Lawyers are an essential part of a startup, and bring more value than most other advisors and service providers. It would be helpful to stop thinking of them as ambulance chasers, and start looking at getting a capable law firm to safeguard your legal interests and guide your startup through the maze of corporate law and liabilities. As a start, you need a law firm which has extensive experience working with startups, assisting the principals with everything from a business structure to registration and lease agreements. Based on their experience and your startup plans, the lawyer will be able to suggest whether it should be a sole proprietorship, partnership, corporation or a limited liability company (LLC).
Registration is another key issue, because many startup founders don’t know much about local laws that can make a huge difference. For instance, startups in the U.S. are often advised to set up a Delaware corporation to take advantage of the beneficial taxation and business-friendly regulations and courts. They can still do business in any state.
Apart from the lease agreement, the law firm will be called upon to draft contracts with vendors, investors and employees. They need to handle all the legal formalities associated with protecting intellectual property. They have to be ready to step in to handle business disputes and liability cases. These are just some of the basic requirements a lawyer fulfills for startups.
You need to make sure your lawyer is part of a full-service law firm that can handle all legal issues. A shoestring startup without funding is understandably hesitant about a hefty hourly bill for legal services. Actually, most law firms are more than willing to defer fees or work on commission subject to the startup receiving its initial funding.
In fact, they’ll roll out the red carpet because your startup is a potential goldmine. If it is successful, they may get to handle a huge IPO or an M&A deal, and may even get stock options and a seat on the board of directors. Such huge projects, monetary rewards and honors usually go to the biggest law firms, and the only way smaller firms can get the inside track is by nurturing relationships with startups.
There is also a strategic element at stake here, because law firms that work regularly with startups have a rolodex full of VC funds and angel investors. They know who to approach for a specific type of startup, and how to negotiate a term sheet so that the founders don’t have to give away the house.
In summary, a startup in any stage is a sitting duck without legal representation. Drop everything else and get hold of a lawyer. Follow your attorney’s advice and put everything down in writing – partnerships, lease agreements, contracts, and even the understanding you have with the law firm. You could be the next Mark Zuckerberg, but you could just as easily end up like the Winklevoss twins.