Does A Startup Company Need A Lawyer?
By Louis Lehot, business lawyer and partner at Foley & Lardner LLP in Silicon Valley, and formerly the founder of L2Counsel, P.C.
Influential founders start out strong, quickly making things happen, which means it’s quite common to ignore some legal components when first beginning a brand-new business. Whether your startup needs to incorporate, enter a new regulatory environment, or draft agreements or contracts, integrating the right lawyer into your company at the early stages is a smart investment.
We sat down with Louis Lehot to discuss choosing the right lawyer for your startup.
Question: Does a startup company need a lawyer?
Q: What are some considerations when choosing legal counsel?
Louis Lehot: Before you do anything else, determine what kind of legal support you need. Will you need help filing your initial paperwork? Companies like Rocket Lawyer or Legal Zoom provide easily accessible and inexpensive forms which can reduce a startup company’s legal expenses when used correctly. So, the question is: How do you choose the “right” lawyer.
Question: Okay, how do you choose the “right” lawyer?
Louis Lehot: Just like finding a co-founder, when choosing a lawyer, you must do your diligence. Be sure there is a comfortable rapport and you are confident in his or her ability to meet your company’s needs and minimize its exposure. Develop a thorough understanding of his or her experience and knowledge. Each party should feel comfortable that there is a strong fit as well as an ability to accomplish the needed legal work.
Question: What are some other things to look out for?
Louis Lehot: Retaining an attorney with experience working in startups is critical. You do not want your legal counsel to learn at your expense. Look for someone with a successful track record of working with startups and experience within your specific industry.
Question: As a startup, how do you pay when you are bootstrapped?
Louis Lehot: Whether a startup is angel-funded or has secured some level of series funding, budgeting for legal services is critical when you have limited funds. The “right” lawyer for your startup understands that. The right lawyer ensures you are clear about when you will and won’t be charged for his or her time. Hiring the right lawyer takes time and thought.
Question: Is it essential for your lawyer to be connected?
Louis Lehot: If you’ve selected a lawyer or firm specializing in early-stage businesses, they should likely possess some database, contacts, and connections that may help further support your startup’s future needs. Whether through network connections to investors or regulatory or industry relationships, a lawyer that optimally represents your company will demonstrate how they will continue to contribute value beyond what they have already delivered in previous legal work.
Question: What are a startup’s initial legal needs?
Louis Lehot: Filing paperwork for legal incorporation to get your business started is often not too complicated. Many times, building a startup will legally be as simple as incorporation. Other companies will have more complicated regulatory concerns. The right lawyer or firm for your business will help you identify the specific legal challenges that your business may face. For example, common areas of startup legal support include incorporation, regulatory and industry concerns; fundraising; leasing agreements, and IPOs.
Question: What about long-term legal integration, should you switch lawyers?
Louis Lehot: For startups looking for more long-term legal integration, all your goals must be aligned with legal counsel. It’s incredibly important. A lawyer that supports the future needs of your company is vital during the early stages. Can you find another lawyer later? Sure. Often, an acquiring company will offer full legal support. But you still need representation to start with.
Question: What are some of the cost structures to consider?
Louis Lehot: Determining cost is important, and some law firms focused on working with startups offer lower rates or equity deals. You can expect to find a variety of costs structures, from fixed fees to hourly billing, to full or part-time legal partners, to equity-based fees. There may be some exploration of DIY legal solutions.
Most startups should not consider a lawyer or legal team to be part of their founding or early-stage employees. Still, if you are looking to disrupt the next taxi ecosystem or another highly regulated industry, a general counsel may be a worthwhile investment. Your general counsel can be a part-time or full-time employee. You can consider offering mixed-equity as compensation for bringing the right strong or specific legal expertise in-house.
Question: Anything else?
Louis Lehot: Formalize the relationship. Unless you are working with equity as a component of your relationship, a law firm should not ask you to sign any long-term contracts. There should be some essential paperwork that needs to be completed, and thereafter they will be considered your law firm of record. A good law firm will be able to support your business as it grows, help to introduce you to investors, and provide the support that will reduce overall risk along the way.
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