WHY LAWYER UP?
6 Reasons Startup Founders Must Have Legal Counsel
There are several reasons why startups should have go-to legal counsel, including the following.
You Don't Know What You Don't Know
I often remind entrepreneurs (especially the particularly intelligent) of these conjoined-twin axioms: (1) you don't know what you don't know, and (2) the question whether something is a legal questions is itself a legal question. Startup lawyers have specialized legal knowledge and experience that can help entrepreneurs navigate the complex legal landscape of starting, organizing, financing, operating, and growing their businesses. Startup attorneys can provide legal advice and guidance on a wide range of issues (as discussed below): from business formation, to fundraising, to intellectual property protection, to avoiding draconian penalties from employment law violations, to contract negotiation, review and preparation, among a very many other things. Often, an experienced, intelligent business person can pick up a contract presented to her or him and understand what is there. But, they often do not and can not know what is missing that should be there. Or, what implications of what is there (or not) there may be on other areas of the law that will impact their business interests. A startup team should have regular access to legal counsel whose experience and communication style fits their needs and culture.
Startups often require external funding ("other people's money") to get off the ground or to scale to the next level. Hiring legal counsel is essential for startups seeking to navigate the legal and other complexities of fundraising. Fundraising activities involve complex and sophisticated federal and state securities laws, compliance requirements, and, therefore, potential risks that can impact the startup's future growth and success. A startup lawyer can provide valuable guidance throughout the fundraising process, helping to structure investment deals, review term sheets, prepare and maintain capitalization tables, assist with the due diligence review process, and prepare and negotiate angel and venture-capital investment agreements, and help protect the startup's interests. By having legal counsel on board, startups can mitigate legal risks, maintain transparency, and position themselves for successful fundraising while focusing on their core business operations. Click here to read about what angel investing is. And, click here to learn more about what, exactly, venture capital is.
A startup lawyer plays a crucial role in helping startup founders with risk management. Corporate and securities lawyers familiar with startup issues possess a deep understanding of the current legal landscape, and can identify potential legal risks a startup may face. By conducting assessments of the business internal governance, capitalization, business contracts, and securities-law and employment-law and other regulatory compliance, and a startup's legal counsel can help entrepreneurs proactively avoid and mitigate risks, resolve smaller issues before they become larger issues, or navigate complex issues that may already exist. A Startup lawyer can provide advice and guidance on structuring business entities, drafting agreements, and implementing policies and procedures that minimize legal exposure. Additionally, a startup lawyer can help navigate intellectual property issues, ensuring that the startup's valuable assets are protected. By having a startup lawyer on board, entrepreneurs can have peace of mind knowing that they have a legal expert by their side to identify and address potential risks, ultimately safeguarding the long-term success of the business.
Protecting Intellectual Property
Retaining an experienced attorney is essential to protecting a startup's intellectual property (IP) from violations and misappropriation, mitigate the risk of infringement, and maintain a competitive advantage in their industry. Threats can be both internal (e.g., employee misconduct or a bad-actor contractor) and external (e.g., competitor infringement, piracy, counterfeiting, and third-party challenges). Startups often rely heavily on their unique or industry-disruptive ideas, inventions, and brand identity to differentiate themselves in their respective markets. A startup lawyer can guide entrepreneurs and founders, and counsel a startup's management teams, in making decisions and navigating and understanding the labyrinthine intricacies of IP law. A startup's legal counsel can assist with trademark registration, protecting copyright protection, patent applications and safeguarding trade secrets, as well as exploiting their own IP through licensing and cross-licensing agreements, joint ventures and strategic partnerships, and other business arrangements. Click here to read more about how startups can protects their various intellectual properties. And, click here to read more about different kinds of intellectual property.
Startups must comply with a wide range of laws and regulations, which may vary based on factors such as industry and location. Many are unintuitive. Others seem unfair. Most are complex, often implicating other (seemingly unrelated) laws. Noncompliance can have have serious, frustrating, expensive consequences. Some businesses activities require registering in numerous states, while others do not. Some businesses cannot operate without a license in one location, but may in another. All startups with workers must adhere to state and federal employment laws governing fair treatment of employees (where legal fairness can differ from state to state), properly classifying workers (employees vs. contractors), deferred compensation plans, employee stock option plans, withholding taxes, and other matters. Intellectual property (IP) compliance protects a startup's innovations and brand ... but they also protect the IP of third parties, which startups must not violate. Data privacy laws govern handling personal data. Consumer protection laws ensure fair business practices. Securities regulations are extremely important to follow when raising capital, even—perhaps especially even—when raising funds from family and friends. Environmental regulations pertain to activities impacting the environment. Seeking guidance from a startup lawyer is vital to navigate these complexities, ensure compliance, and minimize legal risks.
Contract Negotiation and Drafting
Contracts are an integral part of running a successful business, and startups often need to negotiate and draft a wide range of contracts, including employment agreements, vendor agreements, and customer agreements. A startup lawyer can help entrepreneurs negotiate and draft contracts that protect their interests and comply with legal requirements. Click here to read about 7 common contract traps.
In conclusion, legal counsel is a vital asset for startups on their journey to success. The expertise and guidance provided by a startup lawyer can help navigate the intricate web of laws and regulations, ensuring compliance and mitigating legal risks. From structuring contracts and protecting intellectual property to advising on corporate governance and resolving disputes, legal counsel offers invaluable support throughout the startup's lifecycle. By having a lawyer by your side, you can focus on your core business activities with confidence, knowing that you have a trusted advisor who will safeguard your interests, mitigate legal pitfalls, and help pave the way for sustainable growth. Investing in legal counsel is a wise decision that sets a solid foundation for your startup's long-term success in an increasingly complex and competitive business landscape.
If you are launching a Startup venture -- be it the next industry-disrupting tech startup, the freedom-providing venture of being self employed, or a community rooted "mom-n-pop" shop -- do it properly. I would love the chance to get to know you and your business, for you to consider me a professional resource to help you set a firm foundation from which to launch your business properly and intelligently, so you can focus on building your new personal empire. Click here to make an appointment now for a free consultation, or call me at 310-567-5966 (California), 212-414-5966 (NYC) or 888-774-1474 (Toll Free) to schedule a Free Consultation.
I have become very impressed with the efficiency possibilities of AI. So, I gave ChatGPT a try. I generated this text in part with GPT-3, OpenAI's large-scale language-generation model. After it generated its own draft language, I reviewed, edited, revised, and expanded on it to my own liking and to ensure accuracy in all material respects. WLF takes ultimate responsibility for the content of this article.
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