The social and economic changes brought about by the Covid pandemic have launched a new wave of entrepreneurship in America. Last year, a record-breaking 5.5 million new businesses were launched in the United States, the highest number yet.
This dramatic increase in new endeavors has sparked more interest and more questions regarding startup law and how to choose a lawyer for your startup. This article examines why entrepreneurs need legal counsel and how to find and choose the right attorney for your business.
Why Do Startups Need Legal Counsel?
Most founders are inspired to start their new business based on their years of experience in the relevant industry and a belief that they have something to offer that differentiates them from the competition. Their hands-on knowledge of the work, understanding of the business, and insight into the market give them many advantages.
That said, their front-line experience often gives them little insight into the relevant areas of law and regulation covering the industry. The more intelligence and experience a founder has, the less they may be aware of these legal risks at all.
Generally speaking, a startup needs legal advice and services to protect their interests in the following business areas:
Regulatory and Compliance Issues
Every industry and every business has certain legal regulations and compliance concerns. There are whole areas of law focused on industries like real estate, food service, manufacturing, transportation, importing/exporting, finance, health care, and more.
In addition, all businesses that plan on using office space, founding partnerships, hiring employees, carrying insurance, filing a trademark, and other ordinary business practices, have relevant areas of law that should be understood by founders and partners.
Furthermore, these legal considerations can be extremely localized, with different restrictions and guidelines depending on where the business is founded, where business operations take place, and the destination market for products and services. A startup in New York City will be operating in a different regulatory environment than a startup in Albany.
Business Type and Formation
A crucial early decision for an entrepreneur is deciding their business type and then filing the appropriate applications and legal documents. Each possible business type has different legal, tax, and regulatory implications, and the decision should be considered carefully.
Contracts and Legal Agreements
A new business venture uses contract law from the very beginning. Whether the founders are forming a partnership, the business is leasing space, or a company has acquired its first customer, these legal agreements should be reviewed and understood thoroughly by all parties.
Risk Management
A great startup lawyer doesn’t just address specific concerns related to contracts or business formation; they can help an entrepreneur avoid legal exposure over a wide range of issues.
Risk management is especially important for startups that intend to raise capital or eventually go public; they will need legal counsel regarding business structure and internal governance, policies and procedures, and other areas of operation in order to avoid long-term risk and safeguard your success.
Intellectual Property Protection
Intellectual property is arguably the most valuable asset a startup can own or create, and should be protected. A startup lawyer can guide the process of using trademark law to protect the value of your brand, and using patent or copyright law to protect the value of your products.
Fundraising and Growth
Whether a startup is seeking venture capital or taking out a bank loan, legal counsel is critical to protect your interests, navigate the complexities of capitalization, and assist with due diligence. Many investment firms and funds are more likely to invest in a startup with excellent legal counsel since it helps mitigate their own risk during the investment process.
When You Need a Startup Lawyer
Every business is unique, and every founder is on their own journey. However, you don’t know what you don’t know, and there are several crucial thresholds when a startup needs legal counsel.
- Before starting. It is always best to consult with a good startup attorney at the very beginning of founding a startup to discuss your business plan and overall strategy. This kind of consultation will help you anticipate and plan for the journey ahead and be alert to specific risks and issues in your area and industry. These initial consultations can also be an excellent way to connect with different startup lawyers and find a good fit for your needs.
- Before incorporating. After an initial consultation, your startup lawyer may give specific advice about what kinds of legal issues or risks your business faces, and when you should work more closely with an attorney. Most startups and small businesses can begin basic operations without the input of an attorney, and many solo-preneurships can proceed in that way for several years. However, if your business is going to found a partnership or corporation, it should always be done with legal counsel.
- Before fundraising. A crucial part of the fundraising process is due diligence, when potential investors will examine every aspect of your business. Long before you invite that kind of external scrutiny, you should prepare for it by working extensively with your own startup lawyer, who will anticipate and mitigate potential problems and challenges during the fundraising process.
As a rule of thumb, a startup with $20 million or more in annual turnover should hire full-time in-house counsel. Before that time, most small businesses worked with a startup attorney on an hourly or fractional basis as the need arose, but it is always best to establish an ongoing relationship with a startup lawyer who knows and understands your business.
Where to Find a Startup Lawyer
Finding a startup lawyer can be as easy as searching online, but finding the startup lawyer who is the right fit for your business is more of a challenge. Here are some ways to help narrow your search:
- Seek a referral from your personal lawyer. If you have a good attorney for your personal legal matters, ask if they know an attorney for your business matters. Lawyers are often connected with each other, and getting a referral from a lawyer you trust is a good place to start.
- Attend startup events and conferences. Many incubators and industry conferences attract lawyers who are experienced with startups and new ventures. There are some events and conferences that feature legal and regulatory considerations that may be relevant to your industry.
- Lawyer matching websites. There are websites that connect you with a pre-qualified attorney who is matched to answer your question or address your concern. Choosing an attorney in your area may be a good way to get an initial consultation on the site, and then develop a working relationship with a startup lawyer.
Questions to Ask Before Hiring a Startup Lawyer
Once you have found a startup lawyer who might be a good fit for your business, there are some important questions to consider before making a final decision. You should always check your state’s bar association website to make sure that the attorney is licensed to practice in your state and read any relevant online reviews.
When meeting with a lawyer for the first time, here are the best questions to ask before hiring a startup attorney:
- How much experience do you have with startups and entrepreneurs? A good startup lawyer should have a lot of experience with startups and new businesses and be able to share some recommendations from past clients.
- How much experience do you have in my industry? A fintech startup has a vastly different range of legal risks and considerations than a childcare facility. The right startup attorney for your business will have experience in your industry, and in your area.
- How is your business structured? Before hiring an attorney, ask questions related to the size of the team, their years in practice, your day-to-day contact person, etc.
- How are your fees calculated? Cost is a major consideration when hiring an attorney, especially for unfunded startups. Many lawyers offer an initial free consultation, but it is important to understand how their fees and billing structure work before hiring an attorney. Some lawyers work by the hour, while some charge a flat rate per service, and some charge different hourly rates for different services. When paying a lawyer for their time, be sure you get an estimate of how much time it will take to address your issue or resolve your problem.
Finally, it is best to build a relationship with a startup attorney who is a good fit for you. This can be a match of personalities, company cultures, or working styles and is often simply a question of making a connection. Your startup attorney should be someone you like and trust, who will face tough challenges with you and be on your side for years.
Need Legal Counsel? Contact the Fridman Law Firm
The Fridman Law Firm has years of experience in corporate and startup law, with a focus on entity formation and structuring, as well as seed and venture capital financing.
As an entrepreneur himself, Neil Fridman understands the unique needs of founders and is focused on your success. For more information about how we can support your startup or new venture every step of the way, contact us online or call us at 212-262-9823