand what is being exchanged under the agreement and under what circumstances the contract can be terminated.

4. Be prepared for employee issues.
No matter how hard you work to hire the best people, employee issues inevitably will occur. To avoid any legal hiccups, you should take steps to protect your business and minimize employee concerns. Putting in place the proper contractual agreements between you and your employees helps to set the necessary groundwork if something goes wrong. Not only does it lay out the expectations of the relationship but protects the company if the employee is terminated.

Related: Founders Fund's Geoff Lewis on Getting Acquired, on Your Terms

It is also crucial to treat employees well and keep communication channels open. Most employment issues arise from bad relations between the company and the employee. Besides fostering a healthy office environment, paying attention to the needs of employees helps identify and stave off potential larger issues.

The law is intended to create a predictable and healthy business environment. If you take advantage of the law by utilizing contracts or gaining understanding through a legal professional, you can avoid obstacles that so many entrepreneurs face throughout their career.

What else would you advise young entrepreneurs when dealing with legal issues? Let us know in the comments below?

Matt Faustman is the co-founder of UpCounsel, the fastest growing online workplace for businesses to easily hire trusted business lawyers, corporate lawyers, patent lawyers and many other types of legal professionals. Matt frequently posts on the UpCounsel blog on business legal issues, efficiency, and the future of labor.

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