Business attorneys are often asked whether a start-up business needs an attorney. Yes, the attorney’s respond… but not because they are being selfish and want to line their own pockets. There is a myriad of decisions that, if improperly made in the beginning, can be costly down the road. Consider it like maintaining your vehicle- getting the oil changed, maintaining proper tire pressure, and so on.
Example: we currently represent a small business facing some financial pressures. An infusion of investor cash will help them grow. As part of the process of reviewing the financials, there were a lot of things the founders of the business did prior to obtaining a lawyer than need to be sorted out. One founder invested several thousand dollars of their own money to get the business started. The same founder then used both personal and business credit cards, which now carry balances. Salaries have not been equal between the two founders. Now, the business must figure out how to repay those debts, what to do about the past discrepancy in salaries, and how to operate going forward. This involves drafting a new operating agreement, a series of promissory notes, and a schedule as to what order the debts are to be repaid. This route costs more than had the business had an attorney from early on.
Often, when business owners decide upon entity formation, they do so because “everyone has an LLC” or my cousin’s accountant advised “be an S-corp.” Neither of those are sage advice to follow. While converting isn’t expensive, the cost of converting is greater than hiring an attorney in the beginning.
While the internet is a great resource, downloading forms from google can cause problems down the road. Assume an LLC that creates mobile apps downloads an operating agreement from Google. This operating agreement is not tailored to their business. They may be downloading a template that is typically used by small manufacturing companies that make gears. Gears and mobile apps are quite different, and their respective operating agreements will be different as well. Another past client did just this: downloaded an operating agreement from Google. Fast forward a couple years, and one provision in that operating agreement gave one member much greater power than the other. That member then used those powers, and it resulted in litigation.
Additionally, attorney fees are startup are usually much less than the business owners think. Schmidt & Long, for example, discounts their fees for business startups. We were a business startup at one point too, and we know cash isn’t bountiful in the beginning. We want our business clients to succeed so that we have clients for a long time. Also, some of us are small business owners as well. While we have a different business than you, we act as advisors to help your business succeed, not just legally. We refer you to people who can help your business. We talk to others about your business. We want you to succeed.