Don't waste your money on lawyers
humbledmba.com
humbledmba.com
The consultation of a good (that qualifier is important) attorney is worth every single penny. He/she will save you from making terrible mistakes like adopting the wrong corporate form, creating contracts that don't protect you and expose you to liability, signing off on contracts that you shouldn't...I could go on and on.
$9,000 is a paltry sum relative to the risk that was averted by having a professional get things done right. Yes, by all means, read up on the sites linked in the OP and exercise due diligence in understanding what you're getting yourself into, but find other places to cut your budget. Don't skimp on having good legal and good accounting. These people pay for themselves many times over.
Furthermore, if the OP spent this money prior to having code written, the bad decision was in the order the money was spent, not in the way it was spent.
On a side note, and this is really what I'm expecting the downvotes for: I question the judgement of anyone who finances their operation with credit card debt, especially a relatively small sum like $12K. If you can't save that money over time by getting slim with your personal budget, you are probably in for a world of hurt caused by an upside down balance sheet. Debt is not your friend, despite what "sophisticated" people tell you.
You should engage a lawyer for transactional work like contract review, of course. But I don't read this article as an argument for not having contracts reviewed. Rather, it's an argument for keeping your legal overhead transactional, rather than integrating a lawyer into the early planning stages of your business.
I think your comment is a bit hyperbolic.
I won't go into detail unless it's requested, but choosing the wrong corporate form cost my business a multiple of the $9K sum the OP mentions in taxes and legal fees arising from the lack of protection afforded by the right form (which was for us an S corp). If we'd done it right in the first place by shelling out the money to a good attorney, we've have saved some scratch and more importantly, time.
Bottom line, this advice is just really dangerous. The pennies saved by not consulting an attorney or by self-researching can end up being very costly, and the worst part is that you don't know what that cost is until you find yourself with a big tax bill or a liability you didn't forsee when you were trying to play lawyer.
I may be committing the sin of taking my own experience and making a rule out of it. Having been through some nastiness that could have been avoided by paying for good legal counsel makes me twitchy about this issue.
I'd like to know more about what kind of legal threat an S corp is specifically better at protecting you against. Were you a C corp before, and had a company officer problem?
You mentioned taxes. Taxes are a huge difference between company structures. But you don't need a lawyer to sort that out; you need an accountant. And you probably don't need the accountant until you have significant or prolonged revenue. Either way, the tax problem with company structures is one that every freelancer has to deal with, and most of them don't spend $9k on legal fees to work it out.
[Edit]: Part of this conversation has gone offline into email, and without putting it on HN, I'll reiterate: get client/customer/partner contracts reviewed. Nobody should argue that you should skimp on contract review.
I re-read the OP; the overall point there was to be financially prudent, e.g. don't waste money. Don't pay an attorney for work he/she doesn't need to be doing.
The counterpoint is to pay them for the work that they _need_ to be doing; but without legal knowledge it's hard to know what that threshold is. I'd encourage people to err on the side of caution and if there's any doubt at all, engage legal counsel.
Glad you have an opinion on erring on the side of caution- you've stated it - perhaps now you can answer our questions and share your story.
I think there is a time for lawyers, but it's not when you are building your first prototype. You just can't afford to throw money at problems that don't exist yet.
...not that 99.9% of people cannot be relied on to be such - but that when you expose yourself (as the internet does) to the other 0.1% you are exposing yourself to thousands of less-than-decent folks.
I would say that one scenario where you should consult a lawyer at the begfinning of a startup is if the startup engages in a sticky legal area. You know, sharing files, privacy issues, etc. (I'm just thinking off the top of my head here, there's a lot more gray legal areas out there.) How terrible would it be if you found out that your business model is basically illegal conduct?
Be aware of the changing regulatory landscape of the internet - especially in the U.S.
(I don't want to be all doom and gloom, but it's more about figuring out if the startup is worth the risk.)
This may work if you're starting out by yourself, but as soon as you involve another person you have to have contracts. Too many people I know have lost their best friends over relying on decency. When money is involved spell it out multiple times in a contract and have it reviewed. Removing any confusion early on will prevent huge headaches later.
Note that the author says to use professional services less, but does not say to completely eliminate them. The more you can learn yourself, the less "research" your lawyer has to do, saving you money.
Just like any other business, there are those out there that want to drain the entire LVA in the first month. The good ones will help you develop that relationship that helps you maximize the value you get from your attorney.
Make sure you understand how the attorney bills for services. If you're not sure, ask - "do you charge for phone calls" - "do you bill actual time or six minute increments" - "will you discount your rate if I pay early?" Get those in writing in the retainer agreement.
(As the other branch of this thread discusses, I agree that contract review is a different matter; in that case, you want someone who's familiar enough at pattern-matching to spot unusual things or possible pitfalls. But reviewing contracts proposed by other people is one specific kind of lawyer-consultation.)
