The success of a business can hinge entirely on how it is formed. A startup's formation is the foundation on which the company will sit for its history. Therefore, entrepreneurs should be cognizant of what pitfalls startups can be subject to and how to avoid them.
Here are three key mistakes to avoid when initiating a startup.
1. Selecting the wrong entity
For startups that plan to raise money from investors, those financiers will likely require the company to be a Delaware C-Corporation. Other entities, such as an LLC or S-Corporation, come with tax advantages business owners may want to take advantage of throughout the company's history.
You can always change the entity later, but knowing what your goals are for the future and your anticipated dependence or lack thereof on investors will save time and money later on.
2. Not communicating clearly with co-founders
One of the biggest mistakes entrepreneurs can make is to not clearly communicate with partners. It inevitably will cause a dispute in the future, which can be toxic -- for you and for your employees. Discussing what each founder is worth to the business is awkward, but it only becomes more awkward the longer it is put off.
Take the time now to discuss your independent and shared goals, expected titles and responsibilities, decision-making authority, equity and more.
3. Leaving your intellectual property vulnerable
Protecting your business's intellectual property is critical. Your brand is your value, and if you don't treat it with the utmost care from the start, you're ceding your company's value before it even takes off.
Consider all of the necessary patents, trademarks, copyrights and more that the company will need. Another suggestion is to have any co-founders, employees and third-party developers assign their rights in any intellectual property they create for use by the company to the business.
There are many other aspects to planning a startup for business founders to consider, but these three have a large potential to cost you, financially and emotionally, in the future.