Startup Lawyer Guide
Startup founders are hard-working, resourceful, and enterprising individuals, but when it comes to legal services, a DIY approach may seem practical but can also be a mistake.
While it is not required to have a lawyer, when it comes to legal matters, mistakes can be costly and could even threaten the survival of your business. Thus, there are a number of situations in which hiring a startup lawyer is highly recommended.
Here are the top situations when you may need a startup lawyer:
When you are ready to start looking for a lawyer for your startup, read our guide on how to find a startup lawyer.
You may want to hire a startup attorney to incorporate your startup. Incorporating can be confusing and takes time and energy away from developing your product or service and getting your startup ready for launch.
While it is possible to incorporate without a lawyer (especially if you choose to form an LLC), it is recommended to at least consult a lawyer when forming a corporation. Startup lawyers can help you understand the complexity surrounding incorporating, choose a business structure, choose where to incorporate, and make sure everything is in order when you are ready to incorporate your startup.
You should consider consulting a startup attorney when drafting and signing a founders’ agreement. Although you can find boilerplate founders’ agreements online, every startup is different, and you may not find a standardized form that meets all of your needs.
Additionally, founders’ agreements can be complex and should address a host of issues. The ideal founders’ agreement should lay out:
- IP Ownership
- Founders’ Roles
- Decision Making
- Issuance of Shares
- Founders’ Exits
If this sounds like a lot, it is. If you choose to draft or sign a founders’ agreement without the consultation of a lawyer, make sure to carefully read every clause and understand the specifics of the agreement before you sign it.
You may want to think about utilizing an attorney to draft or review your confidentiality agreements. Confidentiality agreements, also known as non-disclosure agreements (NDAs), are an important part of protecting your startup. NDAs are agreements between parties that establish the confidentiality of a relationship and are meant to protect your ideas, processes, trade secrets, customer lists, and any other type of confidential information.
Parties you may wish to sign an NDA might include:
- Potential Business Partners
- Suppliers and Vendors
However, an NDA is not worth the paper it is printed on if it can not be enforced. The language, details, and conditions of the agreement must be clear and able to hold up to legal scrutiny.
A lawyer can help you determine when you might need an NDA, who you should have sign an NDA, and they can also help you craft an NDA with the appropriate language and conditions.
Intellectual Property Protection
If you are creating any type of intellectual property (IP), you may need to work with an attorney to protect your intellectual properties. A lawyer specializing in IP can help with registering trademarks and copyrights, filing patent applications, and dealing with patent examiners.
The patent application process in particular is long and complex, and many founders and inventors choose to use a patent lawyer to assist with this process. A patent specialist can help you:
- Determine if your IP is patentable
- File for a provisional patent
- Perform patent research
- Draft and file the patent application
- Respond to patent examiners
- Obtain and maintain your patent
Depending on your industry and the nature of your business, you may need to consider consulting an attorney specializing in corporate compliance to ensure that your startup is compliant with federal, state, and local laws, rules, and regulations.
A corporate compliance lawyer that is familiar with your industry will ensure that you comply with all of the legal requirements that apply to your startup. Nearly all startups have to comply with a number of laws, rules, and regulations. Startups with employees, and those in heavily regulated industries, should be particularly careful with compliance.
Compliance lawyers can help you navigate due diligence and compliance related to zoning laws, labor and employment laws, Occupational Safety and Health Administration (OSHA) regulations, environmental laws and regulations, Federal Trade Commission (FTC) regulations, securities laws, antitrust laws, privacy laws, and other compliance matters.
You may want to consider consulting an attorney when hiring early or key employees. Although you can use human resource (HR) services or HR software to hire your first employees, employment agreements, non-disclosure agreements, and contracts with contractors are difficult and costly to change. Getting them wrong can end up being very costly for your startup.
Lawyers that specialize in employment law can help you understand workplace laws, craft NDAs, draft employment agreements, settle employment disputes, and ensure that you are compliant with the laws and regulations that apply to your business.
Issuing or Transferring Stock
You should consider hiring an attorney when you decide to issue new stock or transfer stock. When you issue new stock, you need to comply with your startup’s articles of incorporation and shareholder’s agreement. You also have to comply with any state and federal securities laws that apply to your state.
A lawyer that specializes in capital markets can help you navigate compliance with your startup’s articles of incorporation and any applicable state and federal laws. Capital market lawyers can help ensure you comply with the law, go through the correct approval process, issue shares, transfer shares, and set up and maintain the issuance of employee stock and employee stock options.
You will likely need to work with an attorney when raising funds, especially when raising funds from angel and venture capital investors. Investment documents, operating documents, and term sheets are complex and highly technical. You will need someone who specializes in startup funding to help you understand the terms and watch out for your best interests.
Lawyers who are familiar with startup funding can help you navigate finance structures, terms of the deal, tax and compliance-related issues, and the legal implications of funding. A seasoned startup lawyer has also hopefully had the experience of participating in several funding deals and may even be able to help you negotiate the terms, conditions, and valuation of investments in your startup.
You might want to talk to an attorney about drafting and reviewing your user agreements and privacy policies. Again, like many of the situations on this list, the need to consult an attorney will depend on the nature of your product, service, application, and your startup's needs.
User agreements, privacy policies, terms and conditions, and end-user license agreements are there to protect your startup from risk. They establish contracts between your startup and your customers or users concerning the rights and responsibilities of both parties.
While you may be able to find templates for any of these agreements online, the terms and conditions must be specific to your business’s practices and needs. So if you want to know if your user agreements will protect you and if your disclaimer will hold up in court, it is best to consult a contract lawyer to review and advise you on these legal matters.
Remember, if you are uncertain about a legal matter, hiring a lawyer can save you money and help you avoid mistakes that end up in situations with unintended and costly consequences.