FAQ - Small Business - 003

Why use a startup business lawyer?

What has been said generally under faq # 2 (why use a business lawyer) about the need to use a good business lawyer goes double for the use of a startup business lawyer.

With business startup companies, the legal issues faced by the business are normally several times the complexity in relation to those faced by a traditional small business.

With respect to raising funds, for example, it is very easy for a startup without proper guidance to get into trouble with the securities laws.

Similarly, because a startup business will typically deal with technology, the intellectual property issues are often very important for such companies, even at inception. If these issues are not handled properly at the start, serious problems can emerge later at the due diligence phase of a funding or an acquisition. This is especially true of casual dealings that founders will often have with technical friends who help them develop intellectual property (IP) in undocumented or poorly documented arrangements. If nothing else, a good business attorney will spot such problems, alert the founder group to them, and cause them to do what is needed to avoid problems.

This type of example could be multiplied many times over in different areas of law affecting a startup business company. What happens when founders as a group issue stock to themselves only to have one of them leave the company within a short while after the issuance? Unless they have made provision to be able to buy back the shares at little or no cost from the departing founder, the remaining founders wind up working exceptionally hard to build value for a founder who contributes little or nothing to the startup. Over the years, we have had many founding groups come to us having done their own "quickie" online incorporation only to find themselves in situations such as this. Very often this was because, lacking sound guidance on legal issues, they filled in the blanks in the kits they received without knowing what they were doing. Once the legal rights were fixed, and disagreements set it, there was no longer any easy fix for the problems. These are costly errors indeed.

It serves no purpose to belabor this point. If you are a founder about to establish a startup business, do so only with skilled assistance from a good startup business attorney.

G.G.

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