It’s tempting to cut corners and costs when you’re in startup mode. But getting good legal guidance is not a luxury – it’s an essential requirement for success. Entrepreneurs who wait to hire good counsel when there’s a problem are entrepreneurs likely to fail. You don’t have to go for the big names with big-firm cachet. Just make sure you’re hiring knowledgeable, can-do attorneys who have knowledge and experience in guiding other successful startups.
Don’t Wait: Get Help from the Get-Go
Good legal help is preventative. Having good counsel in advance of problems mitigates your risk and protects you from possible disasters down the road. So the most important quality in an attorney, aside from knowledge, is the willingness to look ahead and anticipate areas you would not think of or know how to handle. If your innovation is one that may raise legal issues with no precedent, this ability to anticipate problems will be particularly valuable. But even if your business is a straightforward one, there are many areas where you need basic legal guidance.
The most common legal matters facing any startup are:
- Selecting the right organizational structure. Most companies that are more than a lifestyle business will need to set up a corporate structure. The corporation is a legal entity that can issue stock to raise money. It also puts some limitations on the owner’s liability in the event of a lawsuit. There are also variations, such as the subchapter S Corporation, which limits the number of stockholders to 75 and taxes corporate income as the personal income of the owners.
- Negotiating and codifying partnership and buyout agreements. Whether you’re setting up a corporation in partnership with co-owners or negotiating partnerships between your company and other companies, you want to be sure to protect your interests in the negotiations and codify the resulting agreements with a well-constructed written document that spells out who is contributing what and what rights and responsibilities each party has for sharing in profits, losses, and risks. It’s also important to prepare an agreement covering what will happen in the event of an ownership change, such as could occur if a partner wants to sell his or her share of the business, what happens if an owner becomes incapacitated or dies, and how one owner can buy out the interests of another.
- Undertaking loan, lease, outsourcing, or other contracts. A good lawyer will be invaluable during your negotiations and can create or review all formal contracts undertaken with bankers, landlords, outsourced production or distribution companies, and other trade partners.
- Understanding employment law. Human resources are fraught with risks for misunderstandings and lawsuits. It’s important to prepare and commit to writing all understandings of policies and procedures in a readily available Employee Handbook. Many businesses also execute employment contracts with employees. A common area for problems is misunderstanding the difference between an employee and an independent contractor, which can create costly tax liabilities for the firm.
- Protecting intellectual property and confidential information. It’s much easier than you might think to lose your trade secrets. Having an IP attorney file appropriate patent and trademark protections is a critical first step. But you will also want to know what to do to protect assets such as company and product names or logos, proprietary information disclosed in the course of business negotiations or with employees and partners. Another area of law that you might need help on if you are in an information technology business is what obligations you have to producers of so-called “open source” software code; you want to ensure that any open source code you incorporate into your product is truly available for your use and that you’re protected from future claims by its author(s).
- Customer protections and contracts. Pitfalls await in so many aspects of everyday business if you don’t have the experience or expert counsel to avoid them. From truth in advertising to consumer protections in pricing, credit, warrantees and returns, you need to anticipate and cover all of the bases that could arise, and spell out your policies and terms in legally defensible writing. This extends even to the disclaimers and privacy notices you offer in your transaction and website notices, where laws change fairly frequently.
- Environmental law. Does your business deal in regulated materials that pose potential environmental hazards or are covered by waste disposal, carbon emission, or other laws? With the potential for huge fines and other penalties, it pays to be safe rather than sorry.
Contracting with an Attorney
The best way to find attorneys with the expertise you need is through referrals from other business owners. Be sure to ask questions about how they work with the attorney and how they are billed.
Some business owners prefer to keep some control over simpler legal tasks, such as drawing up contracts, and are even willing to do some of the work with guidance. If this is important to you, ask your potential attorney if they will provide “unbundled legal services.” In this approach, the attorney operates as your legal coach. For example, he or she might provide a short consultation to answer your questions and then let you draft the legal document, which they will review and advise on, or advice on a bureaucratic process for which you then submit the paperwork and appear at the necessary hearings. Not all attorneys will work this way, as it significantly reduces the attorney’s potential earnings.
Attorney fees are charged in various ways, and may vary depending on the tasks involved. Be sure you work out all compensation details with the attorney and put that agreement in writing:
Hourly. You are charged for actual hours worked, including time on the phone, in increments of 10, 15 or 30 minutes. This can get very costly so be sure you understand exactly how the attorney breaks down the billing, what time increments they are using, whether they charge lower rates for tasks that are handled by administrative staff, and what expenses you might incur over and above the fee for the attorney’s time.
Flat project fee. For Articles of Incorporation or straightforward contracts, some attorneys will quote a flat fee up front. Be sure to ask if there are situations in which the fee could go higher, and whether all expenses are included.
Contingency fee. Traditionally, the contingency fee is seen in more in personal injury cases; it is seldom used in small business issues.
Retainers. For regular, ongoing help with negotiations, contract reviews, and other legal advice, you and your attorney may negotiate a monthly retainer to cover your anticipated needs. This is the base rate your attorney will charge. If you use his or her services beyond the amount of the retainer in any given month, you will be charged for the extra work at the agreed-upon hourly rate.
Registered EVE Business Mentors:
Registered EVE Business Professionals
- Hayden R. Brainard, Jr., Attorney
- Erica M. Hines, Intellectual Property Attorney
Maxine Lynn Barasch, Intellectual Property Attorney
Benjamin Charkow, Intellectual Property Attorney
Capital Region Resources