While most small businesses are founded on good ideas, VentureBeat columnist and business lawyer Scott Walker says there a number of legal mistakes entrepreneurs can make that will hurt their future SMBs.
Walker says one of the biggest mistakes entrepreneurs can make while forming a company is choosing the wrong business entity. He says that generally, investors prefer to put their money into S and C corporations rather than partnerships, because the corporate structure protects them from liability. The different tax rules for S and C corporations can both offer advantages under different situations.
Another common mistake, he says, is that entrepreneurs can make the mistake of creating intellectual property for their startup while they’re working for someone else. In some cases that means that their former employer actually owns the product idea. To avoid any conflicts, Walker says potential business owners should review any employment agreements.
New small businesses are now forming at record levels. The Kauffman Foundation’s annual Index of Entrepreneurial Activity showed that the pace of business creation last year was the highest in the index’s 14 year history.
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