Lawyers of different levels can lend startups a helping hand
When startup founders step into the unknown of the business world, legal issues often pour cold water on them. Registering a business entity, filing taxes, hiring and firing employees, forming strategic alliances with partners, dealing with major customer service complaints – all of these may get too complicated. Lawyers of different levels can lend startups a helping hand.
Which businesses need a lawyer
Whether you need a lawyer right away or can wait until your business matures is an extremely individual decision. It all depends on various business factors.
The legal type of business you’re starting matters the most. The simpler your business, the less likely you’ll need a lawyer. A sole proprietorship is the simplest business form. It doesn’t require registering in many states, so you probably won’t need an attorney to start this type of business. However, you’ll most likely need one if the business grows successfully.
Partnerships, corporations and LLCs must register with the state. Documents such as a partnership agreement, an LLC operating agreement, bylaws and others should be prepared wisely. You might be able to register online with your state or use free document templates, but it may be a good idea to use a lawyer if you face any complications. Corporations have the most complicated ownership structure of all business entities. You’ll almost certainly need a lawyer to help you start any type of corporation.
What does a startup need a lawyer for?
All companies operate within the legal system. Learning all the ropes requires lots of time and effort. Hence, even in the early stages, starting out entrepreneurs should dedicate part of their slim budget to getting professional legal advice.
Legal issues that need to be addressed with professional precision include:
- Establishing a business entity of some sort (LLC or corporation);
- Establishing the ownership and equity rights of the company if there are multiple founders;
- Protecting the intellectual property of the business (especially if it is being developed by independent contractors);
- Estimating the tax consequences of what you do, particularly when it comes to granting equity;
- Negotiating contracts with customers and suppliers;
- Establishing terms of service for websites and license agreements for software;
- Raising funds to scale your business from various investors;
- Dealing with regulatory compliance and lawsuits (if any);
- Support with specific tasks like trademarking your name, reviewing lease documents, discussing potential legal structures, and preparing incorporation forms;
- Advising how to hire, manage, fire and adequately compensate employees;
- Ensuring your advertising and marketing complies with federal guidelines;
- Registering your business for federal and state tax identification numbers;
- Advising you of the tax consequences of your business transactions;
- Helping your business respond to government data requests, changes in regulations, etc.
When should you hire a lawyer?
Although many businesses start without an in-house legal expert, at some point they consider hiring a lawyer instead of consulting with external agencies.
Many startups consider the size of their company when making this decision. A common threshold is to hire a corporate lawyer when you hit the 100 employee mark. However, other startups have hired a General Counsel as early as 10 employees, depending on other circumstances.
Another important factor is how much money you have to spend on external legal bills as a company. If your business is complicated, it may be more financially beneficial to hire a lawyer rather than seeking outside counsel. Big law firms can charge you enormous hourly rates every time you need advice.
A small business lawyer’s cost can range from $150 per hour for a junior lawyer to over $1,000 per hour for senior partners at large firms in major cities.
Let’s say, you want a licensing agreement tailored to your specific situation. Considering that most attorneys charge $150-$300 an hour, while a simple contract typically takes about 3-4 hours, which includes an initial draft plus revisions, this service may cost you around $450-$1200.
On the other hand, the median salary of a lawyer was $120,910 in 2018. The best-paid 25% made $182,490 that year, while the lowest-paid 25% made $79,160. It means that hiring a lawyer may cost business owners approximately $10,076 a month. Depending on the number of legal issues you need to handle monthly, sometimes it’s better to employ a lawyer full-time.
If you’re not interested in hiring a legal advisor, at least look through the legal services offered in your region. Put aside a certain sum for unexpected legal pitfalls. It is also a good idea to check a lawyer’s portfolio beforehand. Some people shy away from an attorney’s office until they get into serious trouble like lawsuits etc. Nevertheless, in those cases, having a trusted representative is essential. Testing some lawyers’ skills with simpler tasks may help you choose the best lawyer for your critical period.
How to choose a lawyer for your startup
To begin with, pay attention to the sphere of expertise and education of the candidates. If they are acquainted with the industry you operate in, they’ll find it easier to serve your legal needs. Referrals are crucial too, since other business owners may tell you more vital details about the individual’s work than their online CV.
If you cooperate with different lawyers or a legal firm, you also need to choose the right seniority level for any given task. Preparing some documents is easy and junior attorneys can help your startup with that for a lower cost. Conversely, you are not likely to want a third-year lawyer negotiating investment opportunities with a billionaire venture capitalist on your behalf.
The last, but not the least important quality of a prospective lawyer is their cultural fit. Like every other employee, lawyers should be tuned to your vision. You should trust them and have a mutual understanding of crucial business aspects.