What are the essential legal tips for startups every entrepreneur must know?
This question comes up often in my legal consultations with new business owners every week!
Launching your startup is an exciting venture.
You’re turning ideas into reality, securing funding, building your team, and chasing your vision.
But in the excitement of scaling your business, legal requirements and issues are often overlooked—until they become a problem.
For example, here are 30 startup legal issues you could face.
Whether you’re a first-time entrepreneur or a seasoned business owner, understanding the legal basics is crucial to avoiding costly mistakes down the road.
This guide will walk you through key legal tips for startups, so you can focus on growth without worrying about what might fall through the cracks.
If you are an entrepreneur, don’t expect money and time to get your startup off the mark.
There are other important aspects to consider apart from running a startup and ensuring your employees are well looked after.
It is your responsibility to follow local laws and regulations, even more so as a service-based company.
Below are some actionable tips to get started!
Table of Contents
Why Legal Compliance Matters for Startups
Before we jump into the legal tips for startups, let’s address why this topic deserves your attention.
Legal compliance is more than just paperwork—it’s about using best practices to protect your business, team, and reputation.
Here’s why it matters for small business owners:
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Avoid costly penalties:
Non-compliance with local, state, or federal regulations can result in hefty fines and legal risks.
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Build trust:
Legal transparency makes your business more attractive to investors, partners, and clients.
This gives you a competitive edge in the marketplace.
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Protect your intellectual property (IP):
Using proper contracts and filing for trademarks can prevent competitors from infringing upon on intellectual property rights.
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Ensure long-term stability:
Starting your business with legal structures in place sets a strong foundation for sustainable growth.
Related Post: 23 Top Legal Documents Needed to Start a Business
15 Legal Tips for Startups: Your Essential Guide to Staying Compliant
Follow these essential legal tips for startups to avoid potential risks and ensure long-term success.
Pick Your Startup Specialty
Startup owners need attorneys specializing in compliance and regulation to protect the business’s reputation and resolve disputes and potential legal issues promptly.
There are various types of lawyers, but the following are relevant for service-based companies:
Defense Attorney
A defense lawyer addresses legal issues related to vehicle accidents, making them essential for rental car businesses.
A car accident can lead to a lawsuit if there are injuries or property damage.
The victim can hold your company liable and seek legal action with the assistance of a personal injury lawyer.
According to the Arkansas Center for Health Improvement, Arkansas has the fourth-highest road fatality rate in the U.S., with most crashes occurring in rural counties.
Let’s say, for instance, one of your rentals is involved in a crash in Little Rock and a pedestrian sustains injuries.
The area is ranked as the 10th deadliest metro in the country for pedestrians, by the way.
Plaintiffs are within their rights to contact a Little Rock personal injury lawyer for legal representation.
Personal injury law deals with personal injury cases and wrongful death claims.
In this case, it’s in your best interest to consult a defense attorney to provide representation in legal proceedings and litigation.
They can effectively minimize potential lawsuits and liabilities, assuming a dispute arises due to motor vehicle accidents.
Keith Law Group explains that victims can claim two types of damages in personal injury lawsuits in Little Rock. These are compensatory damages and punitive damages.
Related Post: 11 Tips to Boost Law Firm Efficiency and Success
Contracts Lawyer
A contracts lawyer comes in handy for home-based services.
If you offer online tutoring, a contracts lawyer draws up tutoring contracts that set clear expectations for you and your clients.
Their role pertains to drafting, reviewing, and negotiating contracts related to agreements with customers.
In the same breath, a contracts lawyer could act as a business intermediary.
Given enough experience, they offer crucial legal advice on various issues affecting your business.
Another specialized lawyer worth the service fee is a regulatory compliance attorney.
They understand regulatory requirements and can assist with obtaining permits and licenses, conducting compliance audits, and resolving regulatory issues or violations.
Need contracts for your startup? Check out our library of contract templates here.
Startup Lawyer
Startup law requires a different approach.
