Startups

A seemingly small mistake can have dire consequences for a startup company down the road.

Startups are the babies of a healthy capitalistic system. They have all the traits a healthy capitalistic system wants: people taking risks to provide services for others, people working by trial and error to find out what works and people who try to visualize and actualize their great ideas. While it’s a good thing that these babies exist, we also have to acknowledge that most babies don’t yet know everything.  Forbes.com recently posted an article about some of the most common mistakes startups make. Here are three if them to make sure you avoid if working on a startup.

1.The deal between co-founders has to be clear. Who owns what percentage of the company, what are the roles and responsibilities of each founder, what salaries are each of the founders entitled to, and anything else that can be an issue if not agreed upon early. If you’re starting a company with a friend you like and trust, I don’t think you would want to end up in court suing each other ten years from now.

2.The type of business has to be clear. How you classify your business, whether it be a corporation or a limited partnership, can have long-term consequences in terms of taxes and liabilities your company will have to incur. Invest in a lawyer who knows the tax-code well. Share your expectations of the business with him, and let him deduce the best business classification for you.

3.All transactions in the company should be clear. Hire a business lawyer and have him write up a standard form contract that favors your company. Go over every necessary detail, from pricing, to due dates for payments, to mentioning what the company is liable for. A standard form contract will help ensure that customers don’t sue you.

Mistakes like these are common among many nascent companies.. If you have friends in the process of establishing a startup, be sure to give them a heads up.