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Preventative Law Is A Must For All Startup Business Plans

Startup - sign 2We spend a good deal of time with both prospective and current clients, including startups, encouraging “preventative law.” And, I’ve got to tell you, that simple phrase often causes a number of blank stares. In our society we are conditioned to think that lawyers address existing problems rather than counsel before an issue becomes a problem. As we like to say: “help us help you” prevent issues from becoming problems.

We take for granted regular dental visits —we understand that the check-up dollars spent now can save us countless cavities, root canals … and … many more dollars (and pain) down the road. We take our automobiles in for regular oil changes, check-ups and tire rotations —why?  Because we understand that these routine maintenance tasks can and will save us time and money in the long run.

So, why is it that as we are considering a new business venture or off and running with our dream business idea, we do not involve legal counsel to guide us through the legal nuances of forming, starting and operating our business? Most likely because we are conditioned to believe that lawyers are expensive.  Certainly some lawyers are very expensive – but you would be surprised at how affordable quality legal advice actually is.

In his concise and timely post, Forbes’ Mark Britton identifies Seven Legal Hiccups That Can Crush Your Startup – and explains why failing to get “your legal house in order” is a chronic failure of start-ups.

Mark Britton’s 7 Legal Hiccups That Can Crush a Startup:

      1.) Choosing the Wrong Corporate Entity

     2.) Putting Off a Founders’ Agreement

     3.) Using Someone Else’s Trade Name

     4.) Failing to Protect Intellectual Property

     5.) Not Understanding Key Contracts

     6.) Failing to Comply with Federal or State Securities Laws

     7.) Not Hiring a Startup Lawyer

However, more often than not these failures persist in long-established businesses as well.  I’ve counseled multinational corporations that simply failed to do the simplest of maintenance over a period of years which led to millions of dollars in catch up, fines, and lawsuit settlements.  It all could have been avoided.  The same advice for preventative law applies to all small businesses, including startups. I recently counseled a five person startup that chose the wrong business entity for their capitalization plan and didn’t look back until it was too late.  What would have been a nominal cost turned into tens of thousands of dollars in cleanup work to avoid litigation.

Again, it seems that we are conditioned to avoid legal counsel rather than seek it out until we are faced with the legal equivalent of a root canal or major engine overhaul. So, foregoing a few legal hours “check-up” turns into a huge problem—that may or may not be easily resolved – but will cost you time and money.

For example, if you have failed to take the necessary steps to protect your intellectual property or failed to adequately investigate whether you are infringing on someone else’s intellectual property, months or years of hard work building and marketing your brand may be lost. If you have selected a form of doing business aimed at insulating your personal assets from liability but then fail to observe the necessary entity formalities, you may, in the end, face unlimited personal liability.

“Your legal strategy will never catapult your company to $1 billion in sales, but it will help you avoid tripping over some costly, easily preventable mistakes.”

– Mark Britton

Successful businesses not only start with a great idea but also adopt a strategy and philosophy for success—don’t leave legal counsel out of your startup checklist or your businesses strategic plan.

Boulder Startup Lawyers

LaszloLaw’s Boulder Startup Lawyers provide legal counsel to for-profit and non-profit businesses on a variety of business needs including startup and corporate formation, employment law, risk management, corporate protection and legal compliance. Contact us today so we can help with your business startup legal needs.


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