Having the right lawyers on your team from the very start can be the difference between a thriving startup and a bankrupt business. But a full-time, in-house lawyer or legal team can be expensive. Especially if your startup doesn’t yet have enough work to keep them busy. So, when is the best time to make the jump and hire your own lawyer?
There isn’t a one-size-fits-all answer, but these considerations can help you make the right decision for your business.
Hire outside counsel when you first form your business
As soon as you’re ready to officially launch your business, it’s time to hire outside counsel. Your small-business lawyer will help you figure out the best business structure for your company, offer tax advice, and discuss intellectual property, contracts, licensing and real estate. This early legal advice is critical for your startup’s success. A wrong move here can be difficult and expensive to fix later on when you’re ready to scale or sell your startup.
Consider hiring a part-time in-house lawyer as soon as your business becomes active
For young businesses, you may not have enough work to keep a full-time lawyer busy. But hiring an in-house lawyer at least part-time can save you from major headaches down the road. Give your in-house legal counsel a seat at the table as early as possible. Their guidance on missteps to avoid, contract negotiations and proactive protections while you’re still forming and growing your startup is invaluable. Plus, it’s much easier to build your strategy around wise legal practices than to pay for mistakes and oversights months or years from now.
Hiring at least a part-time in-house lawyer also saves your startup money in other ways. If you do need outside counsel for a specific legal issue, like securing a patent, navigating a complicated leasing arrangement or protecting your IP rights, your lawyer will undoubtedly have a network of high-quality referrals for the specific outside counsel you need. Plus, they can likely help you arrange a favorable contract at a better rate than you would have received on your own. And with your in-house lawyer managing that key relationship, your internal team is freed to focus on their own roles.
There’s one more benefit to hiring your own lawyer at least part-time while your business is first launching: the creation of effective nondisclosure agreements. In order for your young company to succeed, your competitive advantage must be protected. An in-house lawyer can help draft effective NDAs that protect your trade secrets and the ideas your team and external contractors come up with. If you’re looking to scale quickly, it’s critically important to protect your new business from flimsy or unenforceable NDAs that allow employees or third parties to leak your trade secrets to the competition.
When is it time to hire a full-time general counsel?
At some point in your startup’s growth, it will become more expensive to work with your part-time in-house lawyer and outside legal consultants than it would be to have a fully available general counsel and/or legal team. Your general counsel is the chief lawyer at your startup and is head of your legal team.
A common rule of thumb is to bring in a GC around the time your startup hits 100-plus employees or is dealing with a significant volume of sales. At that time, you likely have enough daily work to keep them busy and you’re facing decisions that could have debilitating legal consequences if not handled correctly.
Your in-house counsel does more than just protect your growing startup
Hiring an in-house lawyer doesn’t just protect you from negative consequences. They can also help your startup find areas of new opportunity. For example, Airbnb wanted to expand its short-term rental services to San Francisco. At the time, the city banned any form of short-term rentals. Airbnb’s legal team was able to overturn that ban, allowing the company to expand into that high-demand market for the first time. In this situation, Airbnb’s legal team actually helped generate significant revenue for the company.
The decision to bring in strong legal support is a complicated one. Only you can decide what’s best for your business. But remember, it’s almost always cheaper to protect your growing startup than it is to pay for missteps and missed opportunities along the way.
