The process of building a startup can be stressful and confusing, and incredibly expensive in certain sectors. Given these factors, hiring a lawyer is often the last thing on an entrepreneur’s mind.
As a matter of fact, that avoidance may cost you your chance at success in the future if everything does not go according to plan, which it rarely does.
Rather than waiting until you’re established, you should get lawyers involved in the formation of your company from day one.
This doesn’t mean hiring a lawyer full-time—experts say that’s rarely needed in the early stages—but it does mean hiring a lawyer as a consultant at various stages of your startup’s formation. Further, different topics require lawyers with different areas of expertise. You will want to hire a lawyer with plenty of experience doing exactly what you need your lawyer to do.
Lawyer Josh King, from the law firm Avvo in the Greater Seattle Area, identifies four categories that you will need legal expertise: corporate formation, financing, website/customer agreements, and day-to-day legal work.
The first three require a lawyer hired for niche expertise, but the last category is your lawyer on retainer. At what point should you hire that person? As soon as possible.
Risky business
The truth is, a lawyer (experienced working with startups) hired early on can help you anticipate future legal troubles before they come up, which is way too late to look for a lawyer.
Consider that, “Airbnb challenged local hotel zoning laws, Uber took on taxi licensing requirements, and Pinterest built a business around posting copyrighted images. Startup companies that simply follow the rules risk getting left behind. The right lawyer can mean the difference between pushing the envelope and breaking the law.”
Some people will advise that a startup needs to meet certain requirements, such as a certain operating budget or number of employees, before bringing on a lawyer. This makes sense if you feel confident that you can maneuver legalese without a general counsel who knows everything about your business, but that is risky.
How to hire general counsel
Rather than dividing up your legal work, your absolute best best for success comes from hiring a general counsel lawyer before you begin your startup. This lawyer should have several years of experience working with startups and a track record of being able to predict legal troubles before they occur.
Once you’ve come to the conclusion that you need a general counsel lawyer and the vetting process begins, it is important to make sure you get the right information from candidates beforehand in order to determine who will make the best fit with your company.
When you begin talking to lawyers, here are a few questions you should ask before making a decision:
1. What experience do they have working with startups?
In particular, what experience do they have working with startups at your particular stage, whether it is early in your process, or after you have firmly established yourself? A lawyer that doesn’t know how to best maneuver the early stage formation process could end up costing you thousands in unnecessary fees and taxes.
2. Do they know our industry?
Someone with background in the technology field may not be the best resource for a startup in agriculture. A lawyer with a history of insurance work will not be able to help your gaming company.
3. What size is the firm, and who would be our daily contact?
If the lawyer you’re speaking to is a member of a large firm, they may only be the face of the company—a finder, not a grinder—and may not be doing the work you need, which means their experience and history is irrelevant.
4. How will they bill us?
If you don’t know exactly how you will be charged, you can find yourself facing a massive legal bill you weren’t expecting later on down the road. Further, large firms have greater overhead than smaller firms, which means you’ll pay more per hour, but the benefit of a larger firm’s experience could mean your job requires less time to complete.
5. Is there a good fit?
Is it easy to talk to them, does conversation flow, do you feel like you benefit from speaking? If not, you may find working with them difficult and unproductive.
Although there are several ways to seek out legal expertise during the process of forming a startup, hiring an expert you can trust early on to stick with you will offer you the best chance of success. A lawyer that knows the ins and outs of your company is best-equipped to meet its needs, and help you find success in the world of business.
This article has been edited and condensed.
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