Startup businesses in New York and New Jersey always begin with enthusiasm and excitement. A new business is an opportunity to create and explore, but also requires careful planning and attention. Certain risks, if not managed effectively, can sink a new business before it has a chance to succeed. Here are five errors that new businesses often make, and tips on how to avoid them.
1. The Wrong Business Entity. Identifying the right type of business organization is critical to a company’s success. Owners must consider how they want business income to be taxed, and how they want to handle the liabilities of the business. Corporations, limited liability companies (LLCs), and partnerships each offer unique advantages. “C” corporations and “S” corporations offer similar liability protections, but different tax advantages. Partnerships offer tax benefits in some circumstances, as well as flexibility in the company’s governance. LLCs offer a great deal of flexibility, but may not be right for fast-growing companies.
2. Insufficient Planning and Agreement Among Owners. Business owners must consider not only how to start their business, but also how they plan to either end or exit it. They must plan for contingencies, like the early departure or death of an owner, with regard to how the company will handle that owner’s equity share. Any promises or contingent offers regarding additional stock or equity should be in writing. Agreement among owners at the start of the business is no guarantee of continued harmony.
3. Failing to Protect Intellectual Property. Businesses must aggressively protect the results of their hard work. Company policy should strictly determine who may access trade secrets, and employees, contractors, and others who work with the business should sign non-disclosure agreements. Employment contracts should identify the business as the owner of all works created by employees in the course of their job duties. Businesses should promptly register trademarks for brands and logos, and copyrights for creative materials. They should seek patent protection for unique inventions and processes.
4. Inadequate Privacy and Social Media Policies. Privacy laws and regulations frequently change. This applies both online and offline. Certain businesses — particularly those that provide professional services — must have strict privacy and retention policies for physical files. All companies that do business online should have policies stating how they collect and use consumer data, as well as policies governing how employees may access or distribute company information. Social media policies should address specific concerns related to the business, but must also take care not to violate employment statutes.
5. Proper Insurance Coverage. Businesses can be sued at any time and for almost any reason. Even if the suit is utterly frivolous, it still requires a response, and therefore expense, from the business. Insurance will cover not only damages, but also legal representation in many cases. The key is identifying and purchasing the correct types of insurance. Brick and mortar businesses need premises liability coverage. An errors and omissions policy can protect companies from clerical errors. Employment practices policies cover most claims by employees against the company. Some types of businesses have specific insurance needs, such as professional liability coverage for attorneys.
The New York business attorneys at Samuel C. Berger, PC offer fixed-fee packages for providing legal services to businesses and entrepreneurs who want to do business in New York and northern New Jersey. To speak to a member of our skilled legal team, contact us today online, or call (212) 380-8117.
More Blog Posts:
Protecting Your New York or New Jersey Business from Liability for Distracted Employees’ Car Crashes, New York & New Jersey Business Lawyer Blog, June 28, 2012
Social Media and the NLRB: How New York and New Jersey Businesses Can Avoid Accidentally Breaking Federal Labor Laws, New York & New Jersey Business Lawyer Blog, June 14, 2012
Five Legal Risks of Social Media for New York and New Jersey Small Businesses, New York & New Jersey Business Lawyer Blog, May 4, 2012
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