Starting your business is exciting and it’s easy to get caught up in the start-up to-do list. Don’t forgo paying appropriate attention to the legal matters surrounding your business. Here are some common mistakes you should avoid when setting up your business.

1. Not setting up the right business structure

In order to chose the correct business structure you must first know the benefits and drawbacks of each.

Sole Proprietorship

Pros – A sole proprietorship is easy to form and setup. This is considered the default, meaning if you do business activities but don’t register as any other kind of business, this is how the law sees you. A good choice for a low-risk business.

Cons – With a sole proprietorship your personal assets and liabilities and your business assets and liabilities are viewed as one. There is no separate business entity, meaning if your business is sued, it means you are personal being sued and all of your assets are up for grabs. Banks are also hesitant to lend to sole proprietorships.


Pros – Protects your personal assets like your house, car, savings account from liability in most cases. Profits can become personal income without facing taxation. A good choice for a medium to high-risk business.

Cons – Members of an LLC are considered self-employed and must pay self-employment taxes toward Medicare and Social Security.

Partnership (LP, LLP)

Pros - Limited Partnerships and Limited Liability Partnerships are the simplest structure for two or more people wanting to form a business together. One person has unlimited liability while the rest of the people have limited liability in a limited partnership. A limited liability partnership protects everyone from debts against the partnership. A good choice for a low-risk business.

Cons – The person with unlimited liability generally has more control over the company. The partner without limited liability much also pay self-employment taxes in a limited partnership.

Corporation (C Corp)

Pros – A separate entity from the owners thereby protecting owners from all liability. Funds can be raised for the company through the sale of stock. A good choice for medium and high-risk companies.

Cons – The business can be taxed and can be held legally liable. A higher cost to form this business structure. They require much more extensive record keeping, operational processes and reporting. Corporations pay income tax on their profits. Can be double taxed by requiring additional taxes paid on the dividends paid to shareholders.

S Corporation (S Corp)

Pros – Avoids the double taxation that C corps have to do by allowing some profits to be passed directly to an owner’s personal income without having to pay corporate tax. A good choice for a medium to high-risk business that meets the criteria to apply to be a S Corp.

Cons – The shareholders are taxed instead. S Corps can not have more than 100 shareholders. All shareholders must be U.S. citizens.

There are a few more business structures including non-profits and B corps that you should consider as well.

2. No privacy policy

Privacy policies should be on your website and required viewing for anyone making a purchase. If you fail to have a privacy policy and have it clearly listed on your website then you leave your business open for all kinds of law suits. Not only this but it is now legally required for you to have a privacy policy on your website that explains what customer information you collect and share.

3. Failure to properly document employees

Employers no matter the size of the company should keep detailed files on all employees. In these files there should be copies of the employee’s job application, resume, cover letter, offer letter, pay changes, performance reviews, complaints, corrective actions, W-4s and I-9s. In addition to these forms private information should be kept in a separate file containing health records, drug testing results, copies of social security cards, voided checks for direct deposit, etc. These files should not be easily accessible for everyone in the company but rather the one person in charge of personnel.

4. Not trademarking, copyrighting and patenting everything

If someone comes along and steals your company name, logo or technology you don’t stand a chance in court if you have not taken the proper legal action to make these aspects of your business legally owned by you. Do this at the beginning of setting up your business and as you grow.


Business Essentials: Legal Mistakes You Can Easily Avoid Workshop


DATE & TIME: May 17, 2019, 9:00am CDT

Address: SCORE
5524 Bee Cave Road, Bldg M
Westland Office Park (at rear of complex)
Austin, TX, 78746

Laura will cover a list of common and expensive mistakes that business owners make but that can easily be avoided. This is the introduction to three more workshops that are essential information for every small business owner.


Common small business legal mistakes to avoid