Why use a business lawyer?
The short answer is for the lawyer’s expertise.
As an entrepreneur, you can use legal self-help resources and many excellent resources of this type exist. This involves a significant investment of time, which many entrepreneurs are willing to invest in order to educate themselves about legal procedures and thereby reduce their dependency on lawyers. There is, however, a point of diminishing returns that is reached fairly quickly. It is one thing to acquaint yourself with how corporations are formed and with how they work in general. But a typical corporate law treatise will run many volumes. What entrepreneur desires to make a time investment at a level needed to master such an intricate body of law? And the corporate aspect is only one of many that can apply to the law affecting your business. There is contract law, intellectual property law, securities law, UCC law, commercial law in general, employment law, agency law, tax law, and a bewildering array of other fields, not to mention the vast and intricate areas of law that arise both substantively and procedurally when litigation is involved. Who wants to master all of that and still try to run a business with any measure of success?
As long-time Silicon Valley business lawyers who have worked closely with entrepreneurs for nearly three decades, we by no means discourage our clients from seeking to educate themselves – a smart and well-informed entrepreneur is a lawyer’s best ally. Our style therefore as a law firm is to educate clients, not to keep them in the dark. Self-help resources assist in this process to the extent the client is motivated to use them.
Does this mean that a well-educated entrepreneur can dispense with the services of a good business lawyer? Not at all. Indeed, the serial entrepreneur is the very person who will be the first tell you that the services of a good business lawyer are indispensable to the healthy functioning of your business. This is the very type of entrepreneur who has had great business success. Because of this experience, the serial entrepreneur – who is by then knowledgeable about legal issues at a pretty sophisticated level – knows full well that the business world is simply too complex to make smart decisions without a good business lawyer.
This much is often readily acknowledged by you who would start up new ventures.
The question remains, is it worth it to cut corners, for example, by using online incorporation services to set up your company with the intent of hiring a lawyer only later? Of course, there is nothing wrong with trying to save early-stage costs. And sometimes this makes sense for an early-stage company for this reason. The problem, though, is that an entrepreneur often lacks the knowledge to make informed judgments on the key issues that arise in this context. Which state do I file in? Which type of entity do I choose? Do I make special tax elections or not? And so on. When the issues concern a startup, the online services come up woefully short in the assistance they provide and this for good reason: such services are prohibited from practicing law and can only act as facilitators. They cannot guide you in how to make your legal decisions; they can only drop a kit into your lap and say, in effect, “here is some generic guidance, good luck.” You can fill out the blanks using very generalized instructions, but you will have no basis for making sound legal judgments on any of the issues involved, whether corporate, tax, securities law, intellectual property or otherwise.
All too often we have seen the failed results (legally speaking) of new ventures trying to go it alone without the help of a good business lawyer. The mistakes are legal, not business, and were easily avoidable at the start. By the time such mistakes are subsequently discovered, the cost of fixing them often well exceeds what the business would have paid to do it right in the first place.
Of course, good business and corporate lawyers are not cheap, and this forces every new venture to weigh whether the costs are worth the benefits for any potential use of the business or corporate lawyer’s services.
Our recommendation is that every new venture, at a minimum, should at least consult with a good business and corporate attorney at the beginning to understand the costs and benefits in light of the facts of their situation. An initial consultation of this type is not expensive, and it carries with it no obligation. You can then see what potential legal expertise is available and determine whether you need it or whether you can do without it in setting up and operating your business.
What we as a Silicon Valley business law firm seek to achieve is to give the startup business or small business venture significant value in relation to what is being paid for the services – that is, the services will be worthwhile because they are equivalent in value to those provided by larger firms who would charge significantly more for comparable services and will further be worthwhile because money spent on them will save the business from the large expense of having to correct costly mistakes when it fails to do things right. Ask any entrepreneur who has become entangled in a lawsuit, for example, because a contract was poorly drafted – the couple of thousand dollars saved at inception might have cost tens of thousands of dollars or more to clean up.
Your goal as an entrepreneur is not to become a lawyer but to develop a strong working knowledge of all legal aspects of your business, akin to that of a serial entrepreneur – this lets you partner with a good business lawyer to enable you to set the strategic direction in your legal affairs with valuable tactical and technical help from your business attorney. The way to best gain that knowledge is not through self-help tools (though these can also help) but by working under the knowledgeable guidance of a skilled business attorney at the different steps in the development of your business.
When it comes to something as vital as your startup business or small business venture, this is not an area to be penny-wise and pound-foolish.