Legal Considerations for First-Time Entrepreneurs: Essential Advice

Most first-time entrepreneurs think the biggest legal risk is signing the wrong contract. In reality, it’s the contracts you never sign.

I once saw a founder hire a friend as a “temporary” designer — no contract, just a handshake. Fast forward: the app takes off, investors are at the table… and the designer suddenly claims ownership of the entire visual identity. Lawyers were brought in, deadlines slipped, and the deal nearly collapsed. All because no one bothered with a two-page agreement at the start.

When I launched my own company, I promised myself: no handshake deals, even with friends. Sometimes it felt awkward to slide a piece of paper across the table to people I trusted — but that awkwardness was nothing compared to the chaos I’d seen elsewhere.

Paper is cheaper than lawsuits. If you don’t fix roles, rights, and responsibilities early, someone else will — in court.

One of the first legal aspects I always highlight to new entrepreneurs is the importance of structuring shareholder agreements properly. When I launched Spectup, I underestimated how critical it would be to have clear terms in writing from day one. At the time it felt almost unnecessary, because the team was small, the trust was high, and everyone was motivated by the same mission. But as soon as revenue started to grow and external partners came into play, those informal understandings quickly became fragile. I remember one case where a client of ours had skipped this step, and when an investor came on board, the lack of clarity between founders almost derailed the deal.

To avoid falling into that trap myself, I worked with a legal advisor early on to draft agreements that covered ownership, roles, decision rights, and what would happen if someone wanted to exit. It was not glamorous work, but it gave us stability. Over time, I realized that investors also look at these documents as a sign of maturity. A startup that has messy or unclear structures signals risk, while one with proper governance inspires confidence.

My advice to first-time entrepreneurs is simple. Do not wait until you are fundraising or facing conflict to handle legal basics. Get your agreements, intellectual property rights, and compliance requirements in place as soon as possible. Even if the company feels small, the effort you put into clean structures pays off later when the stakes are higher. Also, do not assume you can just download templates and move on. Every business has nuances, so it is worth investing in proper guidance. Legal considerations may not bring in revenue today, but they save you from disputes tomorrow and create the foundation that serious investors expect.

One of the earliest legal traps I’ve seen first-time founders stumble into is data handling. The moment you start collecting emails, payments, or customer usage data, you’re inside the scope of privacy laws. In South Africa, that means POPIA (the Protection of Personal Information Act).

Even small startups are expected to handle consent properly, secure personal data, and prove compliance if audited. In our case, we embedded POPIA compliance into our product design by wiring customer sign-ups through Salesforce. This way, consent, opt-ins, and source-of-truth records were captured automatically, giving us an audit trail from day one.

P.S. If you’re reaching a global audience, be mindful of regional differences in data laws. POPIA is South Africa’s equivalent of GDPR, but it’s only about 80% similar. Both require lawful processing, consent, and data protection, except that GDPR covers more “sensitive” categories and stronger rights like erasure. And POPIA adds stricter cross-border rules and caps fines at R10 million (~$500k) versus GDPR’s 4% of global turnover.

One of the most important legal aspects first-time entrepreneurs often overlook is data protection and privacy, especially if you’re working in sectors like healthcare, finance, or anything involving user data. The moment you’re handling personal information, you’re responsible for complying with regulations like GDPR, HIPAA, or other local data protection laws depending on where your users are.

For us, getting this right wasn’t optional. We made privacy and compliance foundational from day one. That meant investing early in legal counsel, mapping out our data flows, and building systems that could meet multiple regulatory standards across different regions. We didn’t wait until we scaled to think about compliance. It was built into the product and infrastructure from the beginning.

My advice to other founders is simple. Start with a clear understanding of the laws that apply to your business, document everything, and build your systems with those requirements in mind. It will save you time, money, and major stress later on. If you’re handling data, especially sensitive data, you need to treat that responsibility seriously from day one.