An attorney who understands the challenges a fledgling startup faces is your best bet for ensuring you’re not spending unnecessary capital on add-ons you don’t need.
Their expertise includes guiding owners in structuring the business and helping to register the company.
A startup attorney is experienced in business models, advising which is best suited for your startup companies.
Corporate governance, legal compliance, and intellectual property protection are often neglected areas in establishing internal frameworks, says Techpoint Africa.
This is where a startup lawyer can help establish a solid legal foundation.
Not sure how to make your website legal? Watch this video from a lawyer
Choose the Right Business Structure
The first major legal hurdle for startups is deciding which business structure is right for them.
Choosing the right legal structure for your business is very important!
Your business structure affects your taxes, liability, and day-to-day operations.
This is where you should seek legal counsel to avoid this common mistake.
Sole Proprietorship
This is the simplest structure, where you and the business are legally the same entity.
It’s great for very small businesses but doesn’t protect your personal assets.
Limited Liability Company (LLC)
An LLC creates a legal separation between your personal assets and the business.
It’s a popular choice for flexibility and reduced personal liability.
Need help forming an LLC in an hour? Book this service with a lawyer here.
Corporation (C-Corp or S-Corp)
For businesses planning to seek investors or go public, a corporation often makes more sense.
Corporations take more effort (and money) to maintain but provide the most robust protections.
Pro Tip: Consulting with a business attorney or accountant is a good idea to choose the structure that aligns best with your startup’s future goals.
Get Your Legal Documents
A common mistake many startups make is failing to document agreements and policies correctly.
Never rely on verbal agreements or handshake deals.
This can easily result in lawsuits. I watched my own dad’s business get sued for $90,000 over a handshake deal.
Legal templates and well-drafted contracts can save you headaches later on.
Below are common agreements needed for startups.
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Founder’s Agreement
A founder’s agreement outlines roles, responsibilities, equity splits, and what happens if conflicts arise or a co-founder exits.
Think of it as your startup’s prenuptial agreement with your startup founders.
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Operating Agreements & Bylaws
These are essential if you’re starting an LLC or corporation, as they dictate how your business runs.
Here’s an LLC Operating agreement written by a lawyer (trusted by thousands of businesses)
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Non-Disclosure Agreements (NDAs)
Use an NDA when sharing sensitive information or confidential information with potential clients, employees, or partners to keep your proprietary information secure.
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Employment Contracts and/or Independent Contractor Agreements
Define the expectations and responsibilities of the people you hire.
This can be done in an employment agreement or an Independent contractor agreement if you are hiring contractors.
These contracts also clarify whether they’re classified as employees or contractors, which has serious tax implications.
Remember the legal side of any business is complicated and confusing so book a consultation with a lawyer to discuss your legal needs.
Ensure Compliance with Employment Laws
If you’re hiring employees or freelancers, your business must comply with federal and state labor laws.
Here’s what you need to cover:
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Employee Benefits and Policies
Define PTO, sick leave, health benefits, and other employment terms in an employee handbook.
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Compliance with Anti-discrimination Laws
Businesses legally must follow equal opportunity employment (EOE) practices.
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Employee Classification
Misclassifying employees as contractors can lead to significant tax obligations and penalties. Be clear on their role.
Understand Tax Obligations
Startups, big or small, must stay on top of their financial obligations.
Work with an accountant to make sure you’re handling taxes effectively.
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Employer Identification Number (EIN)
Register for an EIN with the IRS—it’s like a Social Security number for your business.
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Sales Tax
Determine if your products or services are subject to state sales tax and collect accordingly.
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Estimated Quarterly Taxes
If you’re self-employed or own a business, you’ll need to pay estimated taxes quarterly unless you are an S Corp.
Pro Tip: Software like QuickBooks or FreshBooks can simplify tracking your business’s tax obligations.
Create a Privacy Policy
If your startup collects any type of customer data—whether through a website, mobile app, or even email signups—you’re legally required to disclose how that data will be used and safeguarded.
