Sheltowee Outpost

To lawyer or not to lawyer...6 things an entrepreneur should know about using an attorney

To lawyer or not to lawyer...6 things an entrepreneur should know about using an attorney

Dec 03 2014

Companies and businesses are based on laws. And that means that lawyers are usually introduced to the process very early. One of the best things you can do is to get a good attorney. In the long run they can save you money and save your butt. The challenge for an early stage company is knowing when spend the money on an attorney and the even bigger challenge is knowing what part of their advice to take and what part to ignore.

1.  The first thing to know is that it is attorneys job to bill you as much as they can. Their business is billing clients. They don't care whether you have the money to pay them or not, they are looking to post up billable hours. I have been very blessed to have an attorney in my life who was a friend and an attorney. He has saved me tens of thousands of dollars and helped me get multiple contracts through, that would not have happened without his help.

2.  There are two types of attorneys. There are deal makers and deal breakers. The most common attorney is the deal breaker. It is much easier to point out all the reasons you should not do a deal than to point out the reasons you should do a deal. The deal makers understand that business requires deals to be done. They also understand that if you are successful, they can bill you more and this is good for both parties.

3.  Lawyers should be considered advisers, not decision makers. As the entrepreneur it is your job to take that advice and then make something happen. Remember that you will be running into more deal breaker lawyers than deal makers. So most of the time their advice is going to be overcautious and is not going to take into considerations all of the aspects of your business and your situation. Also remember, that they probably know very little about your business. To learn about your business, they are going to bill you. So it is usually too expensive for you to layout the money to have your attorney really get to know your business.

4.  They will ALWAYS mark up a document. Remember this. If you get the most fair, incredible document from the group with which you are negotiating, your attorney IS GOING to mark it up. That is what they get paid to do and that is how they justify their value. The nice thing about law is that "opinion" plays a tremendous role. So virtually all attorneys are going to interject their "opinion" into your documents to justify their billable hours.

5.  Your attorney will always want to do it the "proper way". In the ideal world as a business person you would have an excellent attorney who would help you setup you Operating Agreement, they would review every contract and document that comes through your business. They would have an intimate knowledge of your business and they would be able to see all aspects of your business. They will charge you significant dollars for the Operating Agreement. If you are going to raise money they will charge you thousands of dollars for a Private Placement Memorandum. They will bill you several hours to assist with the closing of the round. Before you even get out of the gate it will be easy for you to spend well over $50,000 in legal fees. This is just not practical for most startups. Therefore you have to be very judicial in how you spend that early money. This means that often times you will make decisions that your attorney would consider "cutting corners". One of my goals for my business is to help entrepreneurs save money on their legal fees, without exposing themselves to tremendous risk.

6.  If your business fails, they will want you to file bankruptcy. Now it may be wholly appropriate to use an attorney to file bankruptcy. If you have significant assets, then you may need to do this. But often times when a business fails there really aren't any assets. When this is the case, filing bankruptcy would likely just be putting money into the attorneys pocket. The absolute truth of bankruptcy is that the attorneys WILL get paid, and they will get paid before anyone else. Therefore, it may be appropriate to allow the business to remain in a state of limbo. If creditors bring suit against the business, as long as you have not been grossly negligent, they will not be able to pierce the veil of the business. This is a fine line, but you should not be ready to jump at bankruptcy just because an attorney tells you to. This is their go to move and it will always cost you thousands of dollars.

Remember that one of the most critical decisions you make is what attorney to hire.  In the end they can save you tremendous money, and may even keep you out of jail.  When your company is cash flowing nicely, don't be skimpy with the attorneys.  Some of the best people I know are attorneys, and great business people.  In the beginning you need to be judicious in how you use them.  And remember they are trying to get into your pocket...just like you are trying to get into your customers pocket:)

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