As the founder of a startup, you wear many hats. From developing your intellectual property, to finding the right talent to bring your vision to life, and securing crucial financial backing, there is no shortage of work to be done. But there's one role you shouldn't try to perform yourself - the role of a startup attorney. 

Many startups neglect the important foundational role that an experienced startup attorney brings to the startup lifecycle. This is precisely where the counsel of a startup attorney becomes not just beneficial, but invaluable.

Whether you're a startup in the early stages of ideation, starting to raise money, or one poised for rapid growth, strategic expansion, or even nearing a lucrative exit, retaining the services of an attorney for business startups offers an essential service to founders - and a crucial competitive advantage. 

For over 20 years, Silicon Valley Technology Law Advisors (SVTech) has served as startup attorneys, providing top-tier legal support and counsel for our clients in the technology industry at every stage of the startup lifecycle. We understand the unique challenges that startups face first-hand, as well as the unique opportunities for disruption in the fast-paced world of Silicon Valley. 

Today we'll break down the essential role of a startup attorney and discover why securing a startup lawyer consultation is not just advisable, but essential to avoid future problems and for your company's long-term success.

What Exactly is a Startup Attorney?

As a founder or key stakeholder of a startup, you may wonder why you would need to incur the expense of a startup attorney, when you have so many priorities and your budget may be tight. A startup attorney specializes in the needs of new and emerging businesses. Unlike litigation attorneys who represent clients in a court of law, startup attorneys are almost universally transactional attorneys . They focus their expertise on helping their clients through transactions including the legal process of business formation, documentation and drafting of agreements, and structuring deals and business transactions.

In essence, a startup attorney works closely in partnership with their client, helping them navigate the legal sea of business formation, identifying and solving legal problems proactively before they arise. The function of a startup attorney is to help build a strong legal foundation that is appropriate for the type of business you want to build, and where appropriate, signal to investors that you are knowledgeable. 

By working with many start-ups over time, startup attorneys have a deep understanding of the startup lifecycle. They can help you identify and avoid risks - as well as seize opportunities. 

Startup attorneys use their expertise and skills developed over time to help their clients in critical early stages with services that: 

• Establish corporate governance

• Obtain venture capital

• Protect intellectual property

• Create and manage equity plans and grants

• Adhere to employment law

• Identify and mitigate risks 

• Safeguard company assets

• Navigate complex regulations

• Negotiate and draft transactional agreements

In essence, attorneys for business startups are key strategic advisors. They help their clients establish firm legal ground from which to operate on, while enabling growth. This foundational support makes a startup attorney indispensable.

Navigating the Startup Lifecycle: A Business Startup Lawyer's Role

Now that we have a better understanding of the benefits that working with a business startup lawyer brings, we can take a closer look at their impact. 

Entity Formation - Establishing a Foundation

The initial decisions that you make with regards to how your startup is structured are critical. There are long-lasting implications for personal liability, how you are taxed, and how easily you can raise capital. Even the way disputes amongst co-founders are solved relies heavily on the initial business structure you choose. 

There are several key business formations available, and consulting with a startup lawyer early on will help you select the best formation for you. 

The most common forms of startup include:

• C-Corporations - Often the preferred business structure for large businesses, with the ability to issue different classes of stock, making it an attractive option for those seeking venture capital. They are taxed at the corporate level, and again when dividends are distributed to shareholders (known as double taxation).

• S-Corporations - Allows both profits and losses to pass-through to the personal returns of the shareholders, which avoids double taxation. Limited to 100 shareholders, who must be U.S. citizens or residents.

• LLCs - Pass through taxation similar to a sole-proprietorship or partnership, with profits and losses flowing to members personal returns. No ownership restrictions, and limits the liability of the owners, keeping their personal and business assets separate. 

Corporate Governance - Building a Business Framework

Beyond simply helping you select the best corporate structure, a business startup lawyer will also help you establish the internal rules for the company, known as corporate governance. 

Corporate governance includes drafting the corporate bylaws and operating agreements, as well as documenting how decision making is handled, the roles and responsibilities of the founders and officers, and procedures for board meetings. 