Part might be a product/purchaser mismatch. I think what most people want on such issues is not purely legal advice, but integrated legal/business/technical advice, where someone who might primarily be a lawyer, but is also knowledgeable in the other areas, gives you balanced advice on how to mitigate your legal risks, within the technical and business constraints you also face. But people with such knowledge are fairly rare (and expensive), so it's more common to get very conservative legal advice that just points out that your product or service is a legal minefield (as most are).
Long story short: the average lawyer you'd hire is one who knows a fair bit about the subject matter.
Those who know me know that I started offering an equivalent online agreement (the fancy term is "virtual incorporation"), which you can check out at http://foundrs.com
I continue to recommend it to all new developers who can't go straight to a Delaware C Corp.
Sounds awesome, dude.
For what it's worth: Alain has been on HN for years promoting "Fair Software", a term of art he invented, as an alternative to incorporation. My recollection is a bit vague, but from what I can tell, the deal is that instead of incorporating, you sign up for his service and model your whole business as a "revenue share for code contribution" system, where you get paid 1099 from his company, after he collects fees.
I choose not to engage with the argument about how much more sound your equity structure is going to be with his prefab code sharing system than with an LLC or S-Corp, because structuring equity is only one of many (important) reasons to incorporate, including:
* Not losing your house over failure to perform good-faith contract obligations
* Ability to actually hire employees consistent with the laws of the state you're operating in
* Ability to invoice and be invoiced by large companies who will hang up the phone on you when you try to explain what "Fair Software" is
* Ability to acquire professional liability insurance
And, whatever you may think about the structure he proposes, it obviously doesn't respond to the question of how much legal help you need to start a company.
Is there? Sure. But your lack of experience and knowledge on the topic could still lead you to electrocuting yourself. Similarly, so could hiring a bad electrician. But the safer bet is with the man whose trade is in working with electric and wiring.
And when financial liability, your livelihood, and matters of the law are on the line, the safer bet is with the man whose trade is in the law.
I knocked the passenger side mirror off of my car on a pole. $30 and some time later, I had a new mirror installed.
Conversely, I had a power window motor burn out and seize up while the window was going down. I was able to get the door panel off, but all the bolts to remove the motor/window assembly were on the inside of the door. I had the directions and the knowledge to continue to remove the door and remove the motor, but I did not feel capable and I didn't really have the tools to properly proceed. Failure meant a bunch of broken glass in my drive way, or worse my car would only have three doors. So I took it to a mechanic and he fixed it in an afternoon.
To reapply all of this to the topic: some legal stuff you can handle if you have the knowledge and feel equipped to move forward. Privacy policies are a good example, as would be government regulations like CAN-SPAM, which are pretty well documented and explained. But as matters of legality grow in scope: articles of incorporation, anything tax related, or something like the DMCA, I personally would not continue without legal council.
So under every comment box, every I like it button, every photo upload there's a "I hereby grant permission to share my opinion with this site. View privacy policy".
Doing a startup? Talk to attorneys who specialize in this kind of thing. When I was just thinking about doing a startup I met with some folks at Orrick (big, big firm) who offered to do the first 10k in services for a small equity stake. An offer like this could have saved the authors ass. They also know everyone who means anything and are a great way to meet the right folks. If they introduce you to your first angel wouldn't it be worth it?
http://en.wikipedia.org/wiki/Sosumi
Agree. In business you will never have enough money or time to do everything right. There are risks in business and managing those risks is a skill that is learned over time. And decisions that need to be made are not digital they are analog in nature. They depend on many factors and different circumstances. Lawyers don't give business advice and everything they do is colored by the bias and fears they have.
In general lawyers are going to be CYA about everything like you mother and father.
Many successful business people and companies play loose and fast and, after making enough money, are able to dig themselves out of any mess they have made or risk they have taken (BP and Exxon are just two examples. And Apple). It all depends.
Recommendations? That'll only work so far.
Price? Indirect indicator.
If I don't know much about the relevant law myself, then how would I know if he's any good? If I have to take the time to educate myself, then again I'll be doing his work.
This sort of legal stuff like setting up a company isn't exactly rocket science; it's a form of administration practiced against commonly known rules and the idea is not to deviate too much from what everyone else is doing to play safe. It's something that could, probably for 90% of cases, be done by some sort of a Create Company wizard tool that yields legally sensible outcomes. There are only so many legally relevant configurations of a new startup.
To paraphrase our professor on criminal law, if you stop to think about it, it's actually impossible to get through the day without breaking the law.
Lawyers will usually adopt a better safe than sorry attitude. At a startup, this might not be exactly what you want.
Second, great laywers are just like great programmers, not that easy to find and qualify.
The comments that have been posted so far lead me to believe no one actually read the full post. He's not trying to tell people lawyers are all a waste of money.