What Is Legal Counsel for a Startup?
Legal counsel is another word for legal advice. A startup can hire a lawyer to help them understand legal matters better, including all the legal steps to starting a business such as registering with the appropriate government agencies or obtaining necessary licenses. There are many regulatory frameworks and shifting needs for businesses that make legal counsel a valuable asset.
You may need a lawyer to help your company register as an LLC or obtain a business EIN number so you can start hiring employees.
They can also review a business plan and help draft a partnership agreement between multiple startup founders, or help you write a shareholder agreement while you pursue funding. A lawyer can also assist with other important legal documents, such as articles of incorporation or operating agreements for LLCs.
Any legal guidance for a startup can qualify as legal counsel. For new business owners, it’s important to understand copyright laws, how to protect intellectual property such as trademarks or patents, and contracts that protect your commercial interest.
New business owners may find legal counsel helpful in answering common questions such as:
- What company structure do you need?
- How is a full-time freelancer different from an employee from a legal standpoint?
- How can you prevent a former business partner from working with a competitor in the future?
- What does a startup need to pay taxes?
Here is an article that lays out 4 important legal questions every startup owner should ask.
Why Do Startups Need Legal Counsel?
Startups benefit from general legal counsel for several reasons.
First, a startup lawyer can help them understand their business structure better. One of the biggest mistakes an entrepreneur can make is choosing the wrong type of business for their startup.
If you aren’t sure whether you should be an LLC or corporation, a lawyer can help you decide which is best.
General counsel also helps a startup mitigate risk and protect their commercial interest. Working with a lawyer, startups can:
- Draft and negotiate a business contract
- Set up a partnership agreement
- Outline shareholder responsibilities and requirements
- Understand startup taxes and liabilities
- Set up important documents, like terms and conditions, a user agreement, and a privacy policy
- Help the business reduce startup costs by reducing the risk of mistakes or expensive errors
- Perform important business transactions on your behalf to ensure accuracy
- Handle employment processes from the most ethical and legal perspective
- Ensure proper regulation for all legal frameworks, and avoid penalties
- Receive valuable legal advice from a trusted attorney before making decisions
In truth, many businesses aren’t even sure what their risks are. As a startup founder, you may not be fully aware of what legal troubles your business could face or how to go about identifying them. A lawyer can forecast potential issues and come up with strategies that help you avoid them altogether.
If you do run into any complications, a lawyer can provide a swift, thorough response that minimizes losses and any potential damages to your company.
Another major advantage to working with a lawyer for a startup is drafting a contract and reviewing a contract. There are many types of business documents startups need, such as an employment agreement for employees, an independent contractor agreement for a 1099 independent contractor, a partnership agreement, and an intellectual property agreement.
A nondisclosure agreement (NDA) and a noncompete agreement can also provide important protections to your business and give you the right to pursue litigation if someone violates a contract.
Here is an article with 10 reasons why startups should hire a lawyer.
When Should a Startup Hire Legal Counsel?
A startup can hire a lawyer at any part of the business planning process. It’s never too early for a startup to seek counsel — a lawyer can assist you with:
- Registering your business
- Choosing the right type of business structure
- Copyrighting assets
You may hire a lawyer for general counsel within your company’s first 10 employees, but some businesses choose to wait longer. It really depends on how comfortable you are identifying and managing legal risks, staying compliant with employment laws, and other regulations related to your operations.
Because there are so many legal policies a business must adhere to, it is often best to have a lawyer review your business plan before you officially start operating.
They can ensure you haven’t inadvertently overlooked any important regulations, such as insurance requirements, permits, or licenses you need to legally operate.
Furthermore, there are some steps a business may want to take that, while not legally required, to provide vital protection against future lawsuits.
Lawyers can help you determine which types of documents or agreements would be most beneficial, and draft documents that include all the necessary details and provisions your business needs.
Here is an article that explores the ideal time to hire a lawyer for a startup.
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How Do You Become Legal Counsel for a Startup?
Startup lawyers can get started by advertising their services online. A legal marketplace like ContractsCounsel can help you promote yourself as a startup lawyer and take on jobs assisting small business owners with their projects.
Some lawyers serve startups on an as-needed basis while others are eventually offered full-time, in-house positions. This all depends on the needs of a company and the focus of the lawyer’s work.
Startup lawyering requires in-depth knowledge of corporate and employment law. You will have to understand a wide range of subjects, such as insurance requirements, licenses, business regulations, and capital funding.
Essentially, startups rely on their lawyer’s legal counsel for every facet of their business. As a result, the attorney must understand various startup business structures inside-out and be comfortable helping their clients systematically move through various stages of startup growth.
Here is an article about what you need to know to become a startup lawyer.
What Questions Should You Ask a Startup Lawyer?
Every business’s needs differ, so it’s best for a company to prioritize legal matters and understand what services would be most beneficial to them before reaching out.
Before they decide to work with a lawyer, certain questions can help them ensure the attorney’s skills and knowledge align with their objectives.
Some questions to ask a startup lawyer include:
1. What is the average size of companies you work with?
It’s important to know if a lawyer can accommodate growing startups, and if they are in touch with the needs of small businesses. Lawyers that primarily work with businesses that have at least 100 employees will likely have a different focus than attorneys who help startup founders get off the ground.
While a lawyer is likely to have experience with companies of various sizes, they should be able to easily adapt to your business’s needs and scale their services according to your startup’s growth.
2. Are you comfortable handling fast growth periods?
The need for legal counsel often waxes and wanes for startups. They may need a lot of advice in the beginning, and less as operations take off. However, once they begin to grow, their needs will likely rapidly expand as well. It is important that a lawyer has enough time available to accommodate your business’s needs at any time.
3. How do you charge and bill for your services?
Lowering startup costs is essential for any entrepreneur. When you’re seeking legal counsel, you should be fully aware of their pricing model and how often you’ll have to pay for their services.
Some lawyers may offer flat rates on an as-needed basis, while others will ask for a retainer. The retainer is an amount of money you pay a lawyer to secure their services. You can then reach out to them whenever you need their assistance for a set amount of time, e.g. five hours.
Here is an article with a guide to hiring a lawyer for a startup, and how they can help your business.
How Much Does Legal Counsel for a Startup Cost?
Legal counsel for a startup will cost around $150 to $350 an hour, depending on the experience and expertise of the lawyer. Junior attorneys tend to charge less, but an experienced senior corporate lawyer can easily charge $500 to $1,000 an hour for their services.
If you are hiring a lawyer for business formation, then the entire process may cost between $2,000 to $5,000. The final cost will be based on the individual lawyer, the services you need, and the average cost of legal services in your area.
Here is an article about startup lawyer fees and how to get the most out of your legal budget.
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