Entrepreneurs looking to start their own businesses risk losing out on vital investment if they don’t have a legally watertight business plan.
With banks and other investors tightening their lending belts in light of the credit crunch, a plan that fails to comply with the many business laws in existence will look even less attractive to cautious lenders, the Law Society said.
And it added the impact of the credit crunch on the market meant it was more important than ever to watch out for legal potholes.
Law Society president Andrew Holroyd said: "Coming up with a bright business idea might be one thing, but you then have to ensure compliance with finance, health and safety, employment and tax laws and regulations, as well as all the other tasks, such as finding premises, insurance and much more.
"The current financial climate means it is harder to obtain new finance. There is less credit to go round. No bank manager or other investor will want to put up the capital for a business which will look certain to fall at every legal hurdle, so it makes sense to impress them with a plan which, from a legal point of view, is as sound as a pound.
"Sadly, innovation and the opportunity to develop new business are sometimes seen as dampened by a suffocating catalogue of laws. Many of those laws are essential, and whether you like them or not your business needs to comply with them, so you need to have every base covered in your plan."
The Law Society warned that even startups with their finances in place could still get tripped up by the business red-tape.
Mr Holroyd added: "Whether you are opening a cafe or running an internet business from your spare bedroom, there will be laws that need to be considered.
"The costs involved with breaching some of those laws could cripple a newly established business.
He said researching business laws when beginning an enterprise and seeking advice from a solicitor at an early stage could help alleviate the risks for anyone looking to start-up.
"Rules and regulations are being brought in all the time, recently the Corporate Manslaughter Act, so you need to keep abreast of the latest developments, which can be a difficult and daunting task, especially when starting up."