What Does a Lawyer for Startups Do?
A lawyer for a startup helps entrepreneurs through the early legal processes involved in creating and scaling a startup. Some of these items might include getting the startup set up as a legal entity in their state, assisting with securing funding through negotiating, creating, and modifying investment contracts, and drafting the initial set of documents the company may use with its customers and employees.
Startup lawyers also have special expertise in assisting startups with protecting their intellectual property, ensuring compliance with local and federal laws, and drafting employment contracts.
Here is an in-depth overview of what startup lawyers do:
Business Formation
The earliest role that startup lawyers play occurs when they assist their clients with the business formation. This means that a startup lawyer can help you to establish your business as a legally recognized company with the state and federal government. A lawyer for startups will consult with the founders to figure out what business entity is right for them, and then prepare the documentation to file with the Government.
Here are a few examples of popular legal entities startup lawyers can help you with:
- C Corp
- Limited Liability Company (LLC)
- S Corp
Drafting Initial Legal Documents
Legal drafting is one of the most important jobs of a startup lawyer. Since legal compliance is essential to legitimate companies, startups hire startup lawyers to draft their foundational legal agreements that comply with the regulations of their industries.
Investment contracts are a great example of legal drafting that is crucial to the success of a startup. Lawyers negotiate and draw up fundraising documents for startups to provide to potential investors that outline the terms of the deal. Popular fundraising documents can include SAFE Notes and convertible notes.
Working with a lawyer for startups is helpful because many startup founders are hesitant to advocate for themselves with investors since they are often eager to receive capital to fund their ideas. Investors are also savvy and may take advantages of a naive founder to get a good deal with their investment.
Here are some documents startup lawyers routinely draft for their clients:
- Founders agreement
- Employment contract
- Privacy Policies
- SaaS agreement
- Service Contracts
Contract Review
Building positive working relationships is one of the biggest goals of any new startup. As a budding company, fostering positive interactions with others in the industry is a great way to foster growth and success starting in the early days of a company’s development.
Startups are responsible for drafting many of the legal agreements that go into keeping them in business, but external contracts are also required to sign at times. For example, if you need to license a certain piece of technology for your product to run successfully, you may be asked to sign a software license. Startup lawyers know how to read these contracts and which terms are mutually beneficial for their clients and which aren’t.
Having a startup lawyer on your side for contract review means that you won’t be taken advantage of or end up in a situation you didn’t know you agreed to. Having a pair of expert eyes to review agreements is your best line of defense against being deceived.
Employee Stock Options
Startups are new companies that sometimes have almost no money to offer their employees while they are in their infancy. To compensate for this, many startups offer employee stock options to members who are with the company in its early stages.
Startup lawyers help company leadership decide how employee stock options work, how they are awarded, and what their vesting schedule might be. Stock options are complicated and making sure you work with a lawyer who has a deep understanding of how they work and what par is for the industry is important.
Commercial Lease Guidance
Startups need commercial space to grow their businesses. Commercial leases are much more complex than their residential counterparts and if businesses aren’t careful, they could get stuck in an agreement they’re not happy with.
Startup lawyers are well-versed in the laws surrounding commercial leases and they are familiar with common terms and processes. They offer a helping hand to these leases to ensure their clients get the best deal possible.
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How Much Does a Startup Lawyer Cost?
Startup lawyers can be a big investment for a startup, but it is an important investment to make sure you set your startup up for success. The hourly rate of this specialized lawyer can run anywhere from $250 to $400 an hour and up. Many early tasks can be handled on a flat fee early, like business formation and contract drafting.
Since most startups don’t have the funding available to pay a lawyer, some startup lawyers are willing to help in this area. This help often comes in the form of free services, flexible fees, and alternate billing options.
Check out this article to learn more about the cost of a startup lawyer.
Common Fee Structures for Startup Lawyers
Startup lawyers are attorneys that specialize in helping startups with legal issues early on. They can seem to be expensive early on but getting in touch with a good startup lawyer as early as possible is the best way startups can protect themselves from legal trouble.
Usually, startup lawyers’ fee structures are one of the following:
- Hourly rates
- Flat fees
Most startup lawyers bill at an hourly rate to ensure they are paid for every minute they spend dedicated to the startups’ needs. They typically set their rates according to their location, education, and experience. Solo practitioners are usually available at a lower hourly rate than members of a law firm.
Flat fees are also a common pricing structure for startup lawyers. Many early tasks a startup may need to invest in are easy to flat-fee, so startup lawyers can help by making their pricing predictable. Examples of tasks that are easy to flat fee are business formation and contract drafting work.
Here is an article about fee structures that startup lawyers use.
How Do I Choose a Startup Lawyer?
Choosing a startup lawyer is an important step in the timeline of your new startup. Here are a few questions you can ask to determine which startup lawyer is right for you:
- Is the lawyer experienced in working with startups in your niche?
- Is the lawyer in your budget?
- Does this lawyer have connections to potential investors?
- What services are available that are not billable?
- Does the lawyer make you feel supported and comfortable?
If the answer is yes to most of these questions, chances are, you have the right startup lawyer. If not, don’t be afraid to keep searching. Remember: hiring the right lawyer is essential to the future of your business, so there’s no shame in being picky.
When Should a Startup Hire a Lawyer?
Hiring a lawyer for your startup can occur at many different stages.
If you’re testing different minimum viable products, it may not make sense to hire a lawyer at that point. However, if you start getting traction and want to turn your product into a real business or you want to raise money from potential investors, that is a good time to consider getting legal help.
If you’re going to be building, hiring, and raising money from the beginning, then it is a good idea to hire a startup lawyer early. Or, if you’re entering a regulated market or some other type of high-risk category, you may want to consider consulting with a lawyer early. This may help future litigation or regulatory issues.
Learn more about when to hire a startup lawyer by checking out this article.
Where Can I Find a Startup Lawyer?
If you have a new startup, forming a relationship with a startup lawyer should be a top priority. Obtaining legal counsel to walk you through the beginning phases of formation will make a lasting impact on your company.
Post a project on ContractsCounsel today to get in touch with startup lawyers who are ready to help you today. All lawyers are vetted by our team and peer reviewed by our customers for you to explore before hiring.
