Posted on July 24th, 2025

 

Starting a business is an exciting step, but without the right legal foundation, that excitement can quickly turn into stress. Many entrepreneurs underestimate how early legal decisions—like choosing the right structure, protecting intellectual property, or drafting contracts—can affect the long-term success of their company.

 

From regulatory obligations to brand protection, avoiding common legal missteps isn’t just about staying compliant—it’s about setting up your business to grow confidently and securely. Legal issues that aren’t addressed early can lead to disputes, financial setbacks, or reputational damage that’s hard to reverse. 

 

 

Realizing Common Legal Pitfalls

Starting a business brings excitement, but it also comes with legal challenges that can lead to unnecessary setbacks. One common error many new entrepreneurs make is selecting the wrong business structure. While a sole proprietorship is easy to set up, it doesn’t offer any personal liability protection. If a legal issue arises, your personal finances could be on the line.  To prevent these issues, consider these foundational steps:

• Choose the right business structure: Understand the legal and financial aspects of each option before registering your company.

• Secure your intellectual property early: Protect software, branding elements, and other unique creations to prevent unauthorized use.

• Avoid handshake deals: Relying on verbal agreements can lead to misunderstandings. Always use written contracts.

• Do a trademark search: Make sure your brand name doesn’t conflict with another company’s identity before investing in marketing.

Taking action early helps you avoid expensive mistakes and keeps your focus on growth. Being proactive with legal matters adds stability to your business and builds long-term trust with customers, partners, and investors.

 

Importance of Proper Business Structure

How you set up your business has long-term effects on operations, taxes, liability, and flexibility. While it might seem easier to stick with a default like a sole proprietorship, doing so leaves your personal assets exposed in case of lawsuits or business debt. Choosing a structure like an LLC or corporation can provide a layer of protection and help you manage risks more confidently.

LLCs are often preferred by entrepreneurs because they combine limited liability protection with pass-through taxation, meaning business income is taxed only once at the personal level. Corporations, on the other hand, can raise capital more easily by issuing shares, which is helpful if you plan to grow quickly or seek investors. However, corporations come with more administrative requirements, such as board meetings and detailed records.

The structure you choose can also influence your ability to make decisions, bring on partners, or attract funding. Partnerships, for example, allow shared control but require clear agreements to avoid disputes. Each option has its pros and cons, and it’s worth reviewing them carefully before making a decision.

 

Drafting Robust Contracts

Contracts are the building blocks of professional relationships, yet many small businesses overlook the importance of clear and thorough agreements. Without proper contracts in place, disputes over payments, responsibilities, or delivery timelines can escalate quickly. Here are some important elements to focus on when developing business contracts:

• Define expectations clearly: Outline who is responsible for what, how work will be completed, and when it will be delivered.

• Include payment terms: Specify amounts, due dates, and payment methods to avoid confusion and delays.

• Add dispute resolution procedures: Establish a method for handling disagreements—whether it's mediation, arbitration, or legal action.

• Use standard protective clauses: Confidentiality, indemnity, and termination clauses help safeguard your business from unexpected problems.

• Review contracts regularly: As your business evolves, your contracts should too. Outdated terms can expose you to unnecessary risks.

Working with a legal advisor can help you build strong, enforceable agreements tailored to your industry. Contracts that are clearly written and legally sound help avoid miscommunication and reinforce your professional image.

 

Navigating Intellectual Property Concerns

For technology startups and creative businesses of every size, protecting intellectual property (IP) is one of the most overlooked yet important legal steps. Your brand, software, content, and product designs are all valuable assets—and they need to be secured early. Start by exploring the key categories of IP:

• Patents: Protect inventions and technological solutions. These are especially useful for new products or methods.

• Trademarks: Safeguard brand names, logos, and slogans that identify your business.

• Copyrights: Apply to original works such as software code, written materials, or media content.

• Trade secrets: Cover internal processes or strategies that give your business a competitive edge.

Failing to register or properly manage these protections can open the door for competitors to use your ideas. For example, launching a brand without a registered trademark can result in conflicts and the possibility of rebranding later—often at great expense.

 

Complying with Regulatory Obligations

Following regulations may not be the most exciting part of running a business, but it's one of the most important. New entrepreneurs often underestimate how many rules apply to their operations, especially in tech-related fields where data privacy and online transactions are involved.

Data protection laws like GDPR and CCPA require companies to be transparent about how they collect and use customer data. If your platform doesn’t have the right privacy features or user agreements, you could be at risk of fines or legal action.

Here’s how regulatory compliance can be woven into your business practices:

• Stay informed about industry-specific laws: From financial services to online retail, each sector has different rules.

• Develop privacy and consent protocols: Let users know what data you collect and why, and give them clear options to opt in or out.

• Use honest advertising: Marketing claims must be truthful and supported by evidence. Avoid exaggerations that could mislead customers.

• Understand employment laws: If you're hiring, follow wage rules, workplace safety standards, and anti-discrimination laws.

• Track environmental impact: If your business affects natural resources, keep up with environmental guidelines relevant to your operations.

Making compliance a regular part of business planning builds trust with customers and investors alike. It shows that you’re committed to doing things the right way—not just legally, but ethically.

 

Related: Fractional CLOs for Smarter Risk Management in Startups

 

Conclusion

Starting and growing a business—especially one that leverages technology—brings both opportunity and responsibility. Legal missteps can delay progress, damage reputations, and cost far more than they would have to prevent. From choosing the right business structure to protecting intellectual property and meeting regulatory standards, each step plays a role in your long-term success.

At The Underwood Group, we help you tackle these challenges with clarity and confidence. We recognize that the landscape of technology law can be challenging to traverse, and that's precisely where our expertise comes into play. We will provide you with guidance that keeps you compliant, well-informed, and fully protected.  Our approach is personalized to fit your needs, combining legal insights with tech-savvy solutions. From contracts to compliance, our support allows you to stay focused on growth while we handle the legal details. If you’re ready to strengthen your business’s legal foundation, contact us at (616) 443-8586 or [email protected]. The Underwood Group is here to protect your business and help it thrive—every step of the way.