9. Non-compliance With Employment Laws
Early-stage companies can often have serious misconceptions about employment laws and may not know that the laws applicable to employees in one state could be different in another. As a general matter, employees must be paid at least the minimum wage plus overtime, in cash, at least once a month or more often, depending on state law. Certain roles are exempt from overtime requirements, including administrative and white-collar positions, which have a multifactor test to qualify. Employees cannot work for free, for deferred compensation or for stock only. Another frequent area of misinterpretation is the difference between an “employee” and a “contractor.” Contractors are different from employees in substance, not just form, and the criteria can be difficult to satisfy. Employment-related liabilities and misclassification of employees are all too common, and can be costly, time-consuming and distracting.
10. Over-Promising To Investors
Entrepreneurs are by nature optimists—creative, highly motivated, energized and willing to believe what seems impossible. Investors need to understand this orientation when approaching early-stage investment opportunities, and to recognize optimistic views, aspirations and “stretch goals” for what they are. Excessively optimistic business plans may not have been thoroughly vetted by professional advisors and can result in a loss of credibility with investors and disappointing results. Making sure that the business plan is solid and that the company’s projections are understandable and based on reasonable assumptions is the first step on the path to success.
Daniel G. Berick is partner at the Cleveland Corporate practice at Squire Patton Boggs. Tamara D. Frazier is partner at the Palo Alto Intellectual Property & Technology practice at Squire Patton Boggs. Leah Brownlee is of counsel at the Cleveland Corporate practice at Squire Patton Boggs.