Launching your own startup company takes courage, vision, creativity and determination. You have to align your business model to the needs of the market, find competent staff to execute your plans, develop a high-quality product, invest in marketing and set up a corporate network that can boost growth and revenue. Briefly, the daily planner of a startup CEO can be quite hectic. Throughout this elaborate process, it’s easy to focus solely on the development of the core product/service and lose sight of the fact that a startup is, after all, a legal entity and that all legal entities need professional support.
Although budget may be tighter in the first twelve months after the business formation and CEOs might feel the need to neglect certain departments to save money, legal services are a necessity rather than an option and continuing operations without them can pose many risks down the road.
What are the key contributions of a corporate law department?
Not all startups are the same. While some CEOs start the company with just a couple of employees, others start with a few hundred. Corporate law requirements will vary depending on the company’s field of activity, size, location and structure. In a start-up, some general tasks that the company’s legal specialist will oversee include:
– Help company founders choose the right form of business organization depending on your product, budget and long-term plans. For example, if you don’t know the difference between being the company’s sole proprietor or launching an LLC or a Corporation, the lawyer will explain what each one entails and recommend the best course of action. Moreover, the lawyer will help you separate legally from your company. This way, if your company faces debt, bankruptcy or is held liable in a court of law (if an employee suffers a work accident, for example), you as an individual will not have to suffer the legal repercussions.
– Drafting employee agreements. This is one of the areas that new CEOs most struggle with, because there are so many grey areas and details to analyze. Companies who fail to correctly classify their employees can face fines and, if you do not include confidentiality obligations and non-compete clauses in the contract, you could face bigger problems in the future.
– Making sure your premises comply with health and safety regulations. Failing to provide a duty of care for your employees can result in complicated personal injury cases, but an expert in corporate law can help you avoid them.
– Protecting the company’s intellectual property. Behind an up-and-coming business there may be a brand new, innovative product or a novelty concept that no one else has used before. This is the company’s intellectual property and it needs to be protected from any other individual or legal entity that might try to steal it. A legal expert can help business owners apply for a patent if they have developed a new concept or register the company’s logo or slogan as a trademark.
– Drafting user agreements and navigating data privacy laws. Nowadays, most businesses also have a website that clients interact with, and with the website come legal documents such as terms of service, privacy policies and user agreements. These may sound like a formality and many business owners are in fact tempted to just copy and paste them from another website, but this is very risky – especially after the recent EU General Data Protection Regulation (GDPR), which affects both member states and non-member states with EU visitors.
Corporate legal departments: budget considerations.
According to a recent study, the vast majority of startup owners fear that their companies will fail within the first five years of existence. Cash flow problems are the second reason why this happens, after the lack of a market for the company’s services, so it’s not an irrational fear and it’s normal to want to know how much of a dent hiring a legal expert will make on your budget. That depends on several factors:
- The larger the company, the larger the legal department will have to be
- Large corporations are advised to set-up an in-house legal department because they will require its services constantly, but smaller startups can hire a separate law firm only when they need it.
- Some law firms operate on a no win no fee basis. How do no win no fee solicitor agreements work? Well, just as the term suggests, the solicitor takes on a case, and, unless that case is successful, they do not charge anything for their services.
The bottom line is that it’s impossible to run a business successfully without needing sound legal advice. Even if startup owners have a plethora of process to oversee and they need to plan their budget carefully, it’s important to know the role of a legal practitioner within your organization and the difference they can make in the long run.
