Four Benefits of getting good legal advice when starting a business – Corporate Attorneys Orange County California

Written by: Andrew Gale - Orange County - Small Business Attorney

As Orange County California Corporate Attorneys, we would observe that entrepreneurs who are starting a business for the first time often treat it just like a first date; inasmuch as the whole world looks full of promise to them and they feel they can achieve just about anything. After all, what could possibly go wrong?

In those beginning heady days, they feel that they and their new business partners can weather whatever the world throws at them. The difficulties that arise however are the same as with all relationships, there will be problems, no matter how hard they try to avoid them.

Corporate Lawyers Orange County – 4 Benefits of Good Legal Advice When Starting a Company Video

If this sounds familiar to you, we would counsel you to think about it this way. It’s how you and your partners prepare for and solve those inevitable problems that count.

One of the most common and basic problems a lot of new startups face is, getting agreements in writing. After all, you get on well with your partners so it can be done later, right? Wrong.  Later will be too late.

As most corporate lawyers in Orange County California know from long experience of dealing with the problems, when everything is smooth sailing, is the time to get those incorporation documents in order.  As everyone is really enthusiastic about this new business venture, it will be much easier to outline and document each party’s roles and obligations.

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Entrepreneurs think that they just want simple forms to get over hurdles. Where really what they are looking for is ADVICE… When they go to internet providers since there are not usually very many options to choose from They think that the advice is limited to JUST those options, this is often not the case at all – Corporate Attorneys Orange County California

You all know what type of business you are creating, how you want it to grow, what type of funding you need, the percentage of ownership you will each get, etc. Getting these in writing at the beginning of your venture may seem unnecessary and you might feel that you don’t have the time or it will interfere with getting the new venture off the ground.  In reality, it has been found that those businesses that make use of a corporate lawyer to get their documentation in order at the beginning have a significantly better probability of succeeding than those that don’t.

We have been supporting small and large business corporations as corporate lawyers practicing primarily in Orange County California for many years and have seen many examples of this play out repeatedly.

No matter how much you all agree now, there will be times when differences of opinion arise along with ambiguity over what was agreed in the beginning. Not only that but having those crucial articles of incorporation and corporate records in place will help you all plan for future events such as changes in the companies principles, buyout clauses, sources of funding, allocation of shares, and even what to do if the company closes its doors forever.  Getting these types of things in writing, in the beginning, will save a lot of time, money, and heartache later.

Whether you are a business in Orange County California or any other location in the U.S. you would be smart to learn from other people’s mistakes. Corporate Lawyers are by definition in a unique position to see the common mistakes businesses make and how they could have been avoided, to begin with.

Start your Corporate Records Management Process before Accruing Debt or Even Transacting

These documents should be drawn up as early and as quickly as possible – before you even start transacting business if possible, and definitely before you take on any kind of debt.  The longer you leave it and the more the company grows and gains value, the harder it is to make unemotional, logical decisions.  It is always better to make decisions regarding finance when everyone is on an equal footing.

Many owners attest to the fact that when they sold their businesses, having solid agreements between the business owners and or founders made the corporate transition much easier.  Not only that, but they all attest to the fact that having solid agreements, in the form of corporate or partnership documents in place, improves the day-to-day operation of their companies.

An entrepreneur who uses a lawyer at the very early stages of getting their business started has a much higher likelihood of success in their business than those who do not.

When owners and employees know what is expected of them, what their responsibilities are, and what value of ownership they have, they tend to be not only more loyal but will be more committed to their jobs and work harder.  It should also come as no surprise that having clear incorporation documentation in place prevents all sorts of legal disputes such as when there are lower than expected sale proceeds for example. Legal disputes such as this can not only cost you financially but could also cost you through hurt feelings, ruined reputation, and destroyed friendships.

Good Incorporation and Corporate Records Play a Significant Role when Seeking External Funding

One ugly problem that often arises is seeking outside financing.  If your incorporation or partnership documents have not been drawn up properly, you may have a significant problem because of trying to get outside funding. Whether through a bank or venture capitalist, without the correct documentation, getting funding will be very difficult. This is because banks and investors always require good, well-drafted incorporation and other foundational documents. This will be even more so if one founder or partner is furnishing a large amount of the upfront capital. If this is the case, it is doubly important that you get a corporate lawyer to review your articles of incorporation.

