Top Mistakes Businesses Make Early – From a Litigation Attorney

Top Mistakes Businesses Make Early – From a Litigation Attorney

Litigation attorneys often represent businesses in lawsuits that could have been avoided.   Overlooking legal steps or trying to avoid legal expenses in the early stages of forming a business can easily lead to future litigation expenses.   Below are just a few mistakes that can be avoided by seeking the proper legal advice.

Trademark Mistakes (Picking the Wrong Name)

A new business spends years building and promoting its name and brand.  Imagine putting in that effort only to be threatened by a “cease and desist” letter claiming the new business or product name violates a trademark.  This leaves a new business owner with an unfavorable dilemma:  start over with a new name or face potential litigation.       

There are countless examples of business owners surprised to learn a name may be infringing.  For instance, the owners of a New York coffee cafe were likely surprised Starbucks would file a federal lawsuit alleging a drink named “Freddoccino” infringed on Starbucks’ “Frappuccino” drink.

A new business name or new product name may infringe an on another name even if the names are not identical.   A simple internet search is often insufficient to determine if a new business or product may infringe on a trademark.   Retaining a lawyer to advise on the proper procedures can be an important step in starting a new business.  

Incorporation Mistakes (Failing To Set Up an Entity)

It may seem obvious to many business owners, but new businesses sometimes fail to establish a corporation or limited liability company before conducting business.  We have seen businesses set up an entity after a lawsuit is threatened which is often too late to provide the appropriate protections.   There are numerous advantages of setting up an entity, one of which is that it can shield the owners from being personally liable.   

Conducting any business without first setting up the appropriate entity is a risky proposition.   New business owners should talk to a lawyer to learn the advantages of the various types of business entities available in their jurisdiction.  

Contract Mistakes (Copying Form Contracts)

New business owners sometimes try to save legal fees by locating form contracts on the internet instead of hiring a lawyer to assist with drafting the necessary forms and contracts.   We have seen problems arise when a business copies form contracts from the internet and then later incurs legal fees to fight a contract dispute that would easily have been resolved with the appropriate contract.

Employee agreements are one common example.  Employers often ask lawyers to enforce employment agreements that were copied from a generic website, and it is more difficult and expensive to enforce these agreements that were not originally drafted by a lawyer. 

Form contracts may save money initially but in the long run routinely lead to higher litigation costs or simply lost money resulting from an unenforceable contract.  

These are just a few examples of pitfalls that a new business may encounter.  The old adage “an ounce of prevention is worth a pound of cure” still applies today when it comes to new businesses.   Addressing these legal issues early can save substantial future legal fees.