When Should Your Startup Hire a Full-Time Lawyer?
Psst… it may be sooner than you think.
Photo: ColorJoy Stock
Because an in-house legal department is commonly viewed as a “cost center” and not a “revenue generator,” startups are often advised that the answer to the question of “when should we hire an in-house counsel” is best answered by running a straightforward cost-benefit analysis. When that exercise demonstrates that the legal fees paid to outside counsel are greater than the cost of adding a lawyer to a company’s payroll, then it is time to bring on a lawyer to work in-house.
While this approach is appealing in its simplicity, it fails to account for a big portion of the value that an in-house lawyer (and ultimately, a legal team) can bring to a young company, the value that may be difficult to quantify. The right in-house counsel can be a strategic partner and a huge asset to a growing business. Here’s how to tell when you should bring on a full-time lawyer.
Save Yourself Headaches and Money, and Hire In-House Counsel Early On
Once the legal structure of a company (LLC, Corporation, Partnership, etc.) has been set up and the basic legal requirements for doing business have been met, many startup founders think of lawyers only as “clean-up crews:” people reluctantly hired from time to time when there’s a problem.
In fact, until confronted by a lawsuit or government investigation, many founders tend to view lawyers as obstacles to progress—people who are always telling you what you can’t do—and to want to avoid them for that reason. But lawyers can also provide useful perspectives to a founder strategizing how the company can achieve its goals while avoiding expensive pitfalls.
A good lawyer has been trained to anticipate issues that might arise and will put in place the safeguards that can help a company avoid those problems. Like the old adage, “a stitch in time saves nine,” this way of working obviously helps a company avoid extremely costly mistakes.
Learn From the Mistakes of Others, and Consult Legal Counsel Proactively
Protecting your business early on can save you 10x, 20x, or even 30x in legal fees if you have to hire legal counsel to clean up a mess. In Season four of HBO’s series “Silicon Valley,” an entire episode (“Terms of Service”) was constructed around a character’s failure to comply with the FTC’s Children’s Online Privacy Protection Rule (“COPPA”), estimating that that mistake—made without even realizing that a lawyer should have been consulted—left the company, Pied Piper, potentially liable for $21 billion in fines.
A quick consultation with a lawyer could have saved a lot of angst, even if it would have ruined the episode. As far-fetched as this scenario might be, it is unquestionably true that a lawyer can save a company money by minimizing its exposure to regulatory fines, along with lessening the likelihood of costly lawsuits and making sure the company’s intellectual property, reputation, and other valuable company assets are well protected—all of which add enormously to a company’s success.
Unfortunately, since these benefits represent savings that are difficult to quantify, they are not so easy to plug into a cost-benefit analysis, but that doesn’t make them any less important than the sum of all those law firm invoices.
“Can’t I Just Use Outside Counsel Instead of Hiring a Lawyer In-House?”
While outside counsel can certainly provide legal services, without context, a founder may miss the right opportunity to reach out for help (since you don’t know what you don’t know!). Even if you do think legal counsel would be helpful, the prospect of facing expensive legal fees may deter your from making the call until a concrete issue presents itself.
Giving an in-house lawyer a seat at the table early in a company’s development can mean fewer unpleasant surprises down the road. It can have other benefits as well, such as devising a strategy for utilizing outside law firms and judging when the most cost-effective choice is to consult outside legal experts, for example, to advise with respect to a specialized area of the law such as patent and other intellectual property matters, First Amendment issues, SEC regulations and the like.
When it is determined that outside counsel needs to be consulted, the in-house counsel team can manage that relationship, including negotiating legal fee rates and reviewing bills. If done right, this can also save a company money. Not only that, it will free up the team member who is currently managing outside counsel, which again can lead to cost savings or even revenue growth if that team member’s responsibility is normally to generate revenue for the company.
“While outside counsel can certainly provide legal services, without context, a founder may miss the right opportunity to reach out for help (since you don’t know what you don’t know!).”
