When you start your own company, there are a million things to think about, and twice as many ways to spend money. You may be considering whether you need to retain legal counsel to guide you through the maze.
A corporate lawyer can be an expensive investment, but it could save you a lot of money in the long run. Having an attorney on call may help avoid potential pitfalls in being a new business owner, including avoiding costly lawsuits or government investigations.
Much will depend on the size and scope of your company, and in which industry you will be working. Heavily regulated industries like finance, healthcare, and food may require specific legal compliance.
Here are a few pros and cons to having a corporate lawyer on retainer.
1. When You Are Forming Your Company
The initial formation of your company is a critical time to get legal representation. You want legal advice as you set up the structure.
Will you have co-owners or partners? Will you share legal liabilities and duties? How will you allocate expenditures and profits? How about taxes?
You may choose to retain a corporate attorney for the initial setup. The advantage to having someone on retainer from the beginning is that they will know your company’s goals, challenges and principals from the very start and be able to guide you through that all-important first year and in your subsequent growth.
Depending on the size and complexity of your intended corporate structure, you may be able to file the appropriate documents yourself. Just remember though, that mistakes can be costly if everything is not done properly.
2. If You Are Thinking of Selling Your Company
If your company has gotten off the ground and grown quickly, you may start to catch the attention of larger companies and venture capitalists. That may have been your intention in the first place: to start something, grow it, and sell it.
Selling is a crucial time for legal counsel, because you may have only one chance to get this deal right. You want an experienced corporate lawyer who can show you options for payout, maintaining control and getting credit for what you have built.
A corporate attorney may assist with not only negotiating the best possible outcome for you, your partners and your employees, they can also help in scouting the marketplace for potential buyers. They can help identify buyers who will carry on your company’s mission after you depart.
3. If You Want to Go Public
If your startup is a runaway success, you may want to consider the option of becoming a publicly traded company. Going public gives you an infusion of capital to enable you to really take a company to the next level. This is many entrepreneurs’ ultimate goal.
Going public can be a windfall for the company’s owner, but you must meet certain legal requirements. You will have to have a predictable and reliable revenue stream, a business plan for future growth, and a strong management team.
You will also have to cede a great deal of control. When you issue stocks in a company, you will be beholden to the owners of that stock (in addition to the government agency that regulates stocks: the Securities and Exchange Commission).
If you are on the verge of going public, it is recommended to have a dependable corporate legal team in place. At this stage, the investment you make in legal counsel is a drop in the bucket of the potential costs and profits.
4. If You Are Thinking of Hiring a C- Level Executive or Partner
A corporate attorney will help advise if you are sharing responsibility for your company with another person, group or corporate entity. They will assist in drawing up contracts and legal documents that will protect you and all parties in the case of future disagreements, money troubles or disputes.
Generally, if you have employees, you will also want a lawyer’s input on matters including wages and taxes, benefits, severance and terminations, and workplace safety.
5. If You Might Get Sued
One of the major advantages of having an attorney on retainer is that they are on call for when you need them most. If you are served a subpoena or learn that you, your partners or employees may be in legal trouble, if you have someone on retainer they should be ready to jump right in and handle the matter immediately. They will not need any time to “get up to speed.”
If you have had a good attorney from the beginning, they should have set up a corporate structure that will protect you from potential liabilities and also they should have put a procedure in place for when you get sued or face other legal challenges.
Unlike other arrangements like contingency agreements, having someone on retainer means that they will be there even for big projects that are unforeseen. Search firms or other consultants may be able to help as needed, but sometimes you need an attorney when you least expect it. Compare here other arrangements which are sometimes better as contingency agreements.
1. Legal Retainers Are Expensive
If you are starting a business, you want to keep costs down. You are probably looking for every way possible to cut costs to enable you to get things going and your operation off the ground.
Average retainer fees for corporate work range widely, depending on the geographic region where you are and the size of your enterprise. Corporate attorneys’ fees in places like New York City and Silicon Valley are extremely high; many firms will not even consider clients under a monthly retainer of several thousand dollars per month.
2. You Need to Pay Even When You Don’t Need Them
If you have a retainer agreement with an attorney, you will need to pay them every month, even if you do not have a great deal of work for them. You may not get a refund either unless that has been specifically negotiated in your contract.
3. You May be Able to Handle Some Issues Yourself
Not all legal matters require a licensed attorney. For example, if you are starting a small consultancy, you may be able to file the LLC forms yourself and save yourself attorney bills.
There are also numerous resources available through your local library or municipality which advise small businesses. You may get assistance through your city hall or even the local law school in basic incorporation, tax and other simple matters for little or no cost.
Do You Need A Corporate Lawyer? Do Your Research
If you are trying to decide whether you need to spend money on a corporate lawyer for your business, do your research before signing a retainer agreement. Ask other neighboring businesses what they do and who they recommend. Talk to a Better Business Bureau or a Chamber of Commerce.
You need to evaluate the risks and benefits to what can be a high-cost investment. Depending on how big and fast you want your business to grow, you may or may not need an experienced legal hand guiding you through every stage the process.
For more information on building your own business, check out our blog.