“Any time is a good time to start a company.”
– Ron Conway, Noted Startup Investor, SV Angel (and investor in UpCounsel)
Most of the time, when entrepreneurs startup a new company, the founder(s) begin on a shoestring budget of their own cash or a small seed round from friends & family or an angel investor or two. You have a great idea, a plan to launch and grow your business, and a modicum of courage to pursue your dream, but until a steady stream of revenue comes in, money can be quite scarce to allocate to nothing short of growth.
Yet, at this point of inception, is this really the time to consult with a startup lawyer? I mean, lawyers can be very intimidating and expensive, right? You got a business to grow, who’s got time for hassles?
Yes, Yes, and Yes! There are times to take shortcuts and try to go it your own (not recommended for legal) and there times to invest in professional services that have value. Yes, lawyers can be intimidating, and Yes those “big, expensive, traditional law firm lawyers are expensive” too.
However, you can establish a successful runway for your business, without breaking the bank on legal help in order to risk everything you’ve been building because you tried to go it alone on legal. Or, maybe you did try to save a couple hundred bucks getting legal advice from your sister’s boyfriend’s co-worker’s cousin who just happened to get his JD in family law, but will learn on the job and try to help your new startup with everything business, employment, and IP law. This smells like a disaster in the making.
So, what does a startup lawyer do to give you the advantage? What can he or she do that you can’t do yourself on one of those do-it-yourself sites?
First of all, if you are starting the business with a co-founder you’ll need a lawyer to draw up proper founders collaboration agreement. No one ever expects a partnership to sour, but it does countless times (just look at the divorce rate). Without proper agreements in place, you risk having a co-founder you’re no longer on good terms with holding a lot of equity in the company. “When the person leaves is when you have the issues. They say, ‘You had promised me X.’ There’s a dispute, and you end up giving them more than you would have if you’d just gotten everything on paper with a lawyer,” warns attorney Minal Hasan.
Secondly, if you are marketing a unique idea, you’ll need confidentiality agreements in place and likely copyrights, trademarks, or even patents to protect your intellectual property too. You may be hiring employees, contractors or consultants too, and the last thing you want is for your “next big thing” to be stolen or shared with a competitor.
Next, setting up payments for employees can be very complicated. If a company has been operating for several weeks and hasn’t made any revenue yet, you’ll want to credit what a founder or employee has done for the company. This way, if one founder exits the company or the company gets bought out, all founders will get something out of their sweat equity.
Furthermore, salaries must be paid in cash, not equity so be cautious with the terms employees versus consultants. For example, calling your full-time CEO a consultant and just giving them equity won’t satisfy the IRS. “The IRS audits a lot of tech startups. If they find out that your full-time CEO is classified as a consultant and you’re giving them equity so you can avoid paying cash wages, not only will the company have to pay back wages and withholding on the salary, you’re also going to be hit with tax penalties,” Hasan said.
There are many more issues to consider such as whether you plan to offer equity and stock options, employment law compliance (state & federal), Obamacare compliance, and how to finance future ideas and business growth plans. Before you make any critical decisions regarding your business, your best option is to consult with a startup lawyer on the best way to protect your assets and prevent against any future litigation from the start.
Good for you, on UpCounsel you can easily connect with several qualified startup lawyers who can help guide your startup to great success. It only takes a minute to post your request to our legal marketplace, where you can get a free initial consultation with lawyers that match your specific legal needs.
Then, when you’re ready to rock, you can easily hire the one best for your needs & budget – saving you hours of time searching & vetting startup lawyers, while giving you the peace of mind that you’ll get quality legal services moving forward with a money back guarantee on every job you post, hire, and pay for over UpCounsel.
Cheers to you and your startup’s success!