When is the best time to hire a startup attorney? Simply put: As soon as you have an idea for a new startup.
If your startup is currently a team of just one or two people with a great idea, a business plan, and lots of energy, it may seem far-fetched that you’d need a lawyer at that stage. However, this is actually the ideal phase for securing counsel. Not only do you need help protecting your idea, but the right legal counsel will help you propel your startup’s ideas into reality.
Without such guidance, founders may make irrevocable or hard-to-unwind mistakes that could be costly down the line. Setting up the wrong type of legal entity, not getting your IP straightened out, or issuing the wrong types of shares may even one day cost you your franchise. There are many risks startup founders have to take, but this shouldn’t be one of them.
Having a strong business plan and a strategically-organized startup will help secure the funding you need, whether it is from crowdfunding, government grants, accelerators, incubators, or hedge funds. It is never too early to get a lawyer, because the right legal counsel will help you achieve your goals from day one.
If your startup has already grown past these phases, that’s okay, too. However, now is a good time to explore your options. It’s always easier to maintain positive forward momentum than to go back in time to repair mistakes. The sooner your startup secures proper legal counsel, the more informed your decision-making processes will be, and the better protected your company will remain.
Let’s take a look at the various startup stages where having professional legal counsel is imperative to your company’s success.
Ideation and Development
Many founders have said they didn’t feel an attorney was necessary at the ideation phase. Later in the life of their business, many of those founders wished they would have secured legal counsel earlier. Attorneys experienced in working with early-stage business help set up the best business formation logistics. There’s formalizing business relationships, filing multiple registrations, optimizing internal business structures ahead of employee hiring or investor pitching, and so much more.
Each of these integral steps requires proper and thorough legal documentation. Making mistakes during this process can cause frustration later, or even worse, can produce detrimental results that prevent business success.
Sure, many online platforms offer free or very cheap legal document templates, but founders must understand these are not enough. Each startup is very nuanced, has unique intellectual property concerns, and moves through different stages at their own pace. Undoubtedly, one template cannot possibly cover every unique detail. This is why it is critical to secure an attorney from day one.
Funding and Scaling
Growth often requires capital infusion of some form or another. If capital comes from an outside investor – whether a friend, family member, or VC – an experienced startup attorney plays a key role throughout this process.
Founder financing and capital raises typically require securities law compliance, stock options structuring, and term sheet negotiation. Careful planning and preparation during each fundraising round ensures more than compliance. It demonstrates professionalism to additional investors, keeps founders in control through dilution, and maintains internal organization as the business grows.
During growth and scaling phases, founders must ensure compliance on numerous levels. How do businesses operate in different states, and what kind of registration requirements are there? What types of employees or contractors will need to be hired? What vendors should be secured through what type of contracts?
Clearly, there are many, many situations during funding and scaling phases that could require professional and experienced legal counsel. It’s much better to have a startup attorney on your side as early as possible. This way, the attorney becomes acclimated to the startup, understands its needs and goals, and is better prepared to serve throughout seed stages and beyond.
Exit Preparation
A startup’s exit strategy involves many more details than planning a simple sales transaction. Interested buyers will have a set due diligence period in which they analyze every aspect of the company to ensure positive financial and legal standing.
First, buyers will want to confirm good record-keeping and formal documentation for every major company milestone. Buyers will review day-to-day business operations, confirm licensing and permitting, maintain proper regulatory compliance, and they’ll likely dive into human resources to determine if key players will remain once the business is sold.
A good startup attorney has many of these necessary records on file already. They can prove the company’s good standings, produce contracts and compliance paperwork, and confirm the buyer’s credentials and financial preparedness early in the process. This not only protects founders from getting behind or feeling overwhelmed. It protects them throughout the final stage of their startup: the culmination of years of hard work. Who wouldn’t want to make sure it’s well protected until the very end?
It’s Never Too Early to Hire A Lawyer!
It’s Never Too Early to Hire A Lawyer!
At HJF Law, we help startups and early stage companies launch their ideas into reality. Our philosophy is that hiring a lawyer at the earliest possible stage is the best way to keep your startup protected throughout the life of your business.
Our expert attorney team has experience in a plethora of business practice areas, and their passion lies in helping clients reach their startup goals. We created a unique subscription model that allows our clients to feel comfortable reaching out whenever questions arise, so cost is never the determining factor when it’s time to send an email.
Wherever you are in your startup journey, HJF Law is here to help. Reach out to us at (917) 726-8184 or visit hjflaw.com/contact for a free consultation to see if we are the right fit for your company.