Your data privacy policy should include:
- What data do you collect
- How do you store it
- Whether you share it
Failure to comply with regulations like GDPR or CCPA can result in significant penalties for your startup.
Follow these key legal considerations for a solid foundation.
Don’t have a proper privacy policy for your startup?
Grab our privacy policy template here as part of our VIP legal bundle.
Trust me, it will save you SO much time and money!
Be Transparent With Customers
No matter which type of business you run, you are legally obligated to be transparent about service prices, terms and conditions.
It builds trust between a company and a customer.
Service providers need to establish clear policies so their customers know what to expect when they buy a product or service.
Spell out additional costs such as optional insurance, and other services.
For instance, rental contracts should specify payment, security deposits, and cancellation terms.
Work with legal professionals in business law to draft these important policies for your specific needs.
Protect Your Intellectual Property
Your ideas, branding, trade secrets, and innovations are among your startup’s most valuable assets.
Protect them early to avoid legal battles.
Trademarks
Ensure your startup company name and logo are unique and register them as trademarks. This protects your brand identity.
Patents
If your startup relies on innovative technology or processes, patent them to prevent competitors from copying your ideas.
Copyrights
Register copyrights for original content like software, articles, or artwork created in-house.
Trade Secrets
Clearly define and protect trade secrets like customer lists, formulas, or proprietary processes.
Use non-disclosure agreements (NDAs) to ensure employees or collaborators don’t disclose or misuse sensitive information.
Quick Tip: Check existing trademarks or patents before finalizing your business name or launching a product.
Book a trademark search here to get started.
Build a Relationship with a Lawyer
Having legal counsel can save you time, money, and stress in the long run.
Working with a trusted legal advisor or lawyer will help you avoid common legal pitfalls in the early stages.
While this may feel like an unnecessary upfront expense, consider using these legal services:
- Drafting and reviewing contracts
- Navigating tricky compliance matters
- Reviewing or auditing your website and business for compliance
To save on costs, use our legal templates written by a lawyer and check out our services here, which provide access to quality legal advice to prevent legal disputes.
Don’t Forget Insurance
Business insurance can protect your startup from unexpected liabilities.
Look into:
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General Liability Insurance
Covers basic risks like property damage and injury claims.
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Errors and Omissions Insurance (E&O)
Vital for startups offering professional services, protecting against lawsuits from unsatisfied customers or clients.
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Workers Compensation Insurance
Required in nearly all states if you have employees.
Pro Tip: Shop around for policies tailored to the needs of startups—it’s often cheaper than you expect.
Educate Yourself on Fundraising Laws
If you’re considering raising capital through investors or crowdfunding campaigns, stay compliant with securities laws.
Disclosing financial information transparently is mandatory when securing investments.
Work with a lawyer to draft your term sheets, investor agreements, and pitch materials to avoid legal red tape.
Use Proper Terms and Conditions
Your startup’s terms and conditions should outline the legal agreement between you and your customers.
Depending on your business model, it will include important things such as:
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Customer rights and obligations
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Refund Policies
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Limitations of liability
It’s essential to have a clear, legally binding agreement in place to avoid misunderstandings or lawsuits down the line.
Keep it simple and easy to understand for customers.
For example, if you are selling an online course, you would need this Terms and Conditions template.
Stay Flexible but Vigilant
The legal landscape for startups can change quickly as new laws, regulations, and industry standards are introduced.
It’s vital to remain flexible and stay informed about corporate law to ensure compliance as your business grows.
Follow these three tips for competitive advantage:
- Keep track of legal updates relevant to your industry. Subscribing to our YouTube channel or working with legal advisors can make this easier.
- Conduct regular audits to review contracts, agreements, and policies for potential issues or outdated practices.
- Plan for the future by thinking about how legal requirements might evolve as you scale or expand into different markets.
By maintaining a vigilant but adaptable approach, you position your startup to handle challenges while staying on the path to success.