I think it is important to pay attention to dispute resolution clauses in contracts you enter. Many new businesses are so excited to be in business and have their first big contract that they don’t pay attention to what it says about what happens if there is a dispute. If you are dealing with a much larger entity, you may not want to have the only dispute resolution be AAA Arbitration where the average cost for a commercial dispute often exceeds $100,000 just in AAA forum fees (never mind the lawyer’s fees each side will incur). Similarly, if you are based in Wisconsin, you may not want to have to go to Georgia if there is a dispute. You will not always be able to change those provisions (depending on bargaining power for the deal) but you should at least be aware of what the agreement says, where disputes have to be venued, if there is a fee shifting provision requiring the losing party to pay attorneys’ fees, so you have an understanding of what a dispute might cost and it will allow you to better decide what is an acceptable business solution if a dispute begins. As a litigator, we are often brought in after the dispute has arisen, and we find many entrepreneurs are learning for the first time what they agreed to as the dispute resolution process at that time.

The process of understanding Colorado’s public bathing facility regulations proved to be a major legal challenge during my initial business development. The spa needed to demonstrate its private soaking rooms did not operate as a public swimming pool under Colorado regulations. I invested multiple weeks in discussions with regulators to obtain physical plan approvals and brought in a consultant who ensured our water treatment system and all signs met regulatory requirements.

My advice? Don’t guess. Determine which government departments will license your business since health and zoning departments may have different responsibilities, then initiate their review process right away. The purpose of regulations is to protect businesses through established boundaries. Your concept should follow existing regulations instead of requiring costly changes after construction completion.

After building five companies, one legal area I always pay close attention to is ownership structure and decision rights.

The way you set that up in the beginning doesn’t just determine equity splits, as it also dictates how the company makes decisions, how conflicts are resolved, and how resilient the business will be under stress.

In my observation, early stage founders often underestimate how quickly misaligned expectations can erode trust, and once growth accelerates, the absence of clear agreements tends to surface at the worst possible time.

I’ve seen founders rely on handshakes or verbal understandings mostly with their friends and relatives because it feels efficient, but when priorities shift or someone wants to exit or manage more, those informal deals collapse under pressure.

Having formal agreements like operating agreements, shareholder documents, and buy-sell clauses forces hard but necessary conversations while all involved are still aligned and before emotions run high. It creates a framework everyone can refer back to, which is invaluable when the business is moving fast and the stakes are higher than when you started.

For first-time entrepreneurs, my strongest advice is to invest in legal clarity right away, even if the company is small and the team is close-knit. Work with an attorney who understands startups and can translate your vision into documents that cover equity, roles, capital contributions, and exit paths.

You will never regret putting that foundation in place.

When I started my first business, I quickly learned that choosing the right business structure was the most critical legal decision I had to make.

An LLC provided me with personal liability protection while keeping tax filing relatively simple, and I believe this is something every first-time entrepreneur should carefully consider before doing anything else.

My first step was registering my business with the state and obtaining an EIN from the IRS. I then researched every license and permit required for my industry, which took more time than expected but saved me from costly penalties later.

I made the mistake of trying to handle everything myself initially, thinking I could save money. However, consulting with a business attorney for just two hours gave me insights that probably saved me thousands in potential legal issues down the road.

For tax compliance, I set up quarterly estimated tax payments from day one. I also opened a separate business bank account immediately to keep personal and business finances completely separate, which made accounting and tax filing much cleaner.

When I hired my first employee, I underestimated the complexity of employment law. I had to quickly learn about workers’ compensation insurance, payroll taxes, and creating an employee handbook that covered essential policies.

My strongest advice is to document everything from the beginning. Every contract, email agreement, and business decision should be recorded because you never know when you’ll need that paper trail.

I also recommend joining a local entrepreneur group or online community. Other business owners freely shared their experiences with legal challenges, and their warnings helped me avoid several pitfalls.

The legal landscape changes constantly, so I set aside time each quarter to review new regulations. What seemed compliant last year might not be today, especially with data privacy and online business regulations evolving rapidly.

One key aspect that founders should keep in mind is tax compliance. Many underestimate how quickly formal errors can have legal consequences. When I was starting my own business, I made a conscious effort to establish clear structures in financial accounting and introduce clean processes from the outset. My advice to others: seek professional support early on, document everything consistently, and don’t rely solely on “well-meaning” advice. If you do your taxes properly from the outset, you will not only save yourself problems later on, but also create a solid foundation for sustainable growth.