What areas of practice are important for a startup lawyer, and why?
I've seen a number of questions related to finding a startup lawyer, while I've personally met a number of "startup lawyers", each where more just lawyers with domain experience, and don't believe any would have said that they were a "startup lawyer".
What areas of practice are important for a startup lawyer, and why? UPDATE: Believe this comment below by me might be of use in understanding the question, so I've decided to add it to the body of my question:
[The lawyers] would not need to know everything; eg
non-business-civil-law, criminal-law, etc. Also, I personally don't
believe industry specific knowledge is the same as an area of
practice, but that might just be me. For example, I'm guessing
knowledge of settingup employee stock options agreements would be more
common at the average startup, than the average new business, but
that's also just a guess.
-
This certainly depends on the business the startup is in. And what if you are a lawyer starting your own firm? This is not really possible to answer. – Karlson 12 years ago
-
@Karlson: Not following the question, "And what if you are a lawyer starting your own firm?" -- what are you asking? – Blunders . 12 years ago
-
As far as I can tell you are asking what areas of law the lawyers for startup need to know. This heavily depends on the area of business startup is in. Finance vs. Technology vs. Food Production vs. Medical Practice vs. Law Office. So the short answer to your question would be "everything". – Karlson 12 years ago
-
@Karlson: They would not need to know everything; eg non-business-civil-law, criminal-law, etc. Also, I personally don't believe industry specific knowledge is the same as an area of practice, but that might just be me. For example, I'm guessing knowledge of settingup employee stock options agreements would be more common at the average startup, than the average new business, but that's also just a guess. – Blunders . 12 years ago
-
Why not civil law? If you are a doctor defending against medical malpractice claims might be of interest, what about family law in case you are getting a divorce while trying to start a business? There are situations that are common and there are situations that are uncommon but the legal needs are situation and business necessity driven, so as generic as the question is the possible area of knowledge is still "everything". – Karlson 12 years ago
-
@Karlson: Again, industry specific knowledge is the same as an area of practice in my opinion. Also, a new businesses such as an average doctors practice is not a startup in my opinion. No, I would not agree that talking to a "startup lawyer" about a pending divorce would be advised, unless the matter was lead by a divorce attorney and covered some matter such as employee stock options law than the divorce attorney needed advice on. – Blunders . 12 years ago
-
You're right about stock options. Most new businesses are owned with the purpose of generating income for the owners until they retire or die. Startups like income (who doesn't?), but the purpose is to build something new that other people find valuable and then eventually hit a liquidity event. That doesn't describe a medical practice or candy store. – Chris Fulmer 12 years ago
2 Answers
Your main concern should not be the areas of practice, because those will be similar for a startup lawyer as compared to a lawyer that deals with more established companies. (However, I've put together a list of those below.) Instead, you need to look at how they've organized their practice around startups. Here are some good indicators:
(A) What do their rates look like? Do they offer flat-rate plans for set tasks? (Ex: a startup package, an equity incentive plan, a seed financing round) Do they demand big up-front retainers? (retainers only really make sense when they're going to do a big chunk of work and there's a risk that you won't have the money to pay when it's all done.)
(B) Do they take equity for services? Startup lawyers sometimes will take a small equity position for a portion of their fees if you ask.
(C) Do they know people in the local startup community -- can they point you to people or organizations that will help?
(D) Do they get the culture? See who they follow on twitter.
Anyway, here are the areas of practice that a startup attorney should be in:
(1) Corporate/securities law: forming corporations, issuing shares to founders, advising boards, private offerings of debt and equity, asset sales and mergers
(2) employment law: dealing with independent contractors and employees, employment agreements, equity compensation plans, etc....
(3) Contracting/Licensing: this can be domain-specific -- licensing a bunch of biotech patents is a different animal than software licensing.
(4) tax law: Not a huge issue, but need to understand tax consequences of various corporate transactions and compensation schemes. If the engagement letter says "I don't give tax advice," you probably have the wrong lawyer.
Here are some things that you don't need in your startup lawyer:
A. Patent law. If you need a good patent lawyer, your startup lawyer ought to be able to get you in touch with one. But, patent law is a speciality, and patent folks generally don't have experience with 1-4, above.
B. Litigation. Litigation is time-consuming and nuanced. If your attorney spends any substantial time litigating, chances are that he doesn't really have the skills in those other areas. Deal lawyers tend to be collaborative; litigators tend to be combative.
C. Real Estate. You won't be buying a house or entering into complicated lease transactions. It's helpful to have somebody who understands leases, but you probably don't want somebody who spends all his time doing real estate work, unless your startup is somehow focused on real estate.
I definitely consider myself a startup lawyer: All of my clients are individuals or very small companies, and the vast majority are startup entrepreneurs.
Answering your question directly, the following list of services that I provide is taken from my blog's Services page:
Forming and Operating a Business
- Choosing most suitable legal entity – limited liability company (LLC), S or C corporation, etc.
- Forming that entity in California, Delaware or any other state
- Completing all paperwork required for compliance with applicable laws
- Establishing and terminating relationships with employees and independent contractors
- Preparing and negotiating documents for financing transactions and acquisitions
- Preparing and negotiating contracts for transactions with customers, suppliers and other businesses
- Counseling on various types of intellectual property (patent, copyright, trademark, trade secret)
- Preparing and negotiating license agreements
- Protecting and recovering domain names
- Preparing website terms of service and counseling on Digital Millennium Copyright Act (DMCA) compliance
- Preparing and negotiating nondisclosure agreements
