Creating a startup? Hire a lawyer

by Serena Ehrlich, SVP Social Media on August 27, 2009

I had the opportunity this week to attend Docstoc’s Startups Uncensored. The 10th in the series, this one focused on legal advice for startups. The speakers were John Suh the CEO of Legal Zoom and David Young, Partner at DLA Piper.

I thought I was legal-savvy when it came to forming a startup. After all, one of the first things Startup Army did was hire an attorney. But during this one hour event, I realized I had a lot more to learn.

Some of the key points from this event (in no particular order):

1. Never use your day job’s resources to start your own business: Not only is this just a smart business practice, IP laws state that anything developed on that company’s time is owned by that company, leaving you at risk of legal action and potentially major financial penalties.

2. Use IP Contracts: Protect your business, haveyour employees and contractors sign contracts that state that anything they work on and produce while employed by your company is the ownership of the company. These contracts should be signed by everyone who works on any part of your startup. If you skip this step, you leave your company wide open for intellectual property theft.

3. Trust No One: Starting a business is frequently compared to getting married, which can lull partners into forgetting to protect themselves correctly. A good attorney (and even an accountant) can help create partnership documents and stock vesting schedules that protect both the company and it’s founders.

4. If you hire an attorney, set hourly guidelines: Attorneys by profession are supposed to be extremely thorough, which can increase the number of hours needed on a project. By setting hourly limits before they undertake a project, you can work with your lawyer to keep your legal bills down.

5. Do it yourself? Use LegalZoom? Hire an attorney? All three have individual merits – if you are savvy and enjoy reading fine print, you can do the paper work yourself via Docstoc. But more than half of those who do it themselves make a mistake. If you feel you are savvy but not perfect, LegalZoom may be an even better fit. However, if you are really unsure of the ins and outs of setting up a company, consider working with an attorney who can ensure the company is set up properly.

And those were just five of the points taken from this panel. Thanks again to Jason and the team at Docstoc for such a terrific event and for providing such an open and frank discussion about how to protect you and your startup easily and legally.