When is the best time to engage a Law Firm?

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Startup founders and teams often come to us with a common question that sounds something like this: We’re a brand new startup operating on a shoestring budget. We’ve secured some forms of financing, but at this point our customer base is still small and we can hardly afford to pay ourselves. We’d like to handle our own administrative and legal tasks as much as possible until we no longer can. At what stage of our growth should we need to retain legal counsel?

Our answer depends on the specific situation and the nature of the business in question, but in general, here are a few critical tasks and growth milestones at which startups are wise to start seeking legal support.

When You’re Establishing Clear Terms with Co-Founders

This task typically arises very early in the process of establishing a startup—and it should. Without the support of your team co-founders, you probably won’t get very far. But from day one, the pair or group of you should clearly establish who owns what percentage of the enterprise, how you will distribute responsibilities, and what will happen if any of you decide to leave.

When It’s Time to Incorporate or Choose a Business Structure

If you’re operating your business by yourself, as a sole proprietor, you may not need legal support at all and you can save the related expenses and put them back into your business. A single owner isn’t bound by very many obligations regarding legal documentation, filings, or fees. But everything changes when it’s time to incorporate and choose a business structure, or if you want to enjoy the limited liability protections that come with having a formal business entity. At that point, you’ll need to weigh the benefits of becoming a general partnership, an C corporation, an S corporation, or an LLC.

Each structure brings different documentation and filing requirements and different tax benefits, and choosing the right one can save countless costs and set your business on the path to faster and easier growth.

When it’s Time to Create a General Contract

A template customer contract can provide you with a starting point as you draft future agreements with clients and customers. Each of these agreements might vary slightly, but if you start with a standard form, you won’t need to reinvent the wheel every time you establish a new contact.  

When You’re Issuing Stock and Concerned about Securities Laws

Any sale of stock or partnership interest (even if these events are far in the future) will be subject to state and federal securities laws. Every transaction must comply with a set of disclosure and filing requirements, and violations can lead to penalties and fines (even if you don’t have the money to pay them). Keeping a strong legal team on your side can help you navigate and understand these laws.

When You’d Like to Protect Your Intellectual Property

If your product, technology, or service offerings are not especially unique, then you won’t need to worry about safeguarding your intellectual property. But if your business depends on specific patents, blueprints, patterns, formulas, or copyrights, you’ll need to protect yourself with confidentiality agreements and specific contract language.