10 Legal Mistakes That Could Ruin Your Business

Starting a business is exciting—but one legal misstep could derail everything you've worked for.

Imagine landing your biggest client ever, only to be hit with a lawsuit the next day because you didn’t trademark your logo. Or watching your cash flow dry up because of a badly written contract. These aren’t horror stories—they happen every day to small business owners who overlook legal basics.

Here are 10 critical legal mistakes that can quietly sabotage your Texas business, and how to avoid them before it's too late.

Legal Mistakes

1. Skipping Business Formation Formalities

Operating without properly forming an LLC or corporation exposes your personal assets to lawsuits. Make sure you:

• File a Certificate of Formation with the Texas Secretary of State

• Draft an Operating Agreement or Bylaws

• Keep business and personal finances separate

2. Using Generic or Unvetted Contracts

Free online templates often don’t comply with Texas laws. Customized contracts should:

• Define payment terms and deliverables clearly

• Include dispute resolution clauses

• Be reviewed by a Texas-licensed attorney

3. Not Protecting Intellectual Property

Your brand, logo, and content are assets. Without IP protection, competitors can legally mimic your work. Prioritize:

• Trademarking names and logos

• Copyrighting original content

• Using NDAs with contractors and partners

4. Ignoring Employment Law Basics

Hiring your first employee? You need to comply with:

• Texas Payday Law

• Federal wage and hour rules

• Anti-discrimination laws (even for small teams)

5. Misclassifying Workers

Calling someone an "independent contractor" doesn’t make it so. Misclassification can lead to back taxes and penalties. Use the IRS and TWC tests to classify correctly.

6. Failing to Pay State Taxes and Fees

Texas businesses must:

• File and pay franchise taxes (even if $0 owed)

• Maintain a sales tax permit (if applicable)

• File annual reports with the Secretary of State

7. No Clear Owner Agreements

For multi-owner businesses, failing to document roles and exit strategies is risky. An Operating Agreement should cover:

• Ownership percentages

• Profit distribution

• What happens if someone leaves or dies

8. Lack of Proper Insurance Coverage

Insurance isn’t just optional. Common policies include:

• General liability insurance

• Professional liability insurance

• Workers' compensation (even if not required, it's smart)

9. Not Following Advertising and Privacy Rules

Texas has rules on online advertising and collecting customer data. Comply by:

• Using proper disclaimers and consents

• Following CAN-SPAM and TCPA laws

• Posting a privacy policy on your website

10. Procrastinating Legal Help Until It’s Too Late

The cost of fixing a legal mistake or an issue is usually 10x higher than preventing one. Establish a relationship with a local law firm like The Spencer Law Firm to:

• Review your contracts

• Help with compliance

• Be on-call when urgent issues arise

Protect Your Business with Confidence

Avoiding these legal pitfalls isn’t just about following rules—it’s about building a business that lasts. At The Spencer Law Firm, we help Texas entrepreneurs make smart legal moves from day one.

Contact us today for a consultation and safeguard your business future.