Kicktastic Blog

Top Five Legal Mistakes for Creative Professionals to Avoid

Austin Church

by Austin Church

Nov 19, 2012


Although you're probably brilliant at doing whatever it is that you do, you may not be so brilliant at jumping through all the necessary hoops to set up your business as a legal entity.

The Kicktastic trio has invited Tim Ferraris, a Knoxville business attorney and internet marketer, to identify mistakes that freelancers, entrepreneurs, and small business owners make when setting up their businesses. Tim didn't intend this post to be a comprehensive guide for navigating the quagmire of your state's legal system. He instead wanted to prepare for success the recent college grad considering self-employment or the corporate escapee who has decided to take the plunge into full-time freelancing

Without further ado, here are Tim's Top Five Legal Mistakes to Avoid:

1. Not choosing the right entity for your business

Why are you setting up your business as a LLC? Do you even know why? Do you know the tax consequences? Do you know how you'll need to manage such an entity, or did you choose an LLC because that's what “real” businesses do? Many creative professionals start out in business without knowing what type they need here or why. Be sure to learn about the advantages and disadvantages of different types of legal entities. A sole proprietorship might work just fine for you, and you'll be glad you didn't spend time and money overcomplicating your new business.

2. Setting up an entity without an agreement

Okay, so let's say that you did in fact need a corporation and you chose the right one and you set it up. Did you create a formal operating agreement for the members of your team? How will you know what to do when things go wrong because they WILL go wrong? You won’t. You’ll be making it up on the fly instead of following the Operating Agreement that you should have created when you set up the LLC. Don't do business without one.

3. Not giving your intellectual property the proper treatment

If created the business entity to own intellectual property, then you might need to transfer the intellectual property away from yourself as an individual to the entity. This should be done a lot more often than it is. If you and your co-founder don't do this and your co-founder jumps ship, there's not much that you can do to prevent him from absconding with the IP. Here's a good rule of thumb: plan for the worst but expect the best.

4. Knowing the various requirements for your entity

I’ve had many business owners contact me after they’ve received a form in the mail that notifies them that their business entity is in danger of dissolution because they haven’t yet filed some kind of annual report. Usually the business owner tells me, “I didn’t know I had to do that!” The letters notifying the owner about unpaid taxes are even worse. Be sure that you have a checklist and timeline for yearly legal obligations.

5. Not having enough money (to pay your lawyer)

This may be the most common mistake of all and can definitely be the most damaging over the long-term. Whether you need to sell your plasma, pawn your power tools, or auction off your Star Wars action figures on eBay, you need to have enough cash in the bank to give your business a chance at success. Some businesses can get started for $100 or less. Others require deeper cash reserves. Starting your business with a solid legal foundation and educating yourself on legal matters may cost you some money (a couple dozen cups of coffee) on the front end, but it will almost always save your rear end.

When in doubt, pay for professional advice. We often tell our clients to do this, yet ignore our own advice.

A shipshape legal entity and Operating Agreement is a wise investment for people who want the freedom of self-employment.


Do you know what you need to know? Hopefully, Tim's sage advice has gotten you started on the right path.

Feel free to post your questions in the Comments section below.

Categories: Business, Complete Elephant | Tags: legal mistakes

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