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Why Your Startup Needs a Good Lawyer

3p Contributor | Wednesday February 1st, 2012 | 0 Comments

By: Pricilla Burgess

This article was originally published on Sustainable Industries.

Ignore Shakespeare. Do not kill all the lawyers. You need yours in good health, walking around, and capable of keeping your business on track.

Too many people think of lawyers like a legal AAA. They only call when total disaster has struck. But that’s too late. If you are running a company you need to check in with your lawyer before you make a mistake, not afterwards. Think of your corporate lawyer as your best friend who will be there to guide you down the right path or, if you’ve got a quick mouth and quicker send finger like me, he or she will help pull you out of the morass.

Every startup needs a corporate lawyer. This is a specialized branch of the legal profession. This is not the lawyer you call for a divorce or to sue McDonalds because the coffee’s too hot. They are not your friendly neighborhood generalists who are working out of a bedroom because they just got laid off and desperately need work.

My first lawyer was Anthony Mancuso who, with his Nolo Press books, helped me with the 24-hour Delaware incorporation service. But when I started having questions, I couldn’t find his phone number.

My legal BFF is Don Reinke at ReedSmith. He specializes in startups and I suspect he’s an adrenaline junkie because there are so many ups, downs, and surprises with new companies.

I was looking for a lawyer with whom I could be comfortable, who could refer me to people – like advisors, board members, other legal specialists, and investors and who would talk me through contracts that were initially incomprehensible.

Don looks at his potential clients just like a VC would – except he can make up his mind in 48 hours, not 48 weeks or months. He calls it his M&M strategy – Management and Market. First, he’ll look at an executive summary or plan; then he sets up a meeting with the management team. If he believes in the team and the market size, he’s on board and you are one lucky person.

Don’s advice when starting a company is first and foremost: document, document, document, and then document some more. In other positions over the years I’ve learned the hard way that where money is involved, you must have written and signed agreements, so I was determined to start Bellwether Materials on the right track. Many don’t because, after all, Tom, Jane, and Charlie are my best friends. They’d never try to screw me.

Some legal issues that pop up are somewhat familiar, but others are new territory. For example, a programmer who was working as a consultant on a new software product sued the company that hired him for big bucks when the company was sold. While he was paid for his work, he didn’t have a contract and successfully claimed that he owned half of the software.

Another subtle issue can arise due to capital structure. The very nice agents in Delaware typically issue three thousand shares when they set up your company. In Silicon Valley, the typical structure is ten million shares total, five million active and five million in reserve. This doesn’t change the value of the company, it just divides it into different-sized pieces.

Here is an example of why you should discuss this with your corporate attorney:

A company had found the perfect CTO and offered him the job and five hundred shares along with salary and benefits. To the surprise of the management team, he turned them down and went with another company.

The reason? He claimed the company that hired him offered him more shares. This was indeed true — he was offered five thousand. However if you look at the capitalization structure of the two companies, the five hundred shares of the first represented 10 percent of that company; the five thousand shares represented only 5 percent of the company he went to work for.

I’m not sure why lawyers have the reputation they do. For my entire life, I have found them to be great company because they are so smart and quick, and very helpful when I needed them. I’m doing my best to set up a nice clean, transparent corporate structure to prove that a regular C Corp can be a good corporate citizen. But I couldn’t do it without Don.

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Priscilla Burgess is CEO, Co-founder, and Co-inventor of Bellwether Materials, an award-winning, triple-bottom line company that manufactures deep green building insulation made from an agricultural by-product. Before founding Bellwether Materials, she ran her own management consulting business. She has traveled all over the world, asking questions about how people work and from that, has developed several models and many opinions about the best way to grow a flourishing business.

[Image credit: Nicola Corboy, Flickr]


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