Legal and Administrative Mistakes

Mistake #1: Choosing the Wrong Company Structure

The Mistake: Many founders choose SARL to save on social charges or avoid complexity, only to discover it creates problems when raising venture capital or implementing employee stock options.

Real Example: A B2B SaaS startup incorporated as SARL in 2019. When they tried to raise Series A in 2021, three VCs passed solely because of the structure. Converting to SAS cost €15,000 in legal fees and delayed their round by four months.

How to Avoid: - Default to SAS if there's any possibility of raising venture capital - Consider your 5-year plan, not just immediate needs - Factor in employee equity plans from day one - Consult with lawyers who understand startups, not just general business law

Recovery Strategy (if you've already made this mistake): - Convert to SAS before fundraising - Budget €10-20K for conversion costs - Allow 2-3 months for the process - Use it as opportunity to clean up cap table

Mistake #2: Ignoring Compliance Requirements

The Mistake: Focusing entirely on product and growth while neglecting administrative obligations, leading to penalties, audits, and legal issues.

Real Example: An e-commerce startup ignored VAT registration requirements for cross-border sales. Two years later, they faced €180,000 in back taxes and penalties, nearly killing the company.

Common Compliance Failures: - Missing corporate filings deadlines - Incorrect employment contracts - Improper invoice formatting - VAT registration delays - Data protection violations

How to Avoid: - Hire an accountant from day one - Create compliance calendar with all deadlines - Use compliance software (Pennylane, Dougs) - Delegate to professionals - Regular compliance audits

Best Practice Checklist: - [ ] Monthly: VAT declarations, payroll filings - [ ] Quarterly: Corporate tax installments, URSSAF declarations - [ ] Annually: Financial statements, tax returns, corporate filings - [ ] Ongoing: GDPR compliance, employment law updates

Mistake #3: Misclassifying Employees as Contractors

The Mistake: Using freelancers to avoid employment costs and complexity, creating "hidden employment" risks.

Red Flag Indicators: - Contractor works exclusively for you - You control their hours and location - They use your email and tools - Long-term, indefinite relationship - Direct management and supervision

Consequences: - Reclassification as employees - Back payment of social charges - Penalties and interest - Employee claims for benefits - Criminal liability in severe cases

Real Example: A mobile app startup used 12 "freelance" developers for 18 months. URSSAF audit resulted in €400,000 bill for back social charges plus penalties.

How to Avoid: - Use genuine contractors for specific projects only - Ensure contractors have multiple clients - Avoid exclusive relationships - Use employment contracts for core team - Consider portage salarial for edge cases