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4 Stupid Legal Mistakes That Can Kill Your Startup

Everyone knows Dickens’ famous opening from A Tale of Two Cities. But “It was the best of times, it was the worst of times…” is only the beginning of the line. The sentence continues: “it was the age of wisdom, it was the age of foolishness…”

It’s that second part that makes the quote an apt metaphor for life in a startup – and a dire warning to entrepreneurs.

When you’re starting a company, your job is to be super-smart and achieve the best of times, while avoiding the dumb mistakes that can lead to the worst of times. And that means not getting so carried away with the excitement of building a company and a product that you neglect the legal basics.

To help you avoid walking into legal landmines, we turned to entrepreneur and attorney Charley Moore, founder and chairman of Rocket Lawyer, for his perspective on the most common – and most dangerous – legal mistakes that startups make, and how to avoid them.

Stupid mistake #1: Failure to incorporate

While most businesses in the U.S. are sole proprietorships — meaning there’s no legal distinction between the business and the owner — this business structure has major disadvantages and poses major risks to your personal assets (car, house, bank accounts), which can all be “lost” if the company gets sued.

If you incorporate, your company becomes a separate legal entity that conducts business, generates income and assumes its own tax and legal liabilities. Besides reducing your personal tax bill as an owner, incorporating can reduce risk to your personal assets. It’s not complicated or expensive to incorporate. (There are plenty of places online where you can incorporate your business, including Rocket Lawyer,

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