Saturday, October 27, 2007

When is the right time for legal help?

Legal help and legal representation are two separate issues. It's never too early to speak to some lawyers for advice, but it can definitely be too early to get representation. We learned this on the go though, because very early on we wanted to incorporate and really solidify our commitment to the company. After speaking to several friends who were lawyers, they all told us it was way too early. We thought differently. So against their advice, we went to meet with potential legal representation. We met with a few high powered firms in the Valley, and they all said the same thing. We were too early. Incorporating brings a few responsibilities to a company that generally aren't worthwhile early on. The first is that you face a tax burden as soon as you incorporate. Second, if you enlist the expertise of a top firm, which I felt necessary, you will generally pay for their services, which at startup, can be significant. If you don't pay (through deferred payment deals with certain law firms), you will pay down the road when you secure financing - and at that point, the fees can be exorbitant. Either way, these costs can be a burden. Since we were bootstrapping, the $3K or so in fees would have prevented us from completing more important tasks.

As an aside, Rajiv and I both felt that Fenwick & West was the best firm we met with. They were both professional and very knowledgeable about technology, as well as excited about new opportunities.

Bottom line: when do you need to incorporate?
When you start raising money/financing.

What about options for early employees?
This can be done through contracts written up yourself - there are plenty of examples online. I would advise speaking to someone about how to structure this, what percentages to give out, etc. I have a meeting next week with an attorney friend about this. I'll follow-up with details.

What about NDA's and other legal documents?
There are plenty generic ones available for download online.

What about everything else?
Ask your friends. Find a lawyer friend of yours, ask for help, ask for recommendations to others who can help.

No comments: