Q: There are so many business formation resources online. Why should I hire a lawyer to help me launch my startup company?
A: With a quick internet search, founders can seemingly find numerous resources to aid in registering a business, obtaining a tax identification number, and more. However, engaging a business lawyer ensures that the legal structure of the business is carefully tailored to meet the unique needs of the startup company and its founders. In addition, a business attorney can provide the company with guidance to avoid running afoul of more complex areas of the law and serve as a trusted team member throughout the company’s lifecycle.
There is no “one size fits all” template for a business startup. Accordingly, the company’s legal structure should be curated in a manner that is consistent with its business plans. A business lawyer will strategize and counsel founders about choice of entity (corporation, LLC, etc.), capital structures, tax elections, governance, ownership rights and restrictions, funding, asset protection, and exit and succession planning.
A business lawyer can also aid a startup in navigating complex areas of the law to prevent costly mistakes. Startup companies should engage a business lawyer when securing seed funding and issuing convertible notes and other securities. Without such guidance, the company could run afoul of securities laws potentially resulting in fines and penalties. Business and tax lawyers are able to counsel the company on tax elections and tax classification maintenance. Seemingly innocuous actions, such as bringing in new owners, can lead to a company losing its desired tax classification.
In addition, having a business lawyer on the team is an asset for a startup company as it manages its day-to-day activities and throughout its lifecycle. A business lawyer can be helpful with corporate governance and maintaining corporate formalities to avoid losing liability protection. A business lawyer can assist with preparing client and employment contracts to ensure contract enforceability, reduce liability, and mitigate risk. Later, depending on the company’s succession plans, a business lawyer can (and should) aid in securing venture capital investments, conducting an initial public offering, or consummating a company sale.
From formation to eventual exit, a business lawyer serves as a trusted advisor and teammate in all stages of a company’s lifecycle. Therefore, engaging a business lawyer at the inception of a startup company ensures that the business is created and set up to meet its long-term goals.
Know the Law is a bi-weekly column sponsored by McLane Middleton. Questions and ideas for future columns should be emailed to [email protected]. Know the Law provides general legal information, not legal advice. We recommend that you consult a lawyer for guidance specific to your particular situation.