The Pitfalls to Avoid When Hiring Legal Counsel for your Startup

by , January 6, 2016
The Pitfalls to Avoid When Hiring Legal Counsel for your Startup

Once an entrepreneur creates a new idea or concept, crafts a business model, and begins to implement that business model, it becomes necessary to obtain legal counsel. Most importantly, any attorney that an entrepreneur hires must have a legal practice in the startup/venture capitalist space.

While it may be appealing, it is problematic to hire a relative or friend who specializes in criminal defense work because he or she will perform legal work for a cheaper hourly rate. Instead, you should find an attorney who primarily deals with entrepreneurs and venture capitalists, as he or she will be familiar with industry standards, expose possible pitfalls, offer clear and relevant advice, and close deals quickly.

It is necessary to lay a proper legal foundation that supports your startup’s growth at the outset of your startup journey, and it is better to prevent future legal problems than scramble to fix them retroactively.

In addition, an attorney who is familiar with the venture capital arena will be able to steer your startup away from firms that have negative reputations in the industry or that errantly rely on valuations as the sole factor in determining a startup’s worth. Attorneys can also help explain the intricacies of “pre-money” evaluations, “post-money” evaluations, the relation of equity to rounds of financing, angel investors, bridge loans and warrant coverage. In short, there are many complicated legal issues to consider and it is essential to locate the best equity streams that fit your business needs.

A quality attorney should also be able to advise a startup about the importance of intellectual property, including advice about protecting your product while a patent, copyright, or trademark application is pending.

Moreover, the subject of non-disclosure agreements and the concept of trade secrets should be discussed as it relates to the all-important and never ending pursuit of protecting your products, ideas, and inventions. Non-disclosure agreements are also relevant when you hire new employees from other companies.  An attorney can review personnel files and ensure that new hires don’t presumptively violate any previous covenants that attached after they left their prior employer.

A few legal mistakes could Once an entrepreneur creates a new idea or concept, crafts a business model, and begins to implement that business model, it becomes necessary to obtain legal counsel. Most importantly, any attorney that an entrepreneur hires must have a legal practice in the startup/venture capitalist space.

While it may be appealing, it is problematic to hire a relative or friend who specializes in criminal defense work because he or she will perform legal work for a cheaper hourly rate. Instead, you should find an attorney who primarily deals with entrepreneurs and venture capitalists, as he or she will be familiar with industry standards, expose possible pitfalls, offer clear and relevant advice, and close deals quickly.

It is necessary to lay a proper legal foundation that supports your startup’s growth at the outset of your startup journey, and it is better to prevent future legal problems than scramble to fix them retroactively.

In addition, an attorney who is familiar with the venture capital arena will be able to steer your startup away from firms that have negative reputations in the industry or that errantly rely on valuations as the sole factor in determining a startup’s worth. Attorneys can also help explain the intricacies of “pre-money” evaluations, “post-money” evaluations, the relation of equity to rounds of financing, angel investors, bridge loans and warrant coverage. In short, there are many complicated legal issues to consider and it is essential to locate the best equity streams that fit your business needs.

A quality attorney should also be able to advise a startup about the importance of intellectual property, including advice about protecting your product while a patent, copyright, or trademark application is pending.

Moreover, the subject of non-disclosure agreements and the concept of trade secrets should be discussed as it relates to the all-important and never ending pursuit of protecting your products, ideas, and inventions. Non-disclosure agreements are also relevant when you hire new employees from other companies.  An attorney can review personnel files and ensure that new hires don’t presumptively violate any previous covenants that attached after they left their prior employer.

A few legal mistakes could irreparably harm your business so obtaining the services of an experienced attorney is paramount. In fact, an effective attorney can also provide insight about the most advantageous way to structure your business. Whether it’s forming an “S” Corporation, a “C” Corporation, or a Limited Liability Company, legal counsel can figure out your goals and craft a business structure that provides the best tax benefits and offers vital liability protection mechanisms.

An effective attorney must also ensure that you obtain the necessary licenses and permits required by local, state, or federal entities. The same goes for any applicable security and tax laws.

Accordingly, as you can see, there are many complicated legal issues to consider as an entrepreneur. In the end, it’s best to hire a well-versed attorney who can help you avoid the legal pitfalls that every growing startup faces so you can focus solely on running your business.
irreparably harm your business so obtaining the services of an experienced attorney is paramount. In fact, an effective attorney can also provide insight about the most advantageous way to structure your business. Whether it’s forming an “S” Corporation, a “C” Corporation, or a Limited Liability Company, legal counsel can figure out your goals and craft a business structure that provides the best tax benefits and offers vital liability protection mechanisms.

An effective attorney must also ensure that you obtain the necessary licenses and permits required by local, state, or federal entities. The same goes for any applicable security and tax laws.

Accordingly, as you can see, there are many complicated legal issues to consider as an entrepreneur. In the end, it’s best to hire a well-versed attorney who can help you avoid the legal pitfalls that every growing startup faces so you can focus solely on running your business.