As a lawyer and a founder myself, I’ve seen how often startups fail not because of market conditions or competition, but because of preventable legal missteps. It’s not the sexy part of startup life, but getting your legal house in order early on is one of the most powerful ways to de-risk your business and set it up for growth.

Here are three of the most common legal mistakes I see new founders make – and how to avoid them.

1. Equity gone wrong: failing to plan for the breakup

There’s a powerful lesson I learned in law school: All partnerships eventually end. Whether it’s months or years down the road, not every founding team survives the ups and downs of startup life. The problem is, most founders don’t plan for this, and the fallout can be fatal to your cap table.

Let’s say you started your company with two other co-founders. A year later, one walks away but still owns 20% of the company. That’s a major red flag for investors. You now have what we call a “hairy cap table” – equity tied up with someone no longer contributing, making your business unattractive to potential backers.

The solution? Work with a lawyer early to structure founder equity with vesting and clawback provisions. Equity is gold, and it should be earned, not gifted. Agreements should also clearly outline what happens if there’s a disagreement or someone exits early. How do decisions get made? What happens in a stalemate? These are uncomfortable conversations, but having them upfront (with legal guidance) can prevent existential threats later.

2. IP ownership oversights: you might not own what you think you own

Your startup’s most valuable asset isn’t your code, brand, or pitch deck – it’s your ideas. And if you’re not careful, you might not legally own them.

In the U.S., the default rule is this: the creator of a work is the legal owner unless there’s a written agreement that says otherwise. That means if a co-founder, contractor, employee, or even an advisor contributes to your product or brand and there’s no signed contract, they may have legal rights to such contributions.

I’ve seen companies blindsided by IP claims from early collaborators who weren’t properly contracted. These claims can derail fundraising, acquisitions, or even force you to shut down. Due diligence from investors will expose gaps in ownership, and without clean IP assignments, your ship could sink before it leaves the harbor.

The fix? Make sure every person contributing to your startup signs an agreement that assigns all rights to the company, not just co-founders, but also advisors, freelancers, and anyone else giving input and working on your company’s products or services. Don’t assume ownership. Document it clearly without any ambiguity.

3. The wrong business structure: “I just made an LLC” isn’t a strategy

Many first-time founders pick a business entity like they’d pick a gym membership – based on convenience, not long-term fit. One of the most common mistakes? Forming an LLC in your home state (say, Texas), only to realise later that no investor wants to touch it.

Here’s the hard truth: if you plan to raise venture capital, hire employees, and build a scalable business, you should almost certainly be a Delaware C-Corporation. That’s the standard for well-known angel and institutional investors. Converting from an LLC later isn’t impossible, but it’s costly, time-consuming, and introduces friction at a time when you want to be moving fast.

Choosing the right entity from the outset depends on your goals. LLCs are great for lifestyle businesses. But if you’re building for scale, don’t guess – ask. A good startup attorney can quickly align your structure with your business plan, saving you major headaches down the road.

Legal doesn’t have to be intimidating or inaccessible. Too often, founders treat legal like a trip to the doctor – painful, expensive, and only necessary when something’s gone wrong. But what if we flipped the script? What if legal were more like a regular health check-up or preventative care – a little attention now to prevent big problems later?

Some risks in startup life are out of your control – market conditions, customer preferences, and timing. But the legal ones? They’re squarely in your hands. And often, it doesn’t take much to get it right.

So ask yourself – how much is peace of mind worth to you?

Your future investors – and your future self – will thank you.

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