One of the biggest questions small business owners or founders have when it comes to early stage business issues is when do they need to hire an attorney and how do they pick one. I will explain what I think are important qualities and how an attorney can be invaluable, even before the company is formed.
A good startup (some people spell start-up, some use startup) or business attorney needs to be able to see a wide variety of potential issues the company may face and be able to address those with the company or founders. If they simply form a corporation and provide some initial shareholder agreements, bylaws, resolutions, or other initial documentation, that is a valuable service, but there is much more to be examined and addressed in an early stage business. There are many legal or business issues, such as what intellectual property protection is or needs to be in place (e.g. patents, trademarks, non-disclosure agreements), advise the founders about securities laws relating to issuing stock or raising money, preparing for human resources and hiring (e.g. explaining that you can’t just call someone an independent contractor or 1099 and avoid payroll tax withholding obligations), and when to get someone involved in drafting or reviewing contracts. While it is true that “startup law” is really mostly about basic formation and protection of business entities and possibly help with closing initial rounds of funding, the attorney should have a wide general knowledge of many aspects of business and law.
I boil it down to having a good business sense to be able discuss the company, its plans, evolution, and future. I feel that the best startup or small business attorneys provide quality legal services plus the business judgment to know what questions to ask and advice on guiding the company. That is where the advisor role comes into play. If someone brings me a contract and says to review it, I can read it and tell them if it is legal and if any additional clauses need to be added to protect the client; however, the better approach is to not only review it for contractual legal issues, but to find out about the transaction and business relationship. In my opinion, if you don’t know what your client intends to do with the contract or the interplay between the two parties or any other parties that could become involved, you can’t foresee future problems and properly advise the client. Having an enforceable contract is helpful, but it doesn’t do you any good if the business relationship is not feasible.
I feel that many attorneys get bogged down in the details of following the law and forget about the role as advisor. Part of this can be due to the attorney not having any actual business experience or not having enough experience with business transactions and startup issues. The best startup attorney will get back to you quickly and understand exactly what you are going through. They may not know the solution, but they can guide you to the right resources if they can’t help. They should have good connections for those resources. I know that all of these qualities can be difficult at times to find, but I feel that it is critical.
I understand that the costs of attorneys are not cheap, so to go over all your business decisions with one is not something you can do either. So when do you hire one? A good consultation in the early stages or pre-formation can be invaluable to put together the relationship between founders, shareholders, and protect the assets (such as intellectual property like ideas or developments) of the company. Many people have to hire an attorney because a dispute has arisen between founders about who owns what idea or development or something goes wrong; however, proper planning in the early stage can avoid many of these situations or at least have a plan in place for how to handle the issue if it comes up. The founders should get a good quality consultation to see what possible things need to be addressed and maybe get some early documents to use in protecting the company and then bring the attorney back in as money is being raised, contracts are being negotiated, or employees are being hired.
If you call a business attorney and they don’t ask you about what your business does or details about the development of the company to this point and your future plans, they are doing you a disservice. That doesn’t have to be in the first call, but discussing your business plan and model can help see future problems.
Most businesses think they can just use an online website to form their corporation and they will be set without any need for an attorney, but the consultation should be part of business planning for the future. They are not told that they need to keep accurate books and records, need to have regular board and shareholder meetings, pass resolutions, file securities law exemption notices when issuing stock, and many other items. Failure to do this even from the company’s inception can lead to personal liability for the founders, officers, and directors. Also, if you don’t clearly transfer or separate developed intellectual property, such as an app or other code, there will probably be disputes down the road about who owns what.
One other major factor is whether you get along with the individual and their style of handling your particular needs. If you can’t stand them or don’t get along, you need to find someone else.
Hopefully this gives a small amount of insight into what to look for. Get a quality consultation early on and bring them back in when you can for major events (raising money, signing contracts, hiring) or on regular intervals to be sure you are on track. You can also negotiate flat fees for certain projects to keep your budget in line.