—Amy Rowland, Founder of Varia Search
About the Author: Amy Rowland is the founder of Varia Search, a boutique legal recruiting firm that uses a bespoke approach to fill legal department roles. Prior to starting Varia Search, Amy was a recruiter at another legal search firm where she focused on recruiting for in-house legal positions. She has also held in-house roles at two international companies and a large New York City law firm.
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Read This Before You Sign That Contract, Advises an Attorney
Don’t pick up your pen just yet.
Photo: Vlada Karpovich from Pexels
The Professional: Mary C. G. Kaufman, Attorney in Los Angeles, CA
The ladies over at Create & Cultivate asked if I could write a column providing some basic and general advice regarding contracts. I thought this was an excellent idea given that many otherwise accomplished creative entrepreneurs lack experience with negotiating and understanding contracts.
So first, some not necessarily legal advice: There’s always room for negotiation. Take a cue from Cher Horowitz in “Clueless”—even bad grades are negotiable. Until it’s signed, the terms of a deal are not set in stone just because someone sent you over a proposed agreement. For example, maybe there’s no wiggle room in raising your fee, but can the other side give you units of product, a discount for their goods, a special credit, or something else besides cold hard cash? There’s no harm in asking. Think about creative ways to benefit from the deal, even if you can’t get more money. As always, this is a do-your-research and know-your-audience situation.
Second, familiarize yourself with a few oft-overlooked standard legal provisions that can make a big difference. Let’s get into a few of them.
Indemnity Clauses
In short, these allow parties to seek reimbursements or damages for certain conduct or occurrences. For example, if you are creating content (i.e. an Instagram takeover) for someone else, that party may want reimbursement from you in the event that the content you created causes them to be involved in a copyright infringement lawsuit. These clauses can be mutual (going both ways) or unilateral (just going to one party).
Arbitration Provisions
These authorize a private judge to determine a dispute between the parties. Meaning, instead of going to court, the case could be mediated by a private judge instead. Arbitration has pros and cons. For example, it can be more expensive to go with a private judge, as you will be paying for the judge’s time (outside of arbitration, you are merely paying filing fees), however, it can be quicker and the dispute will not necessarily be made public (normally, all filings in a lawsuit are a matter of public record).
Forum Selection & Choice of Law Clauses
These determine where and which laws will apply to any disputes. Say, you’re in California but the company you’re working with is based in Texas, this clause would determine which state law would apply and where any disputes will be handled. Generally, you would want to have your state’s law apply and be able to handle any disputes in a place that is easily accessible to you to keep costs down. However, there may be reasons that you would want another state’s law to apply. For example, California law prohibits employers from using non-compete clauses for employees.
Integration Clauses
These make any pre-contract discussions irrelevant if the contract outlines different terms. For example, say that during negotiations, there was some discussion that you would be paid extra for any work you did on weekends. However, the contract simply states one standard rate. The integration clause would prevent those prior discussions from being considered by a judge if there was a dispute that went to court.
If you find yourself lost in legal jargon, make sure to do your research on the web, or even grab a book that introduces you to basic contract provisions. And better yet, if you can, consult a lawyer. Fees to have a professional look over a contract range, but it may be worth looking into, especially for big jobs. These are just a few types of clauses that are often overlooked by non-lawyers, but as I see every day in my work, they can have big consequences when you get into a dispute. Bottom line: Know what you’re signing, even if you think it’s not important!
Finally, if you’re not completely comfortable with the agreement, then don’t sign it. Always know what you’re getting yourself into, and never be too intimidated to ask questions (or if you are, send your question to us)! A good contract should spell out exactly what is expected of both parties (deliverables, deadlines, usage rights, etc.) and will protect both sides in the event of a dispute.
About the Author: Mary C.G. Kaufman is an attorney based in Los Angeles, CA, counseling clients in the entertainment, fashion, and financial industries, and occasionally translating Legalese for Create & Cultivate. She handles a wide range of strategic and commercial legal matters for clients including emerging companies and notable social media personalities. On her off-days, she likes to garden, find the best workout classes on Classpass, and cook Sunday suppers for friends. Get more info on Mary here.
