When Does a Startup Need An Attorney?

As a business owner, there are certain situations where you may know you need an attorney. For example, if someone is hurt on your property and you’re facing a personal injury lawsuit, you likely know you need to talk to an attorney for business legal advice.

Then, there are other scenarios where it’s less apparent. For example, if you’re a startup, are there instances where you’re going to need an attorney to help you as you start to build a strong foundation?

The following are key things to know for startups about whether or not you need an attorney and situations when it’s appropriate, outside of the more obvious ones.

When You Have an Idea

As soon as you have an idea for a new business, do you need to go straight away and hire an attorney? Probably not. Many of those earliest steps that you do to begin a business, such as forming your entity, you can do on your own without a lawyer. It’s once things get more complex that you need the help with business legal advice. For example, when you start entering into potentially complicated contracts or hiring multiple employees, you might consult a legal professional.

Even with that being said, if there’s something you aren’t sure about at any point, then do what makes you comfortable. Often, business owners find out the hard way that they could have actually saved money and reduced some expensive mistakes had they consulted with a legal professional earlier on.

Common Situations to Include a Lawyer

Fundamentally, there are three types of tasks where you’re most likely to need an attorney’s help if you’re a startup. These include first if you’re dealing with the government in any way. You want to make sure when you’re setting your business up and getting started that you aren’t violating laws or regulatory guidelines. They’re complex, particularly depending on your industry and the state you’re in, so even if you think you have an understanding, there’s very likely something you’re missing.

You don’t want to create an unnecessary tax burden for your business, either.

The second general type of task that might necessitate a lawyer is when you’re dealing with the public and third parties. The business legal advice can include help with your dealings with customers, users, employees, and suppliers.

The third scenario is if you’re forming a business with one or more people. You want to firmly establish expectations at the start rather than waiting until there’s a problem down the road.

Specific situations where you might involve a lawyer include when you’re preparing to hire employees when you’re negotiating contracts, whether with your suppliers or your customers, and when you’re raising capital. For some companies, if you’re obtaining patents, you might need legal assistance too. You could need an attorney if you have a multi-state business. The requirements to form and then conduct business in one state are often very different from another. If you have protections in your home state, you might not have those when you also do business in another state. There’s something called strict conformity to be aware of too.

Strict conformity applies to some business entities. You may be required to conform to state business law for that form strictly, or you could lose legal protections.

When you’re at the incorporation stage, when many businesses think they need a lawyer, there’s something to keep in mind. You probably won’t need that much help in the preparation of the actual documents. You can usually do them online and it’s relatively simple. When you need help at this point is typically figuring out what you need and how you should structure your business.

If you have a small budget, as many startups do, you want to prioritize when you need legal help because it’s not cheap. First, focus on the establishment of the proper entity. Again, while you might not need help with the actual paperwork, if you don’t structure your business appropriately, you may not adequately protect your personal assets from your business liabilities.

If there are multiple founders, another priority would be the establishment of ownership and equity rights. If you have independent contractors, especially if there’s development by independent contractors, you should consult with a legal professional.

One more priority is ensuring you understand the full tax consequences of every decision you make, especially with equity.

How Much Will It Cost To Hire a Lawyer?

As a start-up or small business, your top concern is likely the cost of an attorney providing your business legal advice.

If you’re a start-up, most of the attorneys you’d work with will have hourly rates ranging from $300 up to more than $800. Big firms bill in six-minute increments frequently, but some will charge in 0.25-hour increments. If you’re working with a less experienced attorney at a small firm, rates may be as low as $150 an hour. In big cities, working with a senior partner can cost you upwards of $1000 an hour.

You can see there’s a huge range here. What some business owners do when they have a limited budget is work with junior lawyers on simple, straightforward tasks and only work with more prominent firms or more senior lawyers for their most complex work. When you’re hiring someone, you need to make sure you feel like your personalities align, and you need to feel a sense of trust with them. If you aren’t sure where to start, referrals for business legal advice are a good place.

To go back to the original idea, if you’re just starting out with a new business, you don’t need to go out immediately and have an attorney on retainer, nor is it likely that you can afford to. You do need to ensure that when certain situations arise that are complicated and could impact your business in significant ways financially that you do have the proper guidance.

You can prioritize when you need legal help versus what you can do on your own if you’re strategic.