In the exciting early days of launching your startup, everything can feel shiny and new, and as you start to get your first wins and see the early signs of growth, the feeling can be even euphoric. If you’re like most entrepreneurs at this stage, compliance is probably not the first thing on your mind. But if you want those successes to continue, it needs to be. Too many startups neglect this crucial aspect of their business, and it can lead to severe legal and financial consequences that could ultimately hamstring your company. Let’s talk about some of the most common compliance pitfalls experienced by young companies and how you can avoid the mistakes of others.
Non-Compliance with Employment Laws
Employment law is complex, to say the least. Not only are you governed by federal employment regulations, but each state adopts its own versions of these rules, and some are far stricter than others. Failure to comply can result in fines, costly lawsuits, and damage to your reputation. Ensure that you understand and adhere to laws concerning minimum wage, overtime, anti-discrimination, and employee benefits–and as you expand your reach into other states, you’ll need to be equally diligent when you hire team members to man those offices.
Failure to Maintain Proper Records
Keeping accurate and up-to-date business and financial records is not only good business practice but also a legal requirement. Poor record-keeping can lead to tax issues, fines, and difficulties in attracting investment. Implement a reliable accounting system from the get-go and consider hiring a professional if necessary. Also, make sure you’re maintaining the proper paperwork to comply with how your business is structured–for example, if you’re incorporated, keep your bylaws up to date and be meticulous about keeping the minutes of your board meetings.
Neglecting Data Privacy Regulations
With the increasing emphasis on data protection these days, different parts of the world (and an increasing number of states in the US) now have regulations as to how you can collect information from people online. Non-compliance with these regulations can lead to hefty fines and lawsuits. Ensure that your data collection, storage, and processing methods are compliant and transparent. For best results, we recommend compliance with the EU’s General Data Protection Regulation (GDPR). Even if you don’t do business in the EU, these standards are the strictest in the world, and we can expect many more places to adopt standards similar to these.
Non-Compliance with Securities Laws
If you’re raising capital, compliance with securities laws is critical. Failing to do so can lead to penalties, litigation, and the unwinding of transactions. Make sure you understand the rules around fundraising, including who you can raise funds from and how you can advertise your raise.
Tips for Avoiding Compliance Failures
The best way to sidestep legal troubles from these and other compliance issues is to be proactive about staying compliant. Some tips for doing so:
Educate yourself: Stay informed about the laws and regulations relevant to your business. Consider attending workshops, webinars, etc. to keep you up to date.
Implement robust systems: Use reliable systems for record-keeping, data management, and IP protection–and either hire an accountant or outsource to a reliable agency.
Hire general counsel: Your best defense against non-compliance is to work with a business attorney who knows the laws regarding your company and can help you stay on the right side of them.
At Hood Venture Counsel, our practice is focused on the specific legal needs of startups like yours, which is why we offer affordable outsourced legal services so you can enjoy the benefits of in-house counsel without having to hire an attorney full-time. We can evaluate and monitor your business for compliance issues so you can stay focused on growth. Contact our offices to learn more.