This story was originally published on March 3, 2019, and has since been updated.
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Ask an Expert: 5 Things a Lawyer Wants You to Know About Force Majeure Clauses and COVID-19
Can you get out of a contract RN?
We’ve been spending a lot of time at Create & Cultivate HQ discussing how we can best show up for and support our community during this uncertain time. Community is at our core, and connecting with others through one-of-a-kind experiences is what we love to do. While the world has changed, our mission has not. We’re committed to helping women create and cultivate the career of their dreams, which is why we’re proud to announce our new Ask an Expert series. We’re hosting discussions with experts, mentors, and influencers daily at 9 am, 12 pm, and 3 pm PST on Instagram Live to cure your craving for community and bring you the expert advice you’ve come to know and love from C&C. Follow Create & Cultivate on Instagram, check out our Ask an Expert highlight reel for the latest schedule, and hit the countdown to get a reminder so you don’t miss out!
Photo: Courtesy of Jamie Lieberman
Not to state the obvious, but talking to a lawyer can be intimidating. Between tracking down the right lawyer, budgeting for a consultation, and knowing which questions you need to ask, seeking out legal counsel can be daunting for a lot of small business owners. With that in mind—and given these unprecedented times—we asked an attorney to answer all your burning questions about force majeure contract clauses in the wake of the COVID-19 pandemic.
In this installment of our Instagram Live series, Ask an Expert, we tapped Jamie Lieberman, a seasoned attorney and the founder of Hashtag Legal, to discuss everything you need to know about force majeure clauses right now. Read on for five things you should know about getting out of a contract due to unforeseeable circumstances. If you missed the conversation, you can watch it in full here, and be sure to tune into our next Ask an Expert conversation on Instagram Live.
1. First things first, what is a force majeure clause anyway?
“It is a clause that’s written into many contracts that allows a contract to be canceled or postponed due to impossibility performance, which can be caused by things like natural disasters, strikes/riots, or ‘acts of God.’ Things that make it impossible for people to perform their obligations.”
2. What exactly is considered an act of God by a force majeure clause?
“Usually, an act of God includes natural disasters; hurricanes, floods, tornadoes. Illness is not always in the definition of force majeure. If you have a contract that you’re not sure about, you check whether or not there’s a force majeure clause in it and how it’s defined. Some contracts allow for cancellation and some just allow for postponement.”
3. What if I don’t have a force majeure clause in my contract?
“There are a number of ways you can be protected whether or not you have force majeure in your contract. If the purpose of the contracts is frustrated, meaning there’s no way for you to do it, you can be protected by the doctrine of impossibility or impracticability. If you can’t perform your contract, have that conversation with your client and see what you can do to postpone. Have a negotiation, have a conversation.”
4. What can I do if someone is trying to get out of a contract and I don't have a lawyer?
“Have the difficult conversations—don’t avoid them. Start negotiating and try to make new agreements so that you can move forward and both parties are protected. The worst thing you can do is avoid having these conversations.”
5. Do I need a contract?
“If there is anything of value being exchanged, whether it’s money, goods, or services, having a contract is a best practice. Contracts are meant to protect both parties—they’re not designed to favor one party or the other. And if you have everything in writing, you know what will happen in the event of something like the COVID-19 outbreak.”
About the Expert: Jamie Lieberman, owner and founder of Hashtag Legal has been a practicing lawyer for nearly 15 years. As an experienced entrepreneur, Jamie understands the unique needs of business owners at different stages in their organization’s growth. She has a deep commitment to making legal accessible and regularly speaks about legal matters, the art of negotiation and entrepreneurial topics at events such as Alt Summit, Podcast Movement, and FinCon and as an expert source for media like Digiday and Forbes. You can also catch her as a co-host on The FearLess Business Podcast.
Tune in daily at 9 am, 12 pm, and 3 pm PST, for new installments of Ask an Expert.
Follow Create & Cultivate on Instagram, check out our Ask an Expert highlight reel for the schedule, and hit the countdown to get a reminder so you don’t miss out. See you there!