FAQ about Legal Tips for Startups
Below are common questions related to legal considerations for startups.
Check them out with answers from our legal experts:
Do I need a lawyer for my startup?
While it’s not mandatory, seeking legal counsel is highly recommended for any startup.
The legal tips for startups we discussed above can be tricky and not everything is black and white.
A lawyer can help you navigate complex legal requirements and ensure your business operates within the law.
How often should I review my contracts and policies?
It’s best to conduct regular reviews of all contracts and policies, ideally annually or when significant changes occur in your business.
This ensures they remain up-to-date and compliant with current laws and industry standards.
Can I protect my intellectual property without registering it?
Yes, you may have some level of protection through common law rights by simply using your intellectual property in your business activities.
However, registering your IP provides stronger legal protection and makes it easier to enforce your rights.
Learn why legal protection for online business is crucial.
What happens if I don’t comply with industry-specific regulations?
Non-compliance can result in penalties, fines, or legal action from regulatory bodies.
It can also shut down your startup business, and damage your reputation and trust among customers or clients.
When is the best time to establish governance practices for my startup?
It’s recommended to establish governance practices at the early stages of your startup, preferably before seeking funding or business partners.
This shows potential investors that you have a solid foundation for growth and mitigates any potential conflicts among founders or executives.
What kind of legal services might a startup require?
Startups may require legal services such as:
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business formation (LLCs or Corporations)
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contract drafting and review,
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intellectual property protection,
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employment law compliance,
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regulatory compliance, and general legal advice
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website and business legal audit
It’s best to consult with a lawyer here to determine your specific needs and legal obligations.
Keep in mind that investing in proper legal support and guidance can save you from potential costly mistakes or disputes in the long run.
How do I legally start a startup?
The specific steps to legally start a startup may vary depending on your location and industry.
In general, it involves registering your business with the appropriate government agencies, obtaining necessary permits or licenses, and setting up legal agreements and policies.
It’s best to consult with a lawyer for personalized guidance on starting your particular type of business in your region.
Always ensure you have all the necessary legal requirements in place before launching your startup to avoid any potential legal issues.
Final Thoughts on Legal Tips for Startups
Now you know the essential legal tips for startups.
Understanding and addressing these legal considerations early on will save your startup from unnecessary risks and expenses.
Start with the small things like choosing the appropriate legal structure, posting a proper privacy policy, and remaining transparent with your customers.
They’ll appreciate your honesty more than you know.
Like your business, consumers have the right to protect their interests. If a dispute arises, they can take legal action.
No one is above the law. That’s why it’s important to know the basics and your legal standing as a startup.
There are no shortcuts to starting a business. You must comply with rules and regulations.
Use the tips above to lay the groundwork for compliance with applicable laws, protect business relationships, and ensure growth, and long-term success.
Need extra help getting the legal side of your startup in order?
Our legal team at A Self Guru offers affordable legal templates and coaching tailored for entrepreneurs like you.
Schedule a consultation here to learn how we can support your vision and help with legal matters.
RELATED BLOG POSTS ON LEGAL CHECKLIST FOR STARTUPS
In addition to learning about these essential legal tips for startups, you should join our Facebook group for more support.
My legal tips page has blog posts and other valuable legal tips for entrepreneurs.
You should also check these other online resources too:
CCPA Compliance Checklist from a Lawyer
13 Best Contracts for Creatives (Plus Templates)
11 Key Contract Clauses You Should Know in Business
18 Critical Questions to Ask a Lawyer When Starting a Business
Why 50+ Entrepreneurs Don’t Trust Free Legal Templates to Protect Their Business
Should I Form an LLC for a Blog? (Lawyer Tips)
Lawyer’s Guide to ADA Website Compliance + WCAG Checklist
16 DIY Legal Document Templates for All Entrepreneurs
VISIT THIS FREEBIES PAGE TO GET 5 AWESOME FREE BUSINESS, BLOGGING AND LEGAL TIPS!
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