Excitement surrounds the establishment of a new practice, and unfortunately, many legal aspects involved in starting a new practice become ignored as ideas build. The list below depicts 5 of the most common mistakes that we see entrepreneurs and start-ups make:
1. Failure to establish a clear agreement with co-founders
Co-founders should obtain a partnership agreement to avoid potentially devastating problems later. A partnership agreement should outline items such as: the mission/ goal of the practice, the division of the practice in terms of percentage share, the roles and responsibilities of each co-founder, the expected time commitment of each founder, the assets each founder contributes to the practice, the salary allocation for each founder, and how key decisions will be made in the practice. Defining the roles, contributions, and expectations of each founder eliminates conflict that may arise later down the road due to uncertainty and non-binding terms.
2. Deciding to start the practice as a sole proprietorship or a partnership instead of a corporation or LLC
While sole proprietorships require no legal documentation, fees, or filings other than state or local business permits, establishing a practice as a sole proprietorship may yield negative future consequences. While in some (rare) cases establishing your practice under a sole proprietorship or partnership may reap tax benefits, in other areas founders are unprotected.
3. Failure to protect intellectual property
Every practice should take the necessary measures to protect any intellectual property developed. Intellectual property include inventions, works of authorship, logos and slogans, and other assets that could diminish profitability if used by someone else. Forms of protection include: patents, copyrights, trademarks, service marks, trade secret protection, confidentiality agreements, as well as confidentiality and assignment agreements for employees. Protecting intellectual property ultimately preserves the value of your practice and prevents others from attempting to capitalize on that value.
5. Improper Employment Procedures
Many practice startups do not implement employment procedures in compliance with the law. The appropriate forms and documentation remains critical to a healthy practice. Every employee should receive and sign the authorization and consent forms for employee criminal history reports and background checks. After hired, employees should fill out and return an Employee Direct Deposit Authorization Form, an Employment Eligibility Verification Form I-9, the IRS Employee’s Withholding Allowance Certificate Form W-4, the IRS Wage and Tax Statement Form W-2, signed contracts and confidentiality form, as well as a signed Employee Manual page. A well-written Employee Manual remains as one of the most important over-looked items in the hiring process. The employer should ensure the completion of all documentation and fill out the New Hire Reporting Form. Failure to provide the proper documentation leads to future legal complications that could have been easily avoided.