5 Common Startup Scenarios That Require a Skilled Lawyer

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In the early days of your startup, it can be tempting to bypass using professional help and attempt to keep everything in-house in order to keep costs low. But while it is critical that you stick to your budget and monitor your cash flow, you also don’t want to be skimping on essential services that are going to set you up for success.

Too many startups and small business owners overlook the necessity of having a corporate lawyer, for example, because they don’t realize that almost every area of their business can quickly present legal issues.

If you still don’t believe this, read on to learn about five common startup scenarios that require a skilled lawyer.

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1. When you are setting up your company

When you are first forming your startup, you are going to have to choose a designated legal entity. Generally, there are considered to be five main types of business structures: Sole Proprietorship, Partnership, Corporation, S-Corporation, and Limited Liability Company (LLC). The model you choose is going to ascertain your liabilities, your taxation rate, and how your earnings get split.

Therefore, it is essential that you select the one that makes the most sense for your startup. By going through this process with an experienced lawyer, you can be assured that you are making the appropriate choice for your startup’s future.

During this period, you may also need to write up an agreement among founders detailing the amount of ownership each founder holds, the responsibilities of each, who has the power to make specific decisions, and the means for managing a scenario when an individual is exiting the firm. It is far more preferable to sort out these things at the beginning of the formation rather than later on when issues have boiled to the surface.

2. When you are starting to present your startup to the world

Every startup is faced with the essential task of filling out the copious amounts of forms and legal documents (for example, incorporation documents) which are generally best handled by someone who has seen similar paperwork before. However, it isn’t just these types of materials that should be handed over to your lawyer.

When you are signing contracts (such as leases) or trademarking your brand’s name, you want to be getting the advice of a lawyer. No matter what industry you are operating in, all startups have meaningful relationships that should be appropriately documented through a contract. Often, longer-term commercial lease contracts are the ones that are most likely to initiate a dispute for a startup; therefore, by having a lawyer involved in the process, you are reducing the risk of being taken advantage of by landlords and finding yourself in a position where your company is not protected.

Even before your startup takes off and becomes a household name, you want to ensure that you are securing your company’s name and brand as much as possible so that no one can steal similar-sounding names or similar-looking logos. A high-quality corporate lawyer will know exactly what to do to ensure that you are protected.

3. When you need to raise capital

The process of raising capital can be challenging to navigate. And this is not an area that you want to make any errors in, because it will negatively affect not only that particular deal but also consequent attempts for raising capital.

It does not matter if it is the first day of your entrepreneurial journey, or the thousandth. However you choose to raise capital (whether through debt or equity), it is essential that it is appropriately documented by an attorney who specializes in private equity and securities issuances and understands the dynamic regulatory landscape.

In general, by opting to have a professional corporate lawyer join your team, you are providing yourself and other employees with more time to concentrate on the important aspects of your business that only you can do. While delegating areas of the company that aren’t your strength may seem challenging at first (after all, you may be used to having complete control over your startup), you need to recognize that it is the only way you are going to be able to scale.

4. When you are presented with a lawsuit

At any stage in the development of your business, if you are confronted with a lawsuit, you are going to want to have a corporate law firm by your side to ensure you are handling it appropriately.

Regardless of whether the disagreement is between your startup and a client, among shareholders, or involving a current or former worker, it is imperative that your firm has top-quality representation to secure a fair and just settlement. Otherwise, you can’t be sure that the interests of your startup will be of the highest priority.

Never choose to settle lawsuits on your own. Instead, allow an attorney to resolve the conflict through negotiation, mediation or litigation.

5. When looking to the future

Down the road, there are plenty of scenarios in which your company is going to need a corporate lawyer. If your startup continues to grow, there may come a point in which you are interested in selling your company or offering ownership shares to the public.

In these situations, you certainly need to be working with a lawyer who can assist in the process. The lawyer will be responsible for leading and dealing with the financial components of the full or partial sale, as well as the modifications related to the formation of the business.

Alternatively, if you are considering acquiring another company, adding property to your LLC agreement, or presenting a “special allocation” of profits and losses, then working with a reputable law firm to ensure everything goes smoothly is crucial.

Has your startup ever had to work with lawyers to retroactively solve a problem? Alternatively, did you have one from the beginning? When it comes to legal matters, what do you wish you had known when you first started your business? Let us know your tips and any related experiences in the comments below!

AUTHOR BIO
Sharon Danso-Missah is the Head of Marketing at Al Tamimi & Company, the largest law firm in the Middle East, with 17 offices across nine countries. Established in 1989, they are a full service commercial firm combining knowledge, experience and expertise to ensure all clients have access to the best legal solutions that are commercially sound and cost effective.

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