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When you get to the point of looking to add money into the business, banks and private equity investors always require good, well-drafted incorporation and other foundational documents – Corporate Attorneys Orange County California

 

If your outside financing is through venture capitalists, for example, they will always want to see that your corporate records and incorporation documents are accurate and complete. Especially, if they want part of your corporation (and they usually do) by being issued shares and becoming a shareholder.  This means they become one of the owners. It also means that if your documents are not water-tight, and if the company is eventually sold for instance, you could end up losing your control over the company or even limiting the amount of profit to which you are entitled.

Many companies who go into financial negotiations with third-party finance services firms become vulnerable without the correct corporate documents.  These firms are often proficient at making deals that will work to their benefit, not the business owners.

You can of course always acquire an ‘off the shelf’ set of incorporation documents and it will cost around $100 to $200. Conversely, an experienced corporate lawyer’s services will usually start at around $1500.  Keep in mind though that these ready-to-go documents are written with a ‘one size fits all’ philosophy which often falls short of doing a good job for the company.  There is also the very real possibility that there might be a large loophole through which anyone with a ‘real’ lawyer can exploit.  Investing in a good corporate lawyer at the very start of your company will be worth every penny invested.

Another reason to get yourself a good lawyer is the options available to you. Unfortunately, these one size fits all legal documents, and the websites they can be found on, give a very limited view of the corporate legal world.  By going to these sites, you are seeing only a very small proportion of the options that are actually available. Corporate lawyers on the other hand are trained in ALL aspects of legal business documents so they will often have options the new business owner didn’t even know existed.

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It normally costs twice as much to fix a problem than it does to prevent the problem. In other words, it will cost far more to fix improperly created incorporation and corporate records than it does to get the documents right from the start – Corporate Attorneys Orange County California

 

51% of Companies Sidestep Legal Counsel, even though it’s their Biggest Risk

RocketLawyer, the web-based legal services company, did a survey in 2010 in which 1,000 small businesses were asked about the legal services they used.  51% said they had sidestepped looking for legal counsel because of the cost and a staggering 25% said that legal issues were probably the most significant risk their companies had and yet they still avoided getting a ‘real’ lawyer.

Entrepreneurs are usually so busy getting their small business up and running they give no thought to the fact that they may be a big company one day. A number of owners of large businesses have admitted that in the beginning they did it all themselves but have also admitted that every time they have started their business without the assistance of good professional services it always comes back to haunt them.

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You can’t be a CEO, a COO, and a CTO and a lawyer, all at the same time! Legal work is one of the easiest things to outsource for an entrepreneur – Corporate Attorneys Orange County California

One thing entrepreneurs have to keep in mind though is that legal work is one of the easiest things to outsource.  You can’t be a CEO, COO, and CTO at the same time as you are trying to be your own lawyer.  It’s much smarter to go outside your company and find someone who you can have a legal relationship with and that you can trust, someone from whom you can get good solid advice and with whom you can have confidence.

When you are looking for a lawyer you will find that there are many who are willing to work with entrepreneurs financially.  They can negotiate a payment plan for instance and some will even defer billing until your financing is in place. You can always use a standard business organization layout, NDA (non-disclosure agreement), and other standard agreements to save you billable hours.

What do you do if your product or service is actually ‘intellectual property’? If you do not have clear agreements with all the owners and employees as to what constitutes ‘intellectual property’ and who that property actually belongs to, you could end up losing everything you thought you owned, along with your whole business.  In this case you want clear ownership agreements and you really need the services of a corporate lawyer to review any and all ownership agreements for intellectual property so as to prevent any disputes. This will also protect the business from violating other people’s rights as well as disputes between the business owners.

Again, there are a number of ways to protect yourself, your company and the other owners. As an example, intellectual property rights could be held in the name of an LLC (limited liability Company) which could be co-owned by all the founders of the business.  The property rights could then be leased to the actual operating business that is a C Corporation.  This way the C Corporation remains free to do business while the LLC bears the brunt of any claims made against the patents intellectual property.

What about patent applications?  This can be covered with employee employment contracts with the addition of a ‘Proprietary Information Agreement’.  One excellent way to use this would be to get the new employee to list any and all inventions that were created by them before they joined the company. You then have a very clear picture of what has been invented; and, therefore, what your company owns after the employee joins.  If you also throw into the mix of non-disclosure agreements with employees and new business partners, you have a clear indication of where you stand if your patents or intellectual property are threatened.

Incorporation Attorneys are Corporate Lawyers practicing in Orange County California. If you have a question call +1 (714) 634-4838 or complete or complete our simple content form.  I have a question for Corporate Lawyers Orange County California, please contact me.

Corporate Lawyers Orange County – 4 Benefits of Good Legal Advice When Starting a Company