An experienced startup lawyer will help you establish these foundational documents and tailor them to your specific needs, preventing ambiguity in your organization's essential operations. 

Equity Distribution - Establishing Fair Ownership 

As the founder of a startup, you can't do it all on your own. You likely have other founders and key stakeholders helping you bring this vision to life, and each deserves equity in the company for their essential contributions. 

A business startup lawyer will help you determine how best to distribute equity among your fellow founders, as well as answer key questions like:

• Who owns what percentage of the company?

• How is equity vested (earned) over time?

• How will you create employee options to attract top talent?

• What if a founder leaves early?

• How to prevent equity dilution?

A business startup lawyer will help you answer these and other complex questions, as well as lay the groundwork for a stable, yet scalable financial future. 

Intellectual Property - Protecting Your Most Valuable Assets

Intellectual property (IP) is the lifeblood of a startup. One of the most important benefits of working with a lawyer for startups is establishing the proper legal protection for your IP.

Intellectual property includes everything about your startup, including: 

• Ideas and designs

• Code that runs your software

• Your brand name and logo

• Proprietary algorithms

• Customer lists

• Manufacturing processes

Without proper protection, your innovations are vulnerable to infringement, misuse, and even outright theft. 

A startup attorney will help you safeguard and protect these assets by establishing trademarks, and copyrights on the most crucial aspects of your business, as well as ensure that your ideas don't infringe on the IPs of others. 

A startup attorney will also set up non-disclosure agreements (NDAs) and other internal policies that ensure that all intellectual property created by employees, consultants and independent contractors are fully and legally owned by your organization, and not the individual who created it on behalf of the company. 

This is a key issue that is easily overlooked without the aid of a startup attorney.

Building Your Team - Employment Law and HR

As your company grows from its founding team to its first employees, navigating employment law becomes critical. Your startup lawyer will be able to draft essential HR documents such as:

• Offer Letters

• Employment Agreements

• Classification of employees vs independent contractors

Working with a startup lawyer early on establishes a legally sound work environment that ensures compliance with state and federal labor laws and avoids issues that can lead to costly litigation.

Do You Really Need a Start Up Attorney?

While it may seem like an expense that could be avoided among the myriad of other costs involved in establishing a startup, the consequences of skipping legal counsel can be severe. 

They include: 

• Loss of Intellectual Property - Without proper legal protection, IP is vulnerable to theft and misuse.

• Increased Litigation Risk - Lack of proper framework and policy opens you up to potential lawsuits from co-founders, misclassified employees, equity disputes, and potential IP infringement.

• Failed Funding Rounds - You may lose out on funding if investors find legal vulnerabilities in your startup or you don't have the right structure.

• Regulatory Fines - Failure to comply with data privacy laws, employment laws, and industry specific regulations can lead to massive fines and penalties. 

• Personal Liability - The wrong business formation structure can lead to personal liability for business debts and lawsuits.

• Founder Disputes/Loss of Equity - The wrong governance structure can lead to unnecessary founder disputes and equity loss to founders who leave early. 

These hidden costs can all be avoided by working with an experienced startup attorney. With everything you put into your startup's vision, it's not worth the risk of navigating the legalities of the startup world without proper guidance. 

Schedule an Initial Startup Lawyer Consultation Today

Navigating the startup lifecycle is challenging, but you don't have to do it alone. Choosing the right legal partner makes a world of difference. By establishing a relationship with a startup attorney early on in the process, you form a partnership with an experienced expert that will benefit your organization now and long into the future. 

At SVTech, we have a deep understanding of the startup lifecycle. From choosing the right form of entity, to obtaining VC funding, to protection of your valuable IP and equity, and ensuring compliance with data privacy and important regulations, SVTech is here to provide your organization with proactive legal guidance that grows alongside you.  

There is no substitute for high quality legal counsel. 

Contact SVTech today for an initial startup lawyer consultation, and let us show you the care and guidance your organization needs to stand on firm legal ground. 

Disclaimer

The information provided in this blog post is for informational purposes only and does not constitute legal advice. Please consult with a qualified attorney to address your specific legal needs.