The path from “start-up” to “growth-stage” company is wrought with potholes. Every step is big, and missteps—particularly legal ones—are even bigger.

Suzie Dingwall Williams should know. A founding partner with “Venture Law Associates LLP”:http://www.venturelawassociates.com/, she has extensive experience in venture capital, digital media and e-commerce law. Over the past 17 years, she’s worked with juggernauts such as Nortel Networks and BCE Capital, as well as countless start-ups.

“There’s a tipping point where things that didn’t matter when you weren’t clearly profitable, suddenly become more important,” she explains.

Dingwall Williams spoke with Red Canary about the top five legal missteps growing companies make and how you can avoid them.

“I promised you what?” The problem with shares

Before you were profitable, you were poor. Maybe you couldn’t afford to pay your employees what they deserved, or maybe you went looking for money, cap-in-hand, from family members and friends. In exchange for their help, you promised them shares. Now that you’re generating sizable revenue, those shares mean something—but what?

“Inevitably, when the company finally takes off, everybody has a different view of what they thought they owned and what rights they had with that ownership. Not documenting this early on tends to be a bottleneck for growth when you need to head to the next phase,” warns Dingwall Williams.

You should have a mutual understanding about the shareholder’s agreement right from the start, she cautions. “You really don’t have to spend money on a lawyer to do it. There are ample precedents out there that will tell you what kind of rights you should specialize.”

Taking the plunge from services to products: Are you licenced to do it?

“When you flip the switch from being a service provider to being a product provider, before you put that product on the marketplace, you need to make sure you’ve got all your ducks lined up legally.”

That means owning all the software you’re selling.

“You have to go back to suppliers that you got licences from for certain software—that were appropriate when you were selling services—that aren’t appropriate when you’re selling a separate product,” she warns.

“I’ve had a company that literally couldn’t release its product because the night before it was ready to do a general release of a newer version, a large software company wasn’t willing to give them a licence.”

Accountability: ensure you’re insured

If you’re an ASP or hosting service, your plight could be even worse. “Probably one of the biggest shockers for me is that companies don’t get the right insurance to protect them as they grow,” she says.

If you’re archiving e-mails and there are security breaches or lost data, you’re accountable. “You have a duty of security that’s evolving and getting quite large. You have a duty to ensure that you’re both insured for loss of that data- for your customers and yourself.”

Social networking outfits are even more at risk. “Anybody who republishes other peoples’ content or who mashes other peoples’ content, needs to think of insurance for copyright infringement. That’s an insurable loss that could put you out of business, even just defending it- whether it’s a ridiculous claim or not,” Dingwall Williams cautions.

Making a move doesn’t always make sense: Know the law of the land

Don’t get lured to the US without doing your research first.

“Anytime you locate your servers outside of Canada to save costs, those savings better compensate for the fact that you’ve put yourself in a different legal regime,” cautions Dingwall Williams. “The legal regime in the States doesn’t just have different privacy implications. It has a strong and thriving set of tort and other laws that are putting liability on people for any type of breach of data security for their customers.”

An increase in taxes, she explains, could also follow. She gives the example of a young e-commerce company who worked with 30-50 online stores. Their servers were run from the States. Suddenly they got a notice from the IRS and the local state tax authority demanding their share of taxes.

“By placing their servers in a state with an aggressive Internet retail sales tax legislation, they’d taken themselves out of the tax-free Internet zone and put themselves in a legislative nightmare.”

Have an intellectual property paper trail

“If somebody doesn’t specifically give you the pink slip to a piece of property then it’s not yours,” explains Dingwall Williams. Make sure your employees sign the appropriate Invention Assignment Agreement.

“Ultimately, when you’re selling software or other intellectual property, you need to be able to look behind you and say ‘I’ve got chain of title to everything in here.’”

These issues can come back to haunt you if you make it big, particularly if you’re going to an initial public offering. “The underwriters will find you out. I’ve seen that happen and it happens all the time,” she cautions.

Legal help isn’t always cheap, but mistakes are almost always expensive.