Legal Issues But No General Counsel? Practical Tips for Startups

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As a startup or emerging growth company, it will only be a short matter of time before you run into your first major legal issue. Legal issues permeate startups. If not dealt with properly, they can stifle growth or lead to major roadblocks. Having effective legal help is essential to the growth and long-term success of a startup.

The decision of whether to obtain that legal assistance by relying on outside counsel or hiring in-house lawyers can be a difficult one for emerging growth companies. The thought of hiring a full-time general counsel to handle legal issues can be overwhelming for a cash-strapped startup.

Below are some practical tips for startups and emerging growth companies that do not have a general counsel. The list highlights considerations in deciding whether it makes sense to hire an in-house lawyer, the pitfalls startups without a general counsel can fall into, and the advantages of having an outsourced general counsel in their corner.

When Does it Make Sense to Hire GC for Legal Issues?

Having a full-time general counsel working for your startup can be a huge help, yet the cost and finding an individual that is a good cultural match are important considerations.

The main factor is cost. The metric used by a startup to determine when the benefit of an in-house lawyer outweighs the cost may depend on a variety of factors. For some startups, the relevant metric may be when the legal bills exceed a certain dollar amount. For example, if the company’s legal bills exceed $300,000, it may make sense to hire a GC at a comparable salary.

Another consideration is the type of legal issues the startup is grappling with. If a startup is dealing with a number of unique issues, in addition to the typical legal issues that startups deal with such as contract and IP issues, the startup will still likely need to pay for an outside counsel to advise on specialized knowledge areas. For example, a startup might be dealing with zoning laws in a particular area. Only a small subset of specialized lawyers likely hold this discrete type of knowledge.

Legal Issues
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Finding a GC Who Fits

Startups typically look for a lawyer with between 4-10 years of work experience. The lawyer should have a solid grasp of the areas of law and legal issues that emerging growth companies frequently encounter. These include understanding employee compensation issues, intellectual property rights, data privacy regulations, corporate governance procedures, federal advertising rules, and knowing how to respond to government inquiries.

Beyond credentials, it is important to find an individual that would work well with existing team members. The individual also must be a good fit for the company’s culture. Startups are often fast-paced environments. Having a GC with the ambition and energy to move the company forward is essential.

It is also important to get a sense of the individual’s long-term goals. For a company in its early stages of growth, losing a team member can have a sizable impact. Thus, it is advisable to assess whether the lawyer will stick around for a while.

Energy is key. It is obviously critical to have a GC with a robust mastery of the law. However, a startup GC should also display a genuine passion for the company’s mission and desire to help it achieve large growth milestones. This requires a GC willing to go the extra mile and sometimes work long, odd hours.

Hiring a GC that is the wrong cultural fit may prove counterproductive. When there are few employees, every individual personality has an impact on the company’s culture and collective success.

Advantages of Having GC to Handle Legal Issues

A GC can be a strategic, long-term value proposition for a startup or emerging growth company.

When things are moving fast, having a reliable and trustworthy lawyer at the startup’s side can be invaluable. In contrast, outside counsel serve a number of clients and are not necessarily prioritizing your company’s needs.

GCs pride themselves on their ability to learn new issues quickly. Startup lawyers know that they have to pick up new knowledge at a speedy pace. They also tend to be resourceful in tapping into their network of lawyers to find answers to legal issues that are novel or outside their expertise.

For any company, risk management and compliance functions are important. Having an in-house lawyer to focus on legal compliance can prevent the company from veering too far off course.

Some business people don’t like lawyers because of their tendency to be risk-adverse. However, it is important for the startup’s long-term success to have someone say “no” occasionally and hit the brakes before the company enters too far into murky legal territory.