Every startup business has two things in common, (1) they must run lean to survive, and (2) they are going to encounter hurdles. The question usually becomes, which hurdles does a startup need a lawyer for? However, I think you should be asking, which hurdles can my startup clear with a lawyer? It is easier to be prepared to jump over a hurdle than to hit it head on, knock it over, pick yourself up, and then figure out what happened and how to fix it. The following article will address three critical hurdles to determine when your startup needs a lawyer.
Hurdle I: Entity Structure and Initial Agreements
The most common time we see startups in need of a lawyer is when they are determining the structure of their entity, usually when the startup has multiple governing persons or investors. A lawyer is highly recommended at this stage of the startup to ensure that the rights and responsibilities of all parties involved are clearly defined and documented correctly. However, even if your startup is owned and managed by just one person, every startup will be entering into agreements. A prudent startup owner will ensure that their initial agreements, whether employment agreements, supplier agreements, or customer agreements, are scrutinized by a lawyer to protect the startup.
Hurdle II: Protecting Existing Assets
Does your startup have any intellectual property that needs to be protected? It is important to secure your rights to this property early in the life cycle of your startup, because as your startup becomes more successful, it becomes more likely a competitor will steal it from you. Another valuable asset to protect is your ownership of the startup, especially if you plan to fundraise. Many investors will offer you cash in exchange for ownership of your startup. These investors will expect you to be represented by a lawyer familiar with the agreements involved in this type of financing. An important note here, if fundraising is in the future of your startup, it is wise to have your initial entity documents prepared by a lawyer with this in mind.
Hurdle III: Exit Strategy
It may seem like overkill to think about your startup’s exit strategy before you even get going, however your exit strategy will shape the legal framework of your startup. Do you plan to get acquired? Do you plan to have an Initial Public Offering (IPO)? Or maybe you plan to keep your startup closely held and grow it yourself? Bring these considerations up with a lawyer to ensure that your startup is ready to enter the next stage of its life cycle.
But How Do I Choose the Right Lawyer?
There are three things to think about when selecting the right lawyer for your startup. First, interview plenty of lawyers and select one that has the time to dedicate to your startup’s needs. Your options can range from a solo practitioner to a multi-national law firm. Second, select the lawyer you think will work best with your startup’s culture and mission. Third, evaluate the fee schedule carefully. Does the lawyer bill hourly? A flat fee per matter? Or some hybrid? This is an important consideration because, as mentioned initially, startups must run lean to survive.
Written by: Connor McQuage
Disclaimer: This article is made available for educational purposes only, to give you general information and a general understanding of the law, not to provide specific legal advice. By using this article, you understand and acknowledge that no attorney-client relationship is formed between you and MSD Law PLLC, nor should any such relationship be implied. This